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Introduction The rental assistance programs authorized under Section 8 of the United States Housing Act of 1937 (42 U.S.C. §1437f)—Section 8 project-based rental assistance and Section 8 tenant-based vouchers—have become the largest components of the Department of Housing and Urban Development's (HUD) budget, with combined appropriations of $27 billion in FY2013. The rising cost of providing rental assistance is due, in varying degrees, to expansions in the program, the cost of renewing expiring long-term contracts, and rising costs in housing markets across the country. The most rapid cost increases have been seen in the voucher program. Partly out of concern about cost increases, and partly in response to the administrative complexity of the current program, there have been calls for reform of the voucher program and its funding each year since 2002. In response, Congress has enacted changes to the way that it funds the voucher program and the way that PHAs receive their funding. Congress has considered program reforms, but has not enacted them. In order to understand why the program has become so expensive and why reforms are being considered, it is first important to understand the mechanics of the program and its history. This paper will provide an overview of the Section 8 programs and their history. For more information, see CRS Report RL33929, The Section 8 Voucher Renewal Funding Formula: Changes in Appropriations Acts ; CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals ; and CRS Report R41182, Preservation of HUD-Assisted Housing , by [author name scrubbed] and [author name scrubbed]. Background Information From 1937 until 1965, public housing and the subsidized mortgage insurance programs of the Federal Housing Administration (FHA) were the country's main forms of federal housing assistance. As problems with the public housing and other bricks and mortar federal housing construction programs (such as Section 235 and Section 236 of the National Housing Act) arose—particularly their high cost—interest grew in alternative forms of housing assistance. In 1965, a new approach was adopted (P.L. 89-117). The Section 23 program assisted low-income families residing in leased housing by permitting a public housing authority (PHA) to lease existing housing units in the private market and sublease them to low-income and very low-income families at below-market rents. However, the Section 23 program did not ameliorate the growing problems with HUD's housing construction programs and interest remained in developing and testing new approaches. The Experimental Housing Allowance Program is one example of such an alternative approach. Due to criticisms about cost, profiteering, and slumlord practices in federal housing programs, President Nixon declared a moratorium on all existing federal housing programs, including Section 23, in 1973. During the moratorium, HUD revised the Section 23 program and sought to make it the main assisted housing program of the federal government. However, at the same time, Congress was considering several options for restructuring subsidized housing programs. After all the debates and discussions that typically precede the passage of authorizing legislation were completed, Congress voted in favor of a new leased housing approach, and the Section 8 program was created. Early Section 8 The Section 8 program is named for Section 8 of the United States Housing Act of 1937. The original program, established by the Housing and Community Development Act of 1974 ( P.L. 93-383 ), consisted of three parts: new construction, substantial rehabilitation, and existing housing certificates. The 1974 Act and the creation of Section 8 effectively ended the Nixon moratorium. In 1978, the moderate rehabilitation component of the program was added, but it has not been funded since 1989. In 1983, the new construction and substantial rehabilitation portions of the program were repealed, and a new component—Section 8 vouchers—was added. In 1998, existing housing certificates were merged with and converted to vouchers. New Construction and Substantial Rehabilitation Under the new construction and substantial rehabilitation components of the early Section 8 program, HUD entered into long-term (20- or 40-year) contracts with private for-profit, non-profit, or public organizations that were willing to construct new units or rehabilitate older ones to house low- and very low-income tenants. Under those contracts, HUD agreed to make assistance payments toward each unit for the duration of the contract. Those assistance payments were subsidies that allowed tenants residing in the units to pay 25% (later raised to 30%) of their adjusted income as rent. The program was responsible for the construction and rehabilitation of a large number of units. Over 1.2 million units of housing with Section 8 contracts that originated under the new construction and substantial rehabilitation program still receive payments today. By the early 1980s, because of the rising costs of rent and construction, the amount of budget authority needed for the Section 8 rental assistance program had been steadily increasing while the number of units produced in a year had been decreasing. At the same time, studies emerged showing that providing subsidies for use in newly constructed or substantially rehabilitated housing was more expensive than the cost of providing subsidies in existing units of housing. Also, because contracts were written for such long terms, appropriators had to provide large amounts of budget authority each time they funded a new contract (see below for an illustration of the implication of long-term contracts). As the budget deficit grew, Members of Congress became concerned with the high costs associated with Section 8 new construction and substantial rehabilitation, and these segments of the Section 8 program were repealed in the Housing and Urban-Rural Recovery Act of 1983 ( P.L. 98-181 ). Moderate Rehabilitation The Housing and Community Development Amendments of 1978 ( P.L. 95-557 ) added the moderate rehabilitation component to the Section 8 program, which expanded Section 8 rental assistance to projects that were in need of repairs costing at least $1,000 per unit to make the housing decent, safe, and sanitary. Over the next 10 years, however, this component of the program was fraught with allegations of abuse; the process of awarding contracts was considered unfair and politicized. Calls for reform of the moderate rehabilitation program led to its suspension. It has not been funded since 1989. Existing Housing Certificates The existing housing certificate component of the Section 8 program was created in the beginning of the Section 8 program and continued until 1998. Under the existing housing certificate program, PHAs and HUD would enter into an Annual Contributions Contract (ACC) for the number of units that would be available to receive assistance. Contracts were originally written for five years and were renewable, at HUD's discretion, for up to 15 years. In the contract, HUD agreed to pay the difference between the tenant's rental payment and the contract rent of a unit. The contract rent was generally limited to the HUD-set Fair Market Rent (FMR) for the area. After entering into a contract with HUD, PHAs would advertise the availability of certificates for low-income tenants. The existing housing certificate program was primarily tenant-based, meaning that the assistance was attached to the tenant. Families selected to receive assistance were given certificates as proof of eligibility for the program; with their certificates, families could look for suitable housing in the private market. Housing was considered suitable if it rented for the FMR or less and met Housing Quality Standards (HQS). Once the household found a unit, they signed a lease and agreed to pay 30% of their adjusted income for rent. The remainder of the rent was paid by HUD to the landlord on behalf of the tenant. If a family vacated a unit in violation of the lease, HUD had to make rental payments to the landlord for the remainder of the month in which the family vacated, and pay 80% of the contract rent for an additional month. If the family left the unit at the end of their lease, they could take their certificate with them and use it for their next home. HUD also paid the PHA an administrative fee for managing the program. The amount of this administrative fee was set by Congress in appropriations legislation each year. PHAs were permitted to use up to 15% of their Section 8 certificates for project-based housing. In project-based Section 8 existing housing, the subsidy was attached to the unit, which was selected by the PHA, and not to the tenant. This meant that when a tenant vacated a unit, another eligible tenant would be able to occupy it, and HUD would subsidize the rent as long as a contract was in effect between the PHA and the owner. In 1998, the Quality Housing and Work Opportunity Reconciliation Act (QHWRA) ( P.L. 105-276 ) merged the Section 8 existing housing certificate program with the voucher program (see below) and converted all certificates to vouchers, effectively ending the Section 8 existing housing certificate program. The Voucher Program The largest component of today's Section 8 program, the voucher program, was first authorized by the Housing and Urban-Rural Recovery Act of 1983 ( P.L. 98-181 ). It was originally a demonstration program, but was made permanent in 1988. Like the Section 8 existing housing certificate program, the voucher program is administered by PHAs and is tenant-based, with a project-based component. However, under the voucher program, families can pay more of their incomes toward rent and lease apartments with rents higher than FMR. Today's Section 8 Programs Today's Section 8 program is really two programs, which, combined, serve almost 3.5 million households. Section 8 Project-Based Rental Assistance The first program under Section 8 can be characterized as Section 8 project-based rental assistance. This program includes units created under the new construction, substantial rehabilitation, and moderate rehabilitation components of the earlier Section 8 program that are still under contract with HUD. Although no new construction, substantial rehabilitation, or moderate rehabilitation contracts have been created for a number of years, about 1.3 million of these units are still funded under multiyear contracts that have not yet expired and do not require any new appropriations, or multiyear contracts that had expired and are renewed annually, requiring new appropriations. Families that live in Section 8 project-based units pay 30% of their incomes toward rent. In order to be eligible, families must be low-income; however, at least 40% of all units that become available each year must be rented to extremely low-income families. If a family leaves the unit, the owner will continue to receive payments as long as he or she can move another eligible family into the unit. Owners of properties with project-based Section 8 rental assistance receive a subsidy from HUD, called a Housing Assistance Payment (HAP). HAP payments are equal to the difference between the tenant's payments (30% of income) and a contract rent, which is agreed to between HUD and the landlord. Contract rents are meant to be comparable to rents in the local market, and are typically adjusted annually by an inflation factor established by HUD or on the basis of the project's operating costs. Project-based Section 8 contracts are managed by contract administrators. While some HUD regional offices still serve as contract administrators, the Department's goal is to contract the function out entirely to outside entities, including state housing finance agencies, PHAs, or private entities. When project-based HAP contracts expire, the landlord can choose to either renew the contract with HUD for up to five years at a time (subject to annual appropriations) or convert the units to market rate. In some cases, landlords can choose to "opt-out" of Section 8 contracts early. When an owners terminates an HAP contract with HUD, either through opt-out or expiration—the tenants in the building are provided with enhanced vouchers designed to allow them to stay in their unit (see discussion of " Tenant Protection or Enhanced Vouchers " below). In 2010, about 51% of the households that lived in project-based Section 8 units were headed by persons who were elderly, about 17% were headed by persons who were non-elderly disabled, and about 33% were headed by persons who were not elderly and not disabled. The median income of households living in project-based Section 8 units was a little more than $10,000 per year. Section 8 Tenant-Based Housing Choice Vouchers When QHWRA merged the voucher and certificate programs in 1998, it renamed the voucher component of the Section 8 program the Housing Choice Voucher program. The voucher program is funded in HUD's budget through the tenant-based rental assistance account. The federal government currently funds more than 2 million Section 8 Housing Choice Vouchers. PHAs administer the program and receive an annual budget from HUD. Each has a fixed number of vouchers that they are permitted to administer and they are paid administrative fees. Vouchers are tenant-based in nature, meaning that the subsidy is tied to the family, rather than to a unit of housing. In order to be eligible, a family must be very low-income (50% or below area median income (AMI)), although 75% of all vouchers must be given to extremely low-income families (30% or below AMI). To illustrate the regional variation in these definitions of low-income and their relationship to federal definitions of poverty, Table 4 compares HUD's income definitions to the Department of Health and Human Services (HHS) poverty guidelines for several geographic areas in 2013. Note that HHS poverty guidelines are uniform in all parts of the country (except for Alaska and Hawaii, not shown in the following table). Families who receive vouchers use them to subsidize their rents in private market apartments. Once an eligible family receives an available voucher, the family must find an eligible unit. In order to be eligible, a unit must meet minimum housing quality standards (HQS) and cost less than 40% of the family's income plus the HAP paid by the PHA. The HAP paid by the PHA for tenant-based vouchers, like the HAP paid for Section 8 project-based rental assistance, is capped; however, with tenant-based vouchers, PHAs have the flexibility to set their caps anywhere between 90% and 110% of FMR (up to 120% FMR with prior HUD approval). The cap set by the PHA is called the payment standard. Once a family finds an eligible unit, the family signs a contract with HUD, and both HUD and the family sign contracts with the landlord. The PHA will pay the HAP (the payment standard minus 30% of the family's income), and the family will pay the difference between the HAP and the rent (which must total between 30% and 40% of the family's income). After the first year, a family can choose to pay more than 40% of their income towards rent. PHAs may also choose to adopt minimum rents, which cannot exceed $50. (See box below for an example.) Once a family is using a voucher, the family can retain the voucher as long as the PHA has adequate funding for it and the family complies with PHA and program requirements. If a family wants to move, the tenant-based voucher can move with the family. Once the family moves to a new area, the two PHAs (the PHA that originally issued the voucher and the PHA that administers vouchers in the new area) negotiate regarding who will continue to administer the voucher. The voucher program does not contain any mandatory time limits. Families exit the program in one of three ways: their own choice, non-compliance with program rules (including non-payment of rent), or if they no longer qualify for a subsidy. Families no longer qualify for a subsidy when their incomes, which must be recertified annually, have risen to the point that 30% of that income is equal to rent. At that point the HAP payment will be zero and the family will no longer receive any subsidy. Unlike the project-based Section 8 program, the majority of households receiving vouchers are headed by a person who is not elderly and not disabled. In 2010, about 19% of the households with Section 8 vouchers were elderly households, about 28% were disabled households, and about 53% were non-elderly, non-disabled households with children. The median income of households with vouchers was just over $10,400 per year. Project-Based Vouchers Vouchers, like Section 8 existing housing certificates, can be project-based. In order to project-base vouchers, a landlord must sign a contract with a PHA agreeing to set-aside up to 25% of the units in a development for low-income families. Each of those set-aside units will receive voucher assistance as long as a family that is eligible for a voucher lives there. Families that live in a project-based voucher unit pay 30% of their adjusted household income toward rent, and HUD pays the difference between 30% of household income and a reasonable rent agreed to by both the landlord and HUD. PHAs can choose to project-base up to 20% of their vouchers. Project-based vouchers are portable; after one year, a family with a project-based voucher can convert to a tenant-based voucher and then move, as long as a tenant-based voucher is available. Tenant Protection or Enhanced Vouchers Another type of voucher, called a tenant protection voucher, is given to families that were already receiving assistance through another HUD housing program, before being displaced. Examples of instances when families receive tenant-protection vouchers include when public housing is demolished or when a landlord has terminated a Section 8 project-based rental assistance contract. Families that risk being displaced from project-based Section 8 units are eligible to receive a special form of tenant-protection voucher, called an enhanced voucher. The "enhanced" feature of the voucher allows the maximum value of the voucher to grow to be equal to the new rent charged in the property, as long as it is reasonable in the market, even if it is higher than the PHA's payment standard. They are designed to allow families to stay in their homes. If the family chooses to move, then the enhanced feature is lost and the voucher becomes subject to the PHA's normal payment standard. Special Purpose Vouchers The voucher program also has several special programs or uses. These include family unification vouchers, vouchers for homeless veterans, and vouchers used for homeownership. Family Unification Program Family unification vouchers are given to families for whom the lack of adequate housing is a primary factor in the separation, or threat of imminent separation, of children from their families or in preventing the reunification of the children with their families. HUD has awarded over 38,600 family unification vouchers to PHAs since the inception of the program. HUD-VASH Beginning in 1992, through collaboration between HUD and the VA, Section 8 vouchers have been made available for use by homeless veterans with severe psychiatric or substance abuse disorders. Through the program, called HUD-VA Supported Housing (HUD-VASH), PHAs administer the Section 8 vouchers while local VA medical centers provide case management and clinical services to participating veterans. Homeownership Vouchers While there are no specifically authorized "homeownership vouchers," since 2000 certain families have been eligible to use their vouchers to help pay for the monthly costs associated with homeownership. Eligible families must work full-time or be elderly or disabled, be first-time homebuyers, and agree to complete first-time homebuyer counseling. PHAs can decide whether to run a homeownership program and an increasing number of PHAs are choosing to do so. According to HUD's website, nearly 13,000 families have closed on homes using vouchers. Family Self-Sufficiency Coordinators The Family Self Sufficiency (FSS) program was established by Congress as a part of the National Affordable Housing Act of 1990 ( P.L. 101-625 ). The purpose of the program is to promote coordination between the voucher program and other private and public resources to enable families on public assistance to achieve economic self-sufficiency. Families who participate in the program sign five-year contracts in which they agree to work toward leaving public assistance. While in the program, families can increase their incomes without increasing the amount they contribute toward rent. The difference between what the family paid in rent before joining the program and what they would owe as their income increases is deposited into an escrow account that the family can access upon completion of the contract. For example: If a family with a welfare benefit of $450 per month begins working, earning $800 per month, the family's contribution towards rent increases from $135 per month to $240 per month. Of that $240 the family is now paying towards rent, $105 is deposited into an escrow account. After five years, the family will have $6,300 plus interest in an escrow account to use for whatever purpose the family sees fit. PHAs receive funding for FSS coordinators, who help families with vouchers connect with services, including job training, child care, transportation and education. In 2012, HUD funded the salaries of over 1,100 FSS coordinators in the voucher program, serving nearly 48,000 enrolled families. Demonstrations Moving to Work The Moving to Work Demonstration, authorized in 1996 ( P.L. 104-134 ), was created to give HUD and PHAs the flexibility to design and test various approaches for providing and administering housing assistance. The demonstration directed HUD to select up to 30 PHAs to participate. The goals were to reduce federal costs, provide work incentives to families, and expand housing choice. MTW allows participating PHAs greater flexibility in determining how to use federal Section 8 voucher and Public Housing funds by allowing them to blend funding sources and experiment with rent rules, with the constraint that they had to continue to serve approximately the same number of households. It also permits them to seek exemption from most Public Housing and Housing Choice Voucher program rules. (For more information, see CRS Report R42562, Moving to Work (MTW): Housing Assistance Demonstration Program , by [author name scrubbed].) The existing MTW program, while called a demonstration, was not implemented in a way that would allow it to be effectively evaluated. Therefore, there is not sufficient information about different reforms adopted by MTW agencies to evaluate their effectiveness. However, there is some information available about how PHAs are using the flexibility provided under MTW. Agencies participating in MTW have used the flexibility it provides differently. Some have made minor changes to their existing Section 8 voucher and public housing programs, such as limiting reporting requirements; others have implemented full funding fungibility between their public housing and voucher programs and significantly altered their eligibility and rent policies. Some have adopted time limit and work requirement policies similar to those enacted in the 1996 welfare reform law. An evaluation for MTW published in January 2004 reported: The local flexibility and independence permitted under MTW appears to allow strong, creative [P]HAs to experiment with innovative solutions to local challenges, and to be more responsive to local conditions and priorities than is often possible where federal program requirements limit the opportunity for variation. But allowing local variation poses risks as well as provides potential benefits. Under MTW, some [P]HAs, for instance, made mistakes that reduced the resources available to address low-income housing needs, and some implemented changes that disadvantaged particular groups of needy households currently served under federal program rules. Moreover, some may object to the likelihood that allowing significant variation across [P]HAs inevitably results in some loss of consistency across communities. Moving to Opportunity The Moving to Opportunity Fair Housing Demonstration (MTO) was authorized in 1992 ( P.L. 102-550 , P.L. 102-139 ). MTO combined housing counseling and services with tenant-based vouchers to help very low-income families with children move to areas with low concentrations of poverty. The experimental demonstration was designed to test the premise that changes in an individual's neighborhood environment can change his or her life chances. Participating families were selected between 1994 and 1998 and followed for at least 10 years. Interim results have found that families who moved to lower-poverty areas had some improvements in housing quality, neighborhood conditions, safety, and adult health. Mixed effects were found on youth health, delinquency, and engagement in risky behavior: girls demonstrated positive effects from the move to a lower-poverty neighborhood; boys showed negative effects. No impacts were found on child achievement or schooling or adult employment, earnings, or receipt of public assistance. (For more information, see CRS Report R42832, Choice and Mobility in the Housing Choice Voucher Program: Review of Research Findings and Considerations for Policymakers . ) Conclusion The combined Section 8 programs are the largest direct housing assistance program for low-income families. With a combined FY2013 budget of $27 billion, they reflect a major commitment of federal resources. That commitment has led to some successes. More than three million families are able to obtain safe and decent housing through the program, at a cost to the family that is considered affordable. However, these successes come at a high cost to the federal government. Given current budget deficit levels, Congress has begun to reevaluate whether the cost of the Section 8 programs, particularly the voucher program, are worth their benefits. Proposals to reform the program abound, and whether the current Section 8 programs are maintained largely in their current form, changed substantially, or eliminated altogether are questions currently facing Congress.

The Section 8 low-income housing program is really two programs authorized under Section 8 of the U.S. Housing Act of 1937, as amended: the Housing Choice Voucher program and the project-based rental assistance program. Vouchers are portable subsidies that low-income families can use to lower their rents in the private market. Vouchers are administered at the local level by quasi-governmental public housing authorities (PHAs). Project-based rental assistance is a form of rental subsidy that is attached to a unit of privately owned housing. Low-income families who move into the housing pay a reduced rent, on the basis of their incomes. The Section 8 program began in 1974, primarily as a project-based rental assistance program. However, by the mid-1980s, project-based assistance came under criticism for seeming too costly and concentrating poor families in high-poverty areas. Congress stopped funding new project-based Section 8 rental assistance contracts in 1983. In their place, Congress created vouchers as a new form of assistance. Today, vouchers—numbering more than 2 million—are the primary form of assistance provided under Section 8, although over 1 million units still receive project-based assistance under their original contracts or renewals of those contracts. Congressional interest in the Section 8 programs—both the voucher program and the project-based rental assistance program—has increased in recent years, particularly as the program costs have rapidly grown, led by cost increases in the voucher program. In order to understand why costs are rising so quickly, it is important to first understand how the program works and its history. This report presents a brief overview of that history and introduces the reader to the program. For more information, see CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals; and CRS Report R41182, Preservation of HUD-Assisted Housing, by [author name scrubbed] and [author name scrubbed].

Background In its 2005 opinion United States v. Booker , the U.S. Supreme Court declared that the once-binding federal sentencing guidelines (the Guidelines) set by the United States Sentencing Commission are now only advisory, in order to be compatible with the Sixth Amendment to the Constitution. Until 2007, the Guidelines reflected a statutory scheme that made crack cocaine defendants subject to the same sentence as those defendants trafficking in 100 times more powder cocaine; thus, the sentences for crack cocaine offenses were three to over six times longer than those for offenses involving equivalent amounts of powder cocaine. In the immediate aftermath of Booker , federal courts disagreed about whether the 100:1 ratio produces disparities that justify a sentence lower than that recommended by the Guidelines. The Supreme Court resolved that issue in its 2007 opinion Kimbrough v. United States , by holding that a federal court may impose a sentence below that called for under the Guidelines' then-existing 100:1 ratio, based on its conclusion that the ratio is greater than necessary or may foster unwarranted disparity. The pre- Booker era for federal sentencing began with the Sentencing Reform Act of 1984, which established a sentencing system under the United States Sentencing Commission's federal sentencing guidelines. The previous system tailored sentences to the individual defendants. Judges were given broad ranges within which they could, at their discretion, sentence a defendant. The sentence was supposed to be based on the defendant's character as much as his conduct. Thereafter, the discretion given to the judge was passed on to the Parole Commission to determine how much of the judge's sentence the defendant ultimately served. Under the Guidelines, the judge's role at sentencing was more uniform and unvaried. The judge could inquire into a number of factors, including the defendant's conduct and criminal history. The judge then weighed each factor according to the Sentencing Commission's mandate and calculated an offense level for the defendant. The judge had discretion to sentence the defendant but, with little ground for departure, only within the narrow sentencing range that the Guidelines provided for each offense level. The Sentencing Reform Act also abolished the Parole Commission's role. Crack cocaine became prevalent in the mid-1980s and received widespread media attention following the death of the University of Maryland all-American basketball player, Len Bias, from the use of cocaine. Crack cocaine was portrayed as a violence-inducing, highly addictive plague of inner cities, and this notoriety led to the quick passage of a federal sentencing law concerning crack cocaine in 1986. This legislation created two mandatory sentencing ranges for drug offenses. The lower bracket spanned periods of imprisonment ranging from a mandatory minimum of 5 years to a maximum of 40 years; the higher bracket spanned periods ranging from a mandatory minimum of 10 years to a maximum of life. Congress prescribed the threshold quantities of both crack and powdered cocaine required to bring a particular offense within either bracket. Despite the chemical identity of crack and powder cocaine, Congress set widely disparate threshold quantities for the two drugs, requiring 100 times more powder cocaine than crack cocaine to trigger inclusion in a particular range. The rationale offered was that many considered crack much more addictive than powder cocaine, and they feared a wave of violent crimes spawned by drug users as well as the health threats to infants born to addicted mothers. The Sentencing Commission also incorporated this ratio into the drug guidelines, although it later concluded that the 100:1 powder to crack ratio produces sentences that are greater than necessary to satisfy the purposes of punishment because it exaggerates the relative harmfulness of crack cocaine; the majority of crack offenders have low drug quantities, short criminal histories, and no history of violence. The Sentencing Commission also concluded that a ratio providing for sentences that are greater than necessary creates an unwarranted disparity, inappropriate uniformity, racial disparity, and disrespect for the law. Over the years, Congress has had second thoughts about the disparity in drug sentences. To achieve a more equitable balance, as part of the Violent Crime Control and Law Enforcement Act of 1994, Congress enacted a safety valve provision, which provided an avenue for lowering mandatory minimum sentences in a limited category of drug cases. During the same year, Congress directed the Sentencing Commission to study the crack-to-powder ratio and submit recommendations relative to whether the ratio should be retained or modified. The Sentencing Commission recommended revision of the 100:1 quantity ratio in 1995, finding the ratio to be unjustified by the small differences in the two forms of cocaine. Congress rejected the recommendation of the Sentencing Commission and did not change the law. Two years later, the Sentencing Commission issued a follow-up report. In this report, the commission reiterated its position that the 100:1 ratio was excessive. It recommended that the 100:1 ratio be reduced to 5:1 by increasing the threshold quantities for offenses involving crack cocaine and decreasing the threshold quantities for offenses involving powder cocaine. Again, Congress took no action and did not amend the law. In 2001, the Senate Judiciary Committee asked the Sentencing Commission to revisit its position regarding the 100:1 ratio, and in the subsequent year, the Sentencing Commission issued its third report. In this report, the commission again proposed narrowing the gap that separated crack cocaine offenses from powder cocaine because (1) the severe penalties for crack cocaine offenses seemed to fall mainly on low-level criminals and African Americans, (2) the dangers posed by crack could be satisfactorily addressed through sentencing enhancements that would apply neutrally to all drug offenses, and (3) recent data suggested that the penalties were disproportionate to the harms associated with the two drugs. Unlike the previous report, the Commission did not recommend a reduction in the powder cocaine threshold. The Commission did recommend elimination of the 5-year mandatory minimum for simple possession of crack cocaine. Congress considered the substance of the Commission's 2002 report but took no action. Judges have long been critical of the automatic prison terms, commonly referred to as mandatory minimum sentences, which were enacted pursuant to the Anti-Drug Abuse Act of 1986 in part to stem the drug trade. United States v. Booker Prior to the Supreme Court's decision in United States v. Booker , the case law was generally cognizant of the seriousness in the sentencing disparities between crack and powder cocaine but regularly deferred to Congress's policy judgments. This undertaking led to a series of decisions that upheld the 100:1 ratio against a variety of challenges, which included the Equal Protection Clause and the rule of lenity. It was also decided that under the mandatory guidelines system that was popular before Booker , neither the Sentencing Commission's criticism of the 100:1 ratio nor its unacknowledged 1995 proposal to eliminate the differential provided a valid basis for leniency in the sentencing of crack cocaine offenders. In Booker , the Supreme Court consolidated two lower court cases and considered them in tandem, United States v. Fanfan and United States v. Booker . Booker was arrested after officers found in his duffle bag 92.5 grams of crack cocaine. He later gave a written statement to the police in which he admitted selling an additional 566 grams of crack cocaine. A jury in the United States District Court for the Western District of Wisconsin found Booker guilty of two counts of possessing at least 50 grams of cocaine base with the intent to distribute it, in violation of 21 U.S.C. § 841(b)(1)(A)(iii). At sentencing, the judge found by a preponderance of the evidence that Booker had distributed 566 grams in addition to the 92.5 grams that the jury found; the judge also found that Booker had obstructed justice. In the absence of the judge's additional findings, Booker would have only faced a maximum sentence of 262 months under the United States Sentencing Guidelines. The judge, however sentenced Booker to 360 months, based on the Guidelines' treatment of the additional cocaine and the obstruction of justice. The United States Court of Appeals for the Seventh Circuit affirmed the conviction but overturned the sentence. Narcotic agents arrested Fanfan when they discovered 1.25 kilograms of cocaine and 281.6 grams of cocaine base in his vehicle. A jury in the District of Maine found that he possessed "500 or more grams" of cocaine with the intent to distribute, in violation of 21 U.S.C. § 846. At sentencing, the court determined that Fanfan was the "ring leader of a significant drug conspiracy," which, combined with his criminal history, resulted in a sentence of 188 to 235 months under the Guidelines. However, four days before the June 28, 2004, sentencing hearing, the Supreme Court decided Blakely v. Washington , holding that as part of a state sentencing guideline system, a Washington state judge could not find an aggravating fact authorizing a higher sentence than the state statutes otherwise permitted. The sentencing judge in Fanfan considered the effect that Blakely may have on the federal sentencing Guidelines and recalculated the Guidelines based only on the possession of 500 grams and imposed the 78 month maximum for that range. The Supreme Court granted certiorari in Booker and Fanfan in an effort to give some guidance to lower courts that had begun a variety of applications of the Blakely decision to federal prisoners. For example, in Booker , the Seventh Circuit found that the federal sentencing guidelines violate the Sixth Amendment in some situations. The Fifth Circuit, on the other hand, concluded that Blakely did not apply to the Guidelines because to do so would create a separate "offense" for each possible sentence for a particular crime. The Second Circuit, without resolving the issue, certified questions to the Supreme Court regarding the application of Blakely to federal sentences pursuant to the Guidelines. The Supreme Court issued a majority opinion in two parts. The first part, written by Justice Stevens for a 5-4 majority (Justices Scalia, Souter, Thomas, and Ginsburg) decided that the Guidelines violate the Sixth Amendment and are thus unconstitutional because they require a judge to increase a sentence above the maximum guideline range if the judge finds facts to justify an increase. They said a defendant's right to trial by jury is violated if a judge must impose a higher sentence than the sentence that the judge could have imposed based on the facts found by the jury. Pursuant to 18 U.S.C. § 3553(b), the Guidelines were mandatory and thus create a statutory maximum for the purpose of Apprendi v. New Jersey , 530 U.S. 466 (2000), which had condemned mandatory judicial fact-finding for purposes of imposing a sentence beyond the statutory maximum. The Court had applied Apprendi 's reasoning to a state sentencing guideline system in Blakely v. Washington , and the rationale applied with equal force to the federal guideline system in Booker . Under the then current administration of the Guidelines, judges, rather than juries, were required to find sentence determining facts, and thus the practice was unconstitutional. The second part, written by Justice Breyer for a different 5-4 majority (Justices Rehnquist, O'Connor, Kennedy, and Ginsburg) remedies this defect by holding that the Guidelines are advisory, thereby making it necessary for the courts to consider the Guidelines along with other traditional factors when deciding on a sentence, and also finding that the appellant courts may review sentences for "reasonableness." Driven by the Court's first holding, it "excises" (through severance and excision of two provisions) 18 U.S.C. § 3553(b)(1) and § 3742(e) from the Sentencing Reform Act and declares the Guidelines are now "advisory." Pursuant to § 3553(a), district judges need only to "consider" the Guideline range as one of many factors, including the need for the sentence to provide just punishment for the offense (§ 3553(a)(2)(A), to afford adequate deterrence to criminal conduct (§ 3553(a)(2)(B), to protect the public from further crimes of the defendant (§ 3553(a)(2)(C)), and to avoid unwarranted sentencing disparities among similarly situated defendants (§ 3553(a) (6)). The Sentencing Reform Act, absent the mandate of § 3553(b)(1), authorizes the judge to apply his own perceptions of just punishment, deterrence, and protection of the public, even when these differ from the perceptions of the United States Sentencing Commission. The Sentencing Reform Act continues to provide for appeals from sentencing decisions (regardless of whether the trial judge sentences are within or outside of the Guideline range) based on an "unreasonableness" standard (18 U.S.C. §§ 3553(a) and 3742(e)(3)). Booker and the Crack Defendant After Booker , the federal courts wrestled with whether they may or must impose sentences below the Guidelines' ranges in crack cocaine cases in view of the United States Sentencing Commission's conclusions and recommendations, the facts and circumstances of the case, the history and characteristics of the defendant, and the command of 18 U.S.C. § 3553(a)(2)(6) to avoid unwarranted sentencing disparity. Typically, the federal courts follow a three-step sentencing procedure in which they determine "(1) the applicable advisory range under the Sentencing Guidelines; (2) whether, pursuant to the Sentencing Commission's policy statements, any departures from the advisory guideline range clearly apply; and (3) the appropriate sentence in light of the statutory factors to be considered in imposing a sentence." An appellate court held that the federal courts are not compelled to lower a sentence recommended by the Guidelines based on the sentencing differential for crack cocaine versus powder cocaine. On the other hand, in more than a few cases, the application of Booker has led to lower sentences than those suggested by the 100:1 ratio ranges established in the Guidelines. In some cases, after considering the factors set forth in 18 U.S.C. § 3553(a), the courts found a different ratio, either 20:1 or 10:1, more compatible with the statutory command of 18 U.S.C. § 3553(a)(6) to weigh the need to avoid unwarranted disparities. The appellate courts were not so inclined to ignore the 100:1 ratio reflected in the then-existing Guidelines. For instance, the First Circuit held that the district court could not discard the guideline range and construct a new sentencing range, but could take into account, on a case-by-case basis, "the nature of the contraband and/or the severity of a projected guideline sentence." The First Circuit described the disparity as a "problem that has tormented enlightened observers ever since Congress promulgated the 100:1 ratio" and "share[d] the district court's concern about the fairness of maintaining the across-the-board sentencing gap associated with the 100:1 crack-to-powder ratio." But to recapitulate, said the First Circuit, "we hold that the district court erred ... when it constructed a new sentencing range based on the categorical substitution of a 20:1 crack-to-powder ratio for the 100:1 embedded in the sentencing guidelines." A panel in the Fourth Circuit agreed: [t]he principal question ... is whether a district court in the post- Booker world can vary from the advisory sentencing range under the guidelines by substituting its own crack cocaine/powder cocaine ratio for the 100:1 crack cocaine/powder cocaine ratio chosen by Congress. For the reasons stated below, we conclude a court cannot.... [The] sentencing court must identify the individual aspects of the defendant's case that fit within the factors listed in 18 U.S.C. § 3553(a) and in reliance on those findings, impose a non-Guideline sentence that is reasonable ... in arriving at a reasonable sentence, the court simply must not rely on a factor that would result in a sentencing disparity that totally is at odds with the will of Congress. The Fourth Circuit decision formed the basis for its later unpublished opinion in Kimbrough v. United States . Kimbrough v. United States Norfolk, VA, police arrested Derrick Kimbrough after they came upon him in the midst of what appeared to be a curbside drug sale. At the time, they discovered more than $1,900 in cash, 56 grams of crack cocaine, and more than 60 grams of powder cocaine in his car. They also recovered a loaded hand gun for which Kimbrough was holding a full magazine clip. Kimbrough subsequently pleaded guilty to federal charges for trafficking in more than 50 grams of crack, trafficking in cocaine powder, conspiracy to traffic in crack, and possession of a firearm during and in furtherance of a drug trafficking offense. He faced mandatory minimum terms of imprisonment of 10 years on the crack trafficking charge and of 5 years on the gun charge. The applicable sentencing guidelines called for a sentence of imprisonment in the range of 168 to 210 months on the drug charges with an additional 60 months on the gun charge (to be served consecutive to the drug charges for a range of imprisonment of 228 to 270 months). Kimbrough's attorney apparently urged a departure from the Guideline's recommended sentence based on the Sentencing Commission's dissatisfaction with the 100:1 ratio, Kimbrough's military service, the absence of any prior felony conviction, his employment record, and the suggestion that federal involvement represented an instance of "sentence shopping" in what was otherwise a state case. Under the facts before it, the district court considered the sentence recommended by the Guidelines "ridiculous." It sentenced Kimbrough to the statutory minimum of 180 months in prison (10 years on the drug charges and 5 years on the gun charge). It did so in part because of the sentencing disparity for crack and powder cocaine. However, the Fourth Circuit Court of Appeals vacated and remanded the sentence, consistent with its holding in United States v. Eura that "a sentence that is outside the guidelines range is per se unreasonable when it is based on a disagreement with the sentencing disparity for crack and powder offenses." On June 11, 2007, the Supreme Court agreed to consider whether the district court abused its discretion when it determined that in Kimbrough's case the sentencing range recommended by the Guidelines would be greater than necessary to serve the penological purposes described in 18 U.S.C. § 3553(a)(2) and should not be controlling in light of the instruction in 18 U.S.C. § 3553(a)(6) to consider the need to avoid unwarranted disparity among similarly situated defendants. On December 10, 2007, the Supreme Court reversed the Court of Appeals in a 7-2 ruling. Writing for the majority, Justice Ginsburg held that although a district judge must respectfully consider the Guidelines range as one factor (among many) in determining an appropriate sentence, the judge has discretion to depart from the Guidelines based on the disparity between the Guidelines' treatment of crack and powder cocaine offenses. As the Booker decision had made clear that the Sentencing Guidelines—which include the cocaine Guidelines—are to be advisory only, the Fourth Circuit Court of Appeals had erred in holding the crack/powder disparity "effectively mandatory," the Court explained. Furthermore, the Supreme Court concluded that the 180-month sentence imposed on Kimbrough is reasonable given the particular circumstance of Kimbrough's case and that the district judge did not abuse his discretion in finding that the crack/powder disparity is at odds with the objectives of sentencing set forth in 18 U.S.C. § 3553(a)(2). Spears v. United States In a case that had been remanded by the Supreme Court for further consideration in light of Kimbrough , the Eighth Circuit Court of Appeals held in United States v. Spears that district courts "may not categorically reject the [crack-to-powder] ratio set forth by the Guidelines," and that "[n]othing in Kimbrough suggests the district court may substitute its own ratio for the ratio set forth in the Guidelines." On January 21, 2009, the Supreme Court issued a per curiam opinion that summarily reversed the appellate court's decision on remand, finding that the judgment conflicted with Kimbrough . The Court stated that "with respect to the crack cocaine Guidelines, a categorical disagreement with and variance from the Guidelines is not suspect" and reiterated that Kimbrough stands for the proposition that district courts have the "authority to vary from the crack cocaine Guidelines based on policy disagreement with them, and not simply based on an individualized determination that they yield an excessive sentence in a particular case." The Supreme Court explained, As a logical matter, of course, rejection of the 100:1 ratio, explicitly approved by Kimbrough , necessarily implies adoption of some other ratio to govern the mine-run case. A sentencing judge who is given the power to reject the disparity created by the crack-to-powder ratio must also possess the power to apply a different ratio which, in his judgment, corrects the disparity. Put simply, the ability to reduce a mine-run defendant's sentence necessarily permits adoption of a replacement ratio. In releasing the opinion in Spears v. United States , the Supreme Court sought to clarify its holding in Kimbrough that had been misinterpreted by not only the Eighth Circuit Court of Appeals, but the First and Third Circuits as well. The Court speculated that if the Eighth Circuit's restrictive interpretation of Kimbrough was correct, one of two things would likely occur: Either district courts would treat the Guidelines' policy embodied in the crack-to-powder ratio as mandatory, believing that they are not entitled to vary based on "categorical" policy disagreements with the Guidelines, or they would continue to vary, masking their categorical policy disagreements as "individualized determinations." The latter is institutionalized subterfuge. The former contradicts our holding in Kimbrough. Neither is an acceptable sentencing practice. 2007 Amendment of the Sentencing Guidelines In May 2007, the United States Sentencing Commission submitted proposed amendments to the Guidelines (including those applicable in Kimbrough ) that essentially did away with the 100:1 ratio for purposes of the Guidelines (except at the point at which the statutory mandatory minimums are triggered). It also recommended that Congress raise the thresholds for the statutory mandatory minimums for trafficking in crack, thereby eliminating the statutory 100:1 ratio. In making the decision to amend the Guidelines, the Commission sought to "somewhat alleviate" the "urgent and compelling ... problems associated with the 100-to-1 drug quantity ratio." The Commission opined that the amendment was "only ... a partial remedy" and was "neither a permanent nor complete solution." In July 2007, the Commission proposed that the changes relating to what had been the 100:1 ratio in the Guidelines be made retroactively applicable to previously sentenced crack cocaine offenders. On November 1, 2007, the amendments to the Guidelines including those relating to crack and the 100:1 ratio went into effect. On December 11, 2007, the Sentencing Commission unanimously voted to apply the crack amendment retroactively. As noted earlier, the Controlled Substances Act makes trafficking in 5 to 50 grams of crack cocaine or 500 to 5,000 grams of cocaine powder punishable by imprisonment for not less than 5 years and not more than 40 years. It makes trafficking more than 50 grams of crack or more than 5,000 grams of cocaine powder punishable by imprisonment for not less than 10 years and not more than life. These sanctions, like most federal criminal penalties, are reflected in the Sentencing Guidelines. The Guidelines assign most federal crimes to an individual guideline which in turn assigns the offense an initial base sentencing level. Drug trafficking offenses, for example, have been assigned to section 2D1.1, which sets the base offense level according to the amount of crack or powder cocaine involved in a particular case. Levels are then added or subtracted on the basis of any aggravating or mitigating factors presented in a particular defendant's case. For example, a defendant's offense level may be decreased by two or four levels, if the offense involved a number of participants and the defendant's role in the offense was minor or minimal. A defendant's final offense level and his criminal history (criminal record) govern the sentence recommended by the Guidelines. The Guidelines assign sentencing ranges for each of the 43 possible final offense levels. Each of the 43 has a series of six escalating sentencing ranges to mirror the extent of the defendant's criminal history. For example, if a defendant has no prior criminal record and his final sentencing level is 26, the Guidelines recommend that the sentencing court impose a term of imprisonment somewhere between 63 and 78 months; at the other extreme, if a defendant has an extensive prior criminal record and his final sentencing level is the same 26, the Guidelines recommend a sentencing range of between 120 to 150 months. The drug quantity table that is part of the drug sentencing guideline, U.S.S.G. § 2D1.1(c), assigns offenses to one of several steps with corresponding sentencing levels based on the kind and volume of the controlled substances involved in the offense. For example, an offense involving 150 kilograms or more of powder cocaine is assigned a step (1) offense level of 38, while an offense involving less than 25 grams is assigned a step (14) offense level of 12. Prior to the amendments effective on November 1, 2007, each of the steps reflected a 100:1 ratio between crack and powder cocaine; for instance, offenses involving either more than 150 kilograms of powder cocaine or more than 1.5 kilograms of crack cocaine were each assigned a step (1) offense level of 38. In order to reduce the prospect of a Guideline result beneath the statutory minimums, the pre-amendment Guidelines assigned the 5-year-minimum-triggering 5 grams (crack)/500 grams (powder) offenses to U.S.S.G. § 2D1.1(c), step (7), with an offense level of 26 which translated to a sentencing range of from 5 years and 3 months (63 months) to 6 years and 6 months (78 months). It made a similar assignment for the 10-year mandatory minimum offenses involving 50 grams of crack or 5,000 grams of powder cocaine: level 32 with a sentencing range for first offenders of from 10 years and 1 month (121 months) to 12 years and 7 months (151 months). The Commission's amendments focused first on the assignment for crack offenses subject to a mandatory minimum. The Commission noted that its earlier assignment set the bottom of the two ranges higher than necessary to satisfy minimum sentencing requirements (5 years and 3 months in the case of 5 grams; 10 years and 1 month in the case of 50 grams). Its amendments reassign those offenses to offense levels where the mandatory minimum fell within the middle of the ranges, that is, to offense level 24 (51 to 63 months for first offenders) and offense level 30 (97 to 121 months for first offenders) for 5- and 50-gram crack offenses, respectively. They then provide a similar two-level reduction for crack offenses involving amounts above and beyond those that trigger the mandatory minimums. The amendments, however, make no such changes in the offense levels to which powder cocaine offenses are assigned. As a consequence, the 100:1 ratio has disappeared from the Guidelines (although the statutory 100:1 ratio in the quantities of powder cocaine and crack cocaine that trigger the mandatory minimum penalties still remains). Retroactivity Decision In July 2007, the Commission proposed that the amendment be made retroactively applicable to previously sentenced crack cocaine offenders. After receiving public comment on the issue of retroactivity and holding public hearings to consider the issue, the Commission voted 7-0 in favor of retroactivity on December 11, 2007. While the Commission found "that the statutory purposes of sentencing are best served by retroactive application of the amendment," it emphasized that not all previously sentenced crack cocaine offenders will automatically receive a reduction in sentence—rather, federal sentencing judges will have the final authority to make that determination based on the merits of each case, after considering a variety of factors, including whether public safety would be endangered by early release of the prisoner. Case Law Applying the Retroactive Crack Cocaine Amendments In general, a federal court "may not modify a term of imprisonment once it has been imposed." However, there are limited exceptions to this general rule, including the following: a federal prisoner may petition a court to modify his original term of imprisonment if he was "sentenced to a term of imprisonment based on a sentencing range that has subsequently been lowered by the Sentencing Commission." Such a modification is authorized "if such a reduction is consistent with" policy statements issued by the Sentencing Commission supporting the reduction for previously sentenced offenders—in other words, if the Commission makes its Guideline amendments retroactively applicable. The federal court is not required to approve a sentence reduction motion; rather, the statute provides that a court "may" reduce such imprisonment term. However, a court may not reduce a sentence below a statutory mandatory minimum. A federal court considering a so-called "§ 3582(c)(2)" motion has discretion to reduce the imprisonment sentence after considering the following statutory factors, set forth in 18 U.S.C. § 3553(a): the nature and circumstances of the offense and the history and characteristics of the defendant; the need for the sentence imposed: (A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense; (B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the defendant with educational or vocational training, medical care, or other correctional treatment in the most effective manner; the sentencing range established by the Commission; any pertinent policy statement issued by the Commission regarding application of the guidelines; the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct; and the need to provide restitution to any victims of the offense. The Sentencing Commission's policy statement governing reduction of terms of imprisonment based on amended Guidelines ranges is Sentencing Guidelines § 1B1.10. The policy statement explains that "proceedings under 18 U.S.C. § 3582(c)(2) and this policy statement do not constitute a full resentencing of the defendant." The policy statement also provides that a "court shall not reduce the defendant's term of imprisonment ... to a term that is less than the minimum of the amended guideline range." In the wake of the Sentencing Commission's crack cocaine amendment retroactivity decision, the federal courts began considering § 3582(c)(2) motions filed by crack offenders to obtain reductions in their sentences. In the month of March 2008, when the retroactivity decision became effective, more than 3,000 prisoners nationwide had their sentences reduced; 1,000 of these inmates were released immediately. As of May 2010, a nationwide total of 15,778 motions have been granted, with an average decrease of 26 months from the prisoners' original sentence (a 17% decrease), while 8,280 petitions have been denied. Several issues have arisen during these cases, including whether prisoners who request sentence reductions are entitled to have court-appointed lawyers to represent them in court, whether crack offenders who were sentenced as career-offenders are eligible for sentence reductions, and whether courts may reduce a sentence below the bottom end of the amended Guideline range (a power that would be available to a court assuming that Booker applies to § 3582(c)(2) proceedings). Many of the § 3582(c)(2) motions have been filed by defendants pro se, although often with some assistance by the local federal public defender office. A panel from the Fifth Circuit Court of Appeals declined to decide whether a § 3582(c)(2) motion triggers a statutory or constitutional right to an attorney, but rather used its discretionary authority to appoint the prisoner an attorney "in the interest of justice." Other federal courts have rejected the argument that a prisoner has a constitutional right to assistance of counsel in pursuing a § 3582(c)(2) motion for a sentence reduction. Another question facing the courts was whether defendants who were convicted of crack cocaine offenses but sentenced as career offenders could benefit from the amended crack cocaine sentencing guidelines. Courts of appeals that have considered the issue have ruled that they cannot. An opinion from the Eleventh Circuit Court of Appeals is typical of these decisions: Where a retroactively applicable guideline amendment reduces a defendant's base offense level, but does not alter the sentencing range upon which his or her sentence was based, § 3582(c)(2) does not authorize a reduction in sentence. Here, although Amendment 706 [the crack cocaine amendment] would reduce the base offense levels applicable to the defendants, it would not affect their guideline ranges because they were sentenced as career offenders under [U.S. Sentencing Guidelines] § 4B1.1. Dillon v. United States Federal courts have also addressed whether Booker applies to § 3582(c)(2) proceedings (which would determine whether district courts have the authority to impose a sentence that is even lower than the minimum of the amended Sentencing Guideline range). Ten courts of appeals have held that while Booker applies to original sentencing proceedings, "in which a district court must make a host of guideline application decisions in arriving at a defendant's applicable guideline range and then ultimately impose a sentence after reviewing the § 3553(a) factors," Booker does not apply to sentence modification proceedings under § 3582(c)(2) because such proceedings are "much more narrow in scope." One federal appellate court offered the following reasoning to justify its decision not to apply Booker to § 3582(c)(2) proceedings: Nowhere in Booker did the Supreme Court mention §3582(c)(2). Because §3582(c)(2) proceedings may only reduce a defendant's sentence and not increase it, the constitutional holding in Booker does not apply to §3582(c)(2). ... Additionally, the remedial holding in Booker invalidated only 18 U.S.C. §3553(b)(1), which made the Sentencing Guidelines mandatory for full sentencings, and §3742(e), which directed appellate courts to apply a de novo standard of review to departures from the Guidelines. Therefore, Booker applies to full sentencing hearings –whether in an initial sentencing or in a resentencing where the original sentence is vacated for error, but not to sentence modification proceedings under §3582(c)(2). In disagreement with all of the other circuit courts of appeals, the Ninth Circuit Court of Appeals found that Booker renders the Guidelines advisory in a § 3582(c)(2) proceeding, and thus a district court may reduce a sentence below the amended guideline range. To resolve this circuit split and offer a definitive answer to this question, the Supreme Court granted certiorari in Dillon v. United States , a Third Circuit Court of Appeals case that had held that Booker does not apply to the size of a sentence reduction that may be granted under § 3582(c)(2). The defendant in the case, Percy Dillon, was convicted in 1993 of several felony offenses involving cocaine and was sentenced to the bottom of the then-applicable Guidelines range, 322 months. At his sentencing, the district court judge commented that "I personally don't believe that you should be serving 322 months[, b]ut I feel I am bound by those Guidelines.... I don't say to you that these penalties are fair. I don't think they are fair. I think they are entirely too high for the crime you have committed." After the Sentencing Commission's decision to make the amendments to the crack cocaine Guidelines retroactive in December 2007, Dillon filed a pro se motion for a sentence reduction pursuant to § 3582(c)(2). The district court reduced Dillon's sentence to 270 months (the term at the bottom of the revised Guidelines range), although Dillon desired an even greater reduction, below the bottom of the amended Guidelines range, in light of Booker and the institutional rehabilitation and educational and community-outreach achievements that he has accomplished while incarcerated. On appeal, the Third Circuit opined that "[i]f Booker did apply in proceedings pursuant to § 3582, Dillon would likely be an ideal candidate for a non-Guidelines sentence," but ultimately upheld the district court's conclusion that it lacked the authority to further reduce his sentence because the Sentencing Commission's applicable policy statement (Sentencing Guidelines § 1B1.10) is binding on the district court pursuant to 18 U.S.C. 3582(c)(2). In his briefs submitted to the Supreme Court, Dillon argued that Booker extends to resentencings conducted under § 3582(c)(2) and criticized the Sentencing Commission's policy statement (Sentencing Guidelines § 1B1.10) that binds district courts to the Guidelines sentencing range during resentencings under § 3582(c)(2). The policy statement, he asserted, "attempts to resurrect the mandatory Guidelines system Booker invalidated." In its brief on the merits, the United States argued that Booker only applies "when a court engages in a plenary sentencing." A § 3582(c)(2) proceeding, however, "provides a one-way ratchet to lower a defendant's otherwise-final sentence" in a way that "does not implicate the Sixth Amendment rule applied in Booker " because the court may not increase a defendant's sentence based on judicially found facts. Furthermore, the United States warned the Supreme Court of the consequences of applying Booker to § 3582(c)(2) proceedings: [E]very retroactive Guidelines amendment would carry the potential to reopen thousands of sentences of imprisonment under the statutory sentencing factors set out in Section 3553(a). Petitioner's proposed rule not only would undermine principles of finality that are essential to the operation of the criminal justice system, but also would inevitably affect the Sentencing Commission's calculus in deciding whether to make its Guidelines amendments retroactive in the first place. That result would diminish Section 3582(c)(2)'s value as a mechanism for the exercise of leniency. On June 17, 2010, the Supreme Court issued its opinion in Dillon , in which it sided with the position of the United States. In a 7-1 decision authored by Justice Sonia Sotomayor, the Court ruled that Booker did not apply to § 3582(c)(2) proceedings. Justice Sotomayor observed that while Booker had invalidated two provisions of the Sentencing Reform Act (SRA) of 1984, the decision "left intact other provisions of the SRA including those giving the Commission authority to revise the Guidelines ... and to determine when and to what extent a revision will be retroactive." This authority vested by Congress in the Sentencing Commission reflects the "substantial role" that Congress envisioned for the Commission with respect to sentence-modification proceedings. Furthermore, she noted that the statutory text of § 3582(c)(2) undercuts Dillon's characterization of the sentence-modification proceedings as "plenary resentencing proceedings"; rather, the section provides a limited opportunity for a court to "modify a term of imprisonment" by reducing an otherwise final sentence under certain narrow circumstances specified by the Commission. "A court's power under § 3582(c)(2) thus depends in the first instance on the Commission's decision not just to amend the Guidelines but to make the amendment retroactive." A court is also bound by the Commission's determination of the extent to which a prisoner's term of imprisonment may be reduced. Justice Sotomayor described § 3582(c)(2) as not a constitutionally required proceeding, but rather "a congressional act of lenity intended to give prisoners the benefit of later enacted adjustments to the judgments reflected in the Guidelines." She explained that § 3582(c)(2) does not implicate the Sixth Amendment right vindicated in Booker because any facts that may be found by a judge in a § 3582(c)(2) proceeding would not increase the range of punishment—rather, it would only affect the judge's exercise of discretion within a particular amended Guidelines range. Thus, Dillon's constitutional rights were not violated by the district court that considered a reduction only within the amended range. In lone dissent, Justice Stevens argued that Booker should apply to § 3582(c)(2) proceedings. He accused the Court of being "unfaithful" to Booker in treating the Commission's policy statements "as a mandatory command rather than an advisory recommendation." He also regarded the Court's decision to allow "the Commission to exercise a barely constrained form of lawmaking authority" as "manifestly unjust" and "on dubious constitutional footing." While accepting that Booker explicitly severed only two specific statutory sections of the Sentencing Reform Act, Justice Stevens believed that a fair reading of Booker requires the elimination of all mandatory features of the Guidelines. He surmised that "the Court's decision today may reflect a concern that a contrary holding would discourage the Commission from issuing retroactive amendments to the Guidelines, owing to a fear of burdening the district courts"; however, he urged that such concern "should not influence our assessment of the legal question" before the Court. He opined that "Dillon's continued imprisonment is a truly sad example of what I have come to view as an exceptionally, and often mindlessly, harsh federal punishment scheme." Legislation in the 111th Congress Several bills have been introduced concerning cocaine sentencing; to date, the Congress has passed one into law: S. 1789 (Fair Sentencing Act of 2010). Introduced by Senator Richard Durbin, S. 1789 will, among other things, increase the threshold amount of crack cocaine necessary to trigger the mandatory minimum penalties to 28 grams (from 5 grams for the current 5-year sentence) and 280 grams (from 50 grams for the current 10-year sentence). This change will reduce the statutory 100:1 ratio to 18:1. The bill also eliminates the 5-year mandatory minimum for simple possession of crack cocaine. The bill goes beyond crack cocaine sentencing issues by increasing criminal fine amounts available for major drug traffickers and also directing the U.S. Sentencing Commission to amend the Sentencing Guidelines to ensure that the Guidelines provide an additional penalty increase of at least two offense levels if the defendant used violence, made a credible threat to use violence, or directed the use of violence during a drug trafficking offense. The Sentencing Commission is also required to study and submit to Congress within five years a report concerning the impact of the changes in federal sentencing law made by the Fair Sentencing Act of 2010. On March 17, 2010, the Senate passed S. 1789 by unanimous consent. On July 28, 2010, the House considered S. 1789 under suspension of the rules and passed it by voice vote. President Obama signed the bill into law on August 3, 2010 ( P.L. 111-220 ). The Congressional Budget Office has estimated that implementation of S. 1789 will generate $42 million in savings to the federal prison system over the 2011-2015 period. Representative Roscoe Bartlett introduced H.R. 18 (Powder-Crack Cocaine Penalty Equalization Act of 2009), which would equalize the triggering quantity for the mandatory minimum sentences for cocaine offenses at the crack cocaine levels (5 grams of powder cocaine would result in a 5-year sentence and 50 grams a 10-year sentence). Currently, it takes 100 times those quantities to trigger the 5- and 10-year mandatory minimum sentences for powder cocaine. Representative Sheila Jackson-Lee introduced H.R. 265 (Drug Sentencing Reform and Cocaine Kingpin Trafficking Act of 2009), which would eliminate the statutory 100:1 ratio in cocaine cases by raising the crack cocaine threshold to 500 grams and 5 kilograms for the 5- and 10-year mandatory minimums, respectively. It would call upon the Sentencing Commission to reexamine the weight given aggravating and mitigating factors in drug trafficking cases. It also would eliminate the 5-year mandatory minimum for simple possession of crack cocaine. In addition, the bill would increase fines for significant drug trafficking offenses, authorize funding for prison- and jail-based drug treatment programs, and authorize increased resources for the Departments of Justice, Treasury, and Homeland Security. Representative Bobby Scott introduced H.R. 1459 (Fairness in Cocaine Sentencing Act of 2009), which would amend the Controlled Substances Act and the Controlled Substances Import and Export Act regarding cocaine penalties. The bill would treat 50 grams of crack the same as 50 grams of other forms of cocaine, 5 grams of crack the same as 5 grams of other forms of cocaine, and would eliminate all mandatory minimum penalties relating to cocaine offenses. The bill also would reestablish the possibility of probation, suspended sentence, or parole for cocaine offenders. Representative Scott also has introduced H.R. 3245 (Fairness in Cocaine Sentencing Act of 2009), which would make fewer changes to the drug laws; the bill would eliminate references to "cocaine base" from the Controlled Substances Act and the Controlled Substances Import and Export Act (meaning that these laws would treat all forms of cocaine the same for sentencing purposes) and would eliminate the mandatory minimum for simple possession of crack cocaine. Representative Maxine Waters introduced H.R. 1466 (Major Drug Trafficking Prosecution Act of 2009), which would, among other things, eliminate all mandatory minimum sentences for drug trafficking and possession offenses, and permit courts to place drug offenders on probation or suspend their sentences. The bill also would require the Attorney General to provide written approval before the commencement of a federal prosecution for an offense involving less than 500 grams of powder or crack cocaine. Representative Charles Rangel introduced H.R. 2178 (Crack-Cocaine Equitable Sentencing Act of 2009), which would amend the Controlled Substances Act and the Controlled Substances Import and Export Act to treat 50 grams of crack the same as 50 grams of other forms of cocaine; 5 grams of crack the same as 5 grams of other forms of cocaine, and eliminate the 5-year mandatory minimum for simple possession of crack cocaine. Past Congresses have considered legislation relating to cocaine sentencing; some of these bills had called for a 1:1 drug quantity ratio between crack and powder cocaine, while other bills would have changed the statutory ratio to 20:1. Appendix. Drug Quantity Table (Before and After Amendment)

Pursuant to the Anti-Drug Abuse Act of 1986, Congress established basic sentencing levels for crack cocaine offenses. Congress amended 21 U.S.C. § 841 to provide for a 100:1 ratio in the quantities of powder cocaine and crack cocaine that trigger a mandatory minimum penalty. As amended, 21 U.S.C. § 841(b)(1)(A) required a mandatory minimum 10-year term of imprisonment and a maximum life term of imprisonment for trafficking offenses involving 5 kilograms of cocaine or 50 grams of cocaine base. In addition, 21 U.S.C. § 841(b)(1)(B) established a mandatory 5-year term of imprisonment for offenses involving 500 grams of cocaine or 5 grams of cocaine base. 21 U.S.C. § 844(a) called for a 5-year mandatory minimum punishment for simple possession of crack cocaine. Although the Fair Sentencing Act of 2010 revises these penalties (as discussed below), there still remains a disparity in the threshold amount of powder cocaine and crack cocaine that triggers the mandatory minimums in 21 U.S.C. § 841. Federal sentencing guidelines (the Guidelines) established by the U.S. Sentencing Commission reflect the statutory differential treatment of crack and powder cocaine offenders. Until 2005, the Guidelines were binding on federal courts: the judge had discretion to sentence a defendant, but only within the narrow sentencing range that the Guidelines provided. In its 2005 opinion United States v. Booker, the Supreme Court declared that the Guidelines must be considered advisory rather than mandatory, in order to comply with the Constitution. Instead of being bound by the Guidelines, sentencing courts must treat the federal guidelines as just one of a number of sentencing factors (which include the need to avoid undue sentencing disparity). In the aftermath of Booker, some judges, who did not believe that crack cocaine is 100 times worse than powder cocaine, imposed lower sentences on crack cocaine offenders than the ones recommended by the Guidelines. In 2007, the Supreme Court in Kimbrough v. United States upheld this practice, ruling that a court may impose a below-the-Guidelines sentence based on its conclusion that the 100:1 ratio is greater than necessary or may foster unwarranted disparity. Also in 2007, the Sentencing Commission revised the Guidelines by lowering the base offense level for crack cocaine offenses by two levels, thereby eliminating the 100:1 ratio for future sentencing guideline purposes (except at the point at which the statutory mandatory minimums are triggered). In addition, the Sentencing Commission decided to make these amendments retroactively applicable, thus allowing eligible crack cocaine offenders who were sentenced prior to November 1, 2007, to petition a federal judge to reduce their sentences. On June 17, 2010, the Supreme Court decided Dillon v. United States, in which it held that Booker does not apply in a sentence modification proceeding that is based on the retroactive crack cocaine amendment to the Guidelines; thus, district courts do not have the authority to further reduce a crack cocaine offender's sentence in such proceedings below the retroactive, amended Guidelines range. The Fair Sentencing Act of 2010 (S. 1789) changes the statutory 100:1 ratio in crack/powder cocaine quantities that trigger the mandatory minimum penalties under 21 U.S.C. § 841(b)(1). President Obama signed the bill into law on August 3, 2010 (P.L. 111-220). S. 1789 reduces the statutory 100:1 ratio to 18:1, by increasing the threshold amount of crack cocaine to 28 grams (for the 5-year sentence) and 280 grams (for the 10-year sentence). S. 1789 also eliminates the 5-year mandatory minimum for simple possession of crack cocaine. Other bills introduced in the 111th Congress would completely eliminate the statutory disparity in cocaine sentencing, including H.R. 18, H.R. 265, H.R. 1459, H.R. 2178, and H.R. 3245. Another bill, H.R. 1466, would repeal all statutory mandatory minimums for drug offenses.

Background The Randolph-Sheppard Act, originally signed into law by Franklin D. Roosevelt in 1936, requires that blind individuals receive priority for the operation of vending facilities on federal property. The 1974 amendments to the act changed the term "vending stand" to "vending facility" and defined the term as meaning "automatic vending machines, cafeterias, snack bars, cart services, shelters, counters, and such other appropriate auxiliary equipment as the Secretary [of Education] may by regulation prescribe as being necessary for the sale of the articles or services described in section 107a(a)(5) of this title and which may be operated by blind licensees...." The regulations promulgated by the Department of Education define "cafeteria" as "a food dispensing facility capable of providing a broad variety of prepared foods and beverages (including hot meals) primarily through the use of a line where the customer serves himself from displayed selections. A cafeteria may be fully automated or some limited waiter or waitress service may be available and provided within a cafeteria and table or booth seating facilities are always provided." The act does not apply to "income from vending machines within retail sales outlets under the control of exchange or ships' stores systems[,] ... income from vending machines operated by the Veterans Canteen Service[,] ... or income from vending machines not in direct competition with a blind vending facility at individual locations" on the federal property. The Randolph-Sheppard Act and Military Troop Dining Facilities Application of the Act to Military Troop Dining Facilities Two major circuit court cases have dealt with the issue of whether the term "cafeteria" in the Randolph-Sheppard Act applies to military troop dining facilities. Both the Fourth Circuit and the Tenth Circuit concluded that military troop dining facilities are "cafeterias" under the Randolph-Sheppard Act. NISH v. Cohen In NISH v. Cohen , the court held that the Randolph-Sheppard Act applied to military troop dining facilities at Fort Lee in Virginia. NISH, a nonprofit agency designated "to represent other nonprofits employing the severely disabled in the production of items and services for government agencies under the Javits-Wagner-O'Day Act" (JWOD Act), had unsuccessfully sought to negotiate a contract for military troop dining facilities that was granted to a blind licensee. NISH filed suit seeking a declaratory judgment concerning the proper interpretation of the Randolph-Sheppard Act. In its appeal to the Fourth Circuit, NISH argued that military troop dining facilities are not "cafeterias" under the Randolph-Sheppard Act "because, in contrast to typical cafeterias (where meals are purchased by the general public from private funds), meals at military mess halls are provided to soldiers from appropriated funds." Using a two-part Chevron analysis , the court analyzed statutory and administrative interpretations and ruled that Fort Lee's contracting officer did not act unreasonably in applying the term "cafeteria" to the military troop dining facilities at Fort Lee. NISH also argued that the JWOD Act applied to the awarding of the military troop dining facilities contract at Fort Lee because the Competition in Contracting Act (CICA) "preclud[ed] application of the Randolph-Sheppard Act." CICA "requires that the military use 'full and open competition' when contracting for 'property or services' except 'in the case of procurement procedures otherwise expressly authorized by statute.'" The court ruled that the procurement provisions found in the Randolph-Sheppard Act met CICA's sweeping definition of procurement, which meant both the Randolph-Sheppard Act and the JWOD Act could apply to the situation. The court further held that, of the two statutes, the Randolph-Sheppard Act was more specific and therefore controlling. NISH v. Rumsfeld In NISH v. Rumsfeld , the court held that the Randolph-Sheppard Act applied to military troop dining facilities at Kirtland Air Force Base in New Mexico. NISH had a one-year contract for food services at the base with options for four additional years. Following the first year, the Air Force did not renew the contract with NISH and instead awarded it to the New Mexico Commission for the Blind (NMCB), citing compliance with the provisions of the Randolph-Sheppard Act. NISH filed suit seeking a declaratory judgment concerning the proper interpretation of the Randolph-Sheppard Act. In its appeal to the Tenth Circuit, NISH argued that Congress did not intend to include military troop dining facilities in the Randolph-Sheppard Act's definition of "vending facilities." The court rejected this argument by ruling that the plain language of the statute is unambiguous with respect to the inclusion of "cafeterias." NISH further argued that the Randolph-Sheppard Act did not grant authority to the Department of Education (ED) to regulate military mess halls, but the court ruled that Congress did grant this authority to the ED. Using a two-part Chevron analysis, the court held that the Air Force reasonably relied on the ED's determinations about the meaning of the Randolph-Sheppard Act as well as its own determination in awarding the contract to NMCB. As in NISH v. Cohen , NISH also argued that the JWOD Act applied because of CICA. The court here reached the same conclusion, holding that the Randolph-Sheppard Act met CICA's procurement definition and controlled over the JWOD Act. Other Cases Small business concerns eligible to participate in a program or contract under Section 8(a) of the Small Business Act and HUBZone entities have also filed claims objecting to the application of the Randolph-Sheppard Act to the military troop dining facility contract process. In these cases the Comptroller General and the Court of Federal Claims both held that the blind vendor contracts within the competitive range of contracts had priority over the other groups' contracts. Limits on the Act's Application to Military Troop Dining Facilities The application of the Randolph-Sheppard Act to military troop dining facility contracts is limited by the requirement found in 48 C.F.R. 15.306 that the contract fall within the competitive range. In Southfork Systems, Inc. v. United States , the Court of Appeals for the Federal Circuit held that a contract proposal from a blind vendor could fall within the competitive range of contracts as determined by the contracting officer. In this case Southfork lost its contract with the Air Force for military troop dining facility services to the Texas Commission for the Blind (the Commission) and contested the inclusion of the Commission's contract proposal in the competitive range. The lower court rejected Southfork's claims. The appellate court agreed with the lower court and specifically stated that it failed to see "how ... the Air Force could have concluded that the Commission did not have a 'reasonable chance of being selected for award'" without rejecting "out of hand the proposition that economic opportunities for the blind could be enlarged by having a blind individual" managing the cafeteria. The court recognized that the "contracting officer had broad discretion to consider each factor [in the contract process] as a part of a totality of the circumstances" in making the competitive range determination. The determination of the competitive range has also been part of several federal district court rulings. The application of the Randolph-Sheppard Act to military troop dining facility contracts also may be limited by the types of services provided by the blind individual. In one case, Washington State Department of Services for the Blind v. United States , the Court of Federal Claims held that dining facility attendant services contracts were not covered by the Randolph-Sheppard Act. In this case, the Washington State Department of Services for the Blind (WSDSB) challenged the Army's determination that the Randolph-Sheppard Act did not apply to contracts for dining facility attendant services at Fort Lewis. WSDSB argued that the Randolph-Sheppard Act's requirement that blind persons be given priority for " operation of a vending facility" on federal property included dining facility attendant services contracts, but the court held that the Army's interpretation that "operation" did not include dining facility attendant services was not arbitrary or capricious. However, in Mississippi Department of Rehabilitation Services v. United States , the Court of Federal Claims held that a contract for day-to-day services, as opposed to dining facility attendant services, fell under the Randolph-Sheppard Act even though the Navy retained control over menu selection and food supply purchasing. In this case, the Mississippi Department of Rehabilitation Services challenged the Navy's determination that the Randolph-Sheppard Act did not apply to a contractor for services at the Naval Air Station in Meredian, Mississippi, who was required to "manage the cafeteria, prepare the food, serve the food, provide cleanup and cashier services, implement quality control and training programs, provide certain supplies and equipment and hire the personnel, both managerial and support." The court concluded that the contractor was considered the facility's "operator" because of its daily responsibilities. Legislation in the 110th Congress The Javits-Wagner-O'Day and Randolph-Sheppard Modernization Act of 2008 was introduced by Senator Enzi on June 11, 2008. This legislation would, among other things, address several issues raised by the judicial decisions previously discussed. The bill would establish the Committee for the Advancement of Individuals with Disabilities that would jointly administer both the Randolph-Sheppard program and the AbilityOne program (which implements the JWOD Act). The bill also would require state licensing agencies to grant licenses for the operation of a vending facility to individuals with disabilities other than blindness starting three years after the bill's enactment. Additionally, with respect to military troop dining facilities, the bill would grant equal priority in the contract process to a state licensing agency bidding for a contract under the Randolph-Sheppard Act, a small business concern eligible to participate in a program or contract under Section 8(a) of the Small Business Act, a HUBZone entity, an Alaska Native Corporation, and other socially disadvantaged groups as defined by the Department of Defense. For military troop dining facility contract proposals from the AbilityOne program, the bill would prohibit new proposals and require that proposals be removed from the procurement list five years after the bill becomes law. Finally, the bill would specify that the term "cafeteria" in the Randolph-Sheppard Act, when used in reference to a military troop dining facility, would refer only to "services pertaining to a full food service military dining facility." This definition would not include "mess attendant, dining facility attendant, dining support" or other activities that supported the operation of the cafeteria. The bill was referred to the Senate Committee on Health, Education, Labor, and Pensions on June 11, 2008. No similar legislation has been introduced in the House.

The Randolph-Sheppard Act requires that blind individuals receive priority for the operation of vending facilities on federal property. "Vending facilities" include automatic vending machines, cafeterias, and snack bars. This report will discuss several significant court decisions and recent legislation related to the Randolph-Sheppard Act. Two federal court of appeals decisions, NISH v. Cohen and NISH v. Rumsfeld, held that military troop dining facilities are "cafeterias" under the Randolph-Sheppard Act and that the act controlled over the Javits-Wagner-O'Day Act, which provides employment opportunities for the severely disabled. Other cases have analyzed the scope of the Randolph-Sheppard Act's application to military troop dining facilities. S. 3112, which was introduced on June 11, 2008, would amend the Javits-Wagner-O'Day and Randolph-Sheppard Acts and address several issues raised by these judicial decisions.

The Immigration and Nationality Act Since 1903, the INA has contained two separate provisions addressing the public charge grounds. One provision, currently codified in Section 212 of the INA, addresses the public charge grounds of inadmissibility (formerly, excludability) and specifies that "[a]ny alien who ... is likely at any time to become a public charge is inadmissible." This provision generally applies to aliens seeking to obtain visas or admission at ports of entry; aliens within the United States who seek to adjust their status to that of lawful permanent resident (LPR); and aliens who entered the United States without inspection. If such aliens are found to be inadmissible on public charge grounds, they are, respectively, barred from entering the United States, denied adjustment of status, or subject to removal from the country. Another provision, currently codified in Section 237 of the INA, addresses the public charge ground of deportability and specifies that "[a]ny alien who, within five years after the date of entry, has become a public charge from causes not affirmatively shown to have arisen since entry is deportable." This provision applies to LPRs and other aliens admitted to the United States. However, while the INA provides that an alien may be inadmissible or deportable on public charge grounds, it does not define what it means for an alien to be a public charge. Such determinations were historically made using certain tests developed by the case law, discussed below. Then, in 1996, Congress amended the INA provisions regarding the public charge ground of inadmissibility to require that consular and immigration officers take certain factors "into account" when determining whether aliens are inadmissible or ineligible for adjustment of status on public charge grounds. These factors include, "at a minimum," the alien's age; health; family status; assets, resources, and financial status; and education and skills. In addition, the 1996 amendments also authorize consular and immigration officers to consider any affidavit of support furnished on behalf of an alien and provide that certain family-sponsored and employment-based immigrants are inadmissible if they do not have the requisite affidavit of support. No similar amendments have been made as to the public charge ground of deportability , which is still assessed based upon a three-part test developed by the case law, discussed below. It is important to note, however, that public charge has been construed more narrowly for purposes of the grounds of deportability than it has been construed for purposes of the grounds of inadmissibility, in part, due to the differences between deportation and exclusion. Because the "deportation statute dislodges an established residence" in the United States, it "must be strictly construed." The same is not true with the INA's provisions regarding inadmissibility. Early Administrative and Judicial Decisions Given this general lack of statutory guidance, the executive and judicial branches initially construed the term public charge in adjudicating cases involving individual aliens. Immigration officers would consider certain factors in determining whether particular aliens were inadmissible or deportable on public charge grounds. If the alien appealed, the determinations of these officers were subject to review by the Board of Immigration Appeals (BIA or Board), the highest administrative body for interpreting and applying immigration law. Then, if they were appealed, the BIA's decisions were subject to review by the federal courts. Numerous decisions, dating back to at least 1903, address the applicability of the public charge grounds to particular aliens. However, two BIA decisions, in particular, helped establish what it means for an alien to be a public charge. First, in its 1948 decision in Matter of B— , the BIA established the prevailing test for determining whether an alien is deportable on public charge grounds. There, a majority of the Board granted the INS's motion to withdraw the order and warrant of deportation and dismiss removal proceedings against an alien who had been committed by the courts to a state hospital. In so doing, the BIA articulated a three-part test for determining whether an alien is deportable on public charge grounds that, it said, had been "implicit" in prior judicial decisions and "applied administratively over a long period of time." For an alien to be deportable as a public charge under this test: (1) The State or other governing body must, by appropriate law, impose a charge for the services rendered to the alien .... (2) The authorities must make demand for payment of the charges upon those persons made liable under State law. (3) [T]here must be a failure to pay for the charges. Applying this test to the alien in question, the BIA found that the alien could not be deemed a public charge because the Illinois statute governing commitment at the state hospital provided that hospital residents were entitled to receive free maintenance, care, and treatment. Residents were only legally liable for their clothing, transportation, and other incidental expenses, which the record "clearly show[ed]" that the alien's sister had paid. In its decision, the Board also emphasized that "[t]he fact that the State or municipality pays for the services accepted by the alien is not, ... by itself, the test of whether the alien has become a public charge." Subsequently, in its 1974 decision in Matter of Harutunian , the BIA reaffirmed that a "totality of the circumstances" test—as opposed to the three-part test of Matter of B — applies in determining when an alien is inadmissible on public charge grounds. In Harutunian , the Board affirmed immigration officials' determination that a 70-year-old alien who had relied on state "old-age assistance benefits" for support was ineligible for adjustment of status on public charge grounds. The alien had sought to overturn this decision by citing the precedent of Matter of B— , since California did not require repayment of old-age assistance benefits of the type the alien received. However, the BIA rejected this argument, primarily because it construed public charge as having a different meaning in Section 212 of the INA than it does in Section 237. In support of this conclusion, the Board first noted the differences between deportation and exclusion. In particular, the Board noted that deportation "dislodges an established residence" in the United States, while aliens outside the United States generally have no constitutional right to enter the country. Thus, it concluded that the grounds of deportability must be more "strictly construed" than the grounds of inadmissibility. The Board also noted that the legislative history of the public charge ground of inadmissibility supported the view that Congress intended "elements" such as age, financial status, and family support be considered in determining whether an alien is a public charge. The Board further emphasized that administrative authorities had historically taken the view that the alien's physical and mental condition, as well as the alien's economic circumstances, were to be considered in determining whether the alien is inadmissible on public charge grounds. In addition, the BIA viewed the three-part test of Matter of B — as inappropriate in determining inadmissibility, since the public charge ground of inadmissibility is concerned with whether the alien is "likely to become a public charge at some time in the future, a prediction which necessarily precludes the element of reimbursement." Applying this "totality of the circumstances" test to the alien in question, the BIA found in Harutunian that immigration officials had properly determined that the alien was ineligible for adjustment of status on public charge grounds. The alien had been on welfare since her arrival in the United States, and she was receiving such assistance at the time she applied for adjustment of status. In addition, the alien was aged, unskilled, uneducated, and without family or other support. In light of these circumstances, the Board concluded that the alien could be deemed a public charge, "even though the state from which she will receive old age assistance [had not sought and] may not permit reimbursement." PRWORA and Resulting Guidance The enactment of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 prompted the then Immigration and Naturalization Service (INS) to issue guidance defining public charge and describing the application of the public charge grounds. PRWORA is best known for generally barring noncitizens who do not fall within PRWORA's definition of "qualifed aliens" from receiving federal, state, and local "public benefits" and for significantly restricting the receipt of "federal means-tested public benefits" by qualified aliens. However, even with these restrictions, noncitizens may receive certain public benefits under PRWORA. For example, PRWORA expressly exempts specified benefits—including emergency medical assistance and certain disaster relief—from its general prohibition upon the provision of federal, state, and local public benefits to aliens who are not qualified aliens. PRWORA also exempts specified categories of qualified aliens—including refugees, asylees, and certain victims of domestic violence—from the five-year bar upon their receipt of federal means-tested public benefits. Because PRWORA permits noncitizens to receive some public benefits, aliens and commentators have raised questions about whether aliens who take advantage of such benefits could potentially be found to be removable as a result of doing so. In 1999, the INS responded to these questions by proposing regulations and issuing a field guide defining public charge , and describing how immigration officials viewed receipt of public benefits when making public charge determinations. The proposed regulations would have defined public charge , for purposes of both the grounds of inadmissibility and the grounds of deportability, to mean: an alien who has become primarily dependent on the Government for subsistence as demonstrated by either: (i) [t]he receipt of public cash assistance for income maintenance purposes, or (ii) [i]nstitutionalization for long-term care at Government expense (other than imprisonment for conviction of a crime). Government would have referred to any federal, state, or local entity. Public cash assistance for income maintenance , in turn, would have been defined to include, but not be limited to, Supplemental Security Income (SSI) and, with certain exceptions, Temporary Assistance for Needy Families (TANF). Forms of cash benefits "not intended for income maintenance" would have been expressly excluded from consideration in public charge determinations (e.g., the Low Income Home Energy Assistance Program (LIHEAP), Child Care and Development Block Grant Program (CCDBGP), food stamp benefits issued in cash). Cash benefits that had been "earned" would also have been excluded, including benefits under Title II of the Social Security Act, government pension benefits, and veteran's benefits. The proposed regulation would also have spelled out the role that receipt of public cash assistance for income maintenance plays in determining whether an alien is inadmissible or deportable on public charge grounds. As to inadmissibility , the rule would have noted that Section 212 of the INA requires consular and immigration officers to consider, "'at a minimum, [the alien's] age, health, family status, assets, resources, financial status, education, and skills in making a decision on whether [the alien is] likely to become a public charge." It would also have noted that public charge determinations are based on the "totality of the circumstances" and "[n]o single factor," other than the lack of any required affidavit of support, is controlling, including past or current receipt of public cash assistance. As to deportability , the rule would have specified that aliens are generally not deportable on public charge grounds unless the INS shows that 1. the government entity that provided, or is providing, public cash assistance for income maintenance, or the costs of institutionalization for long-term care, has a legal right to seek repayment of those benefits; 2. that entity demanded repayment of the benefit within five years of the alien's entry to the United States; 3. the alien or any other party obligated to repay the benefit failed to do so; 4. there is a final administrative or court judgment requiring the alien or another party to repay the benefit; and 5. the benefit-granting agency, or other applicable government entity, has taken "all actions necessary to enforce the judgment," including "all collections actions." The INS never finalized these regulations. However, at the same time it issued the proposed regulations, the INS also issued a field guide on inadmissibility and deportability on public charge grounds that incorporated the definition of public charge and other guidance provided in the proposed regulations. Commonly referred to as the "Pearson memorandum," after its author, this field guidance has continued to be cited as an authoritative source on the public charge grounds of inadmissibility and deportability. Similar guidance appears in other sources, most notably the State Department's Foreign Affairs Manual, discussed below. Current Regulations and Other Guidance The public charge grounds are currently discussed in the regulations of both the Departments of Homeland Security (DHS) and State (DOS), as well as in DOS's Foreign Affairs Manual. The DOS regulations address only the grounds of inadmissibility, since consular officers are responsible for the issuance of visas to aliens outside the United States, but generally play no role in determining whether aliens within the United States are deportable. DHS officials, in contrast, determine whether aliens arriving at U.S. ports of entry are to be admitted; whether applications for adjustment of status are to be granted; and whether aliens within the United States are to be removed. Thus, the DHS regulations address both inadmissibility and deportability. DHS Regulations and Guidance The INS never finalized the proposed regulations regarding the public charge grounds, discussed above, and DHS has not proposed or promulgated similar regulations. Instead, the INS and, later, DHS promulgated specific regulations regarding the "special rules" used in determining whether certain applicants for adjustment of status are public charges. For example, DHS regulations currently provide that "special agricultural workers" who meet certain requirements are subject to the public charge grounds, but may not be excluded if they have a "consistent employment history" which shows the aliens' ability to support themselves and their families. The regulations further provide that "[p]ast acceptance of public cash assistance within a history of consistent employment will enter into" public charge determinations for special agricultural workers, with "the length of time an applicant has received [such] assistance" being viewed as a "significant factor." However, the weight given to the acceptance of public cash assistance is expressly said to "depend on many factors," and the overall analysis is "prospective in that [immigration officials] shall determine, based on the applicant's history, whether he or she is likely to become a public charge." In other words, pursuant to these regulations, prior receipt of public cash assistance would not necessarily result in an alien being found ineligible for adjustment of status if other factors suggest that the alien is unlikely to become a public charge in the future . There are similar "special rules" for other aliens seeking adjustment of status. DHS regulations are currently silent as to the public charge grounds of deportability. The Pearson memorandum has apparently continued to guide DHS's consideration of public charge determinations. The U.S. Citizenship and Immigration Service's (USCIS's) 2011 "fact sheet" on the public charge grounds, for example, defines public charge in the same way as the Pearson memorandum and expressly references the Pearson memorandum. As of February 4, 2017, this fact sheet is publicly available on the DHS website. State Department Regulations and Guidance The current DOS regulations, in contrast, address the public charge grounds of inadmissibility more broadly than the DHS regulations do. The DOS regulations emphasize the role that the alien's "circumstances" play in determining whether an alien is inadmissible, in part, by specifying that: [a]ny determination that an alien is ineligible [on public charge] grounds must be predicated upon circumstances indicating that, notwithstanding any affidavit of support that may have been filed on the alien's behalf, the alien is likely to become a public charge after admission, or, if applicable, that the alien has failed to fulfill the affidavit of support requirement .... Consular officers are expressly authorized to issue visas to aliens subject to the affidavit of support requirement, noted above, who "giv[e] ... a bond or undertaking in accordance with INA 213 and INA 221(g)," provided that the officer is satisfied that the giving of such bond or undertaking removes the likelihood that the alien will become a public charge, and the alien is otherwise eligible for a visa. However, consular officers are also required to presume that aliens not subject to the affidavit of support requirement who are relying solely on personal income to establish that they are not likely to become a public charge are ineligible for a visa if they do not demonstrate "an annual income above the federal poverty line" and are without "other adequate financial resources." The DOS guidance in the Foreign Affairs Manual (FAM) largely parallels that in the 1999 INS proposed regulations and the Pearson memorandum. However, the FAM expressly characterizes the types of public cash assistance for income maintenance considered in public charge determinations as "means tested benefits." The FAM also defines institutionalization for long-term care , which is not defined in the Pearson memorandum, as "care for an indefinite period of time for mental or other health reasons, rather than temporary rehabilitative or recuperative care even if such rehabilitation or recuperation may last weeks or months." Overall, though, like the Pearson memorandum, the FAM emphasizes that public charge determinations are to be made based upon the "totality of the circumstances," considering the factors specified in the INA (e.g., age, health), as well as "any other factors thought relevant by an officer in a specific case." Past or current receipt of cash benefits for income maintenance or institutionalization at public expense "may be factored into" the determination when it constituted the alien's primary means of subsistence. However, under the FAM, "[a] finding of inadmissibility [on public charge grounds] cannot be based solely on the prior receipt of public benefits," or on institutionalization at public expense. Public Benefits and the Public Charge Grounds Collectively, the various sources addressing the meaning of public charge suggest that an alien's receipt of public benefits, per se, has historically been unlikely to result in the alien being deemed removable on public charge grounds. As previously noted, the INA does not define public charge , or link the public charge grounds of inadmissibility and deportability with the receipt of public benefits. DHS and DOS regulations are also silent as to the definition of public charge and the role that receipt of public benefits may play in public charge determinations. Other guidance from DHS and DOS does link the INA's public charge grounds with public benefits, in part, by defining public charge in such a way as potentially to encompass aliens who receive certain public benefits (i.e., SSI; certain TANF assistance; state and local cash assistance for income maintenance). However, this guidance also indicates that prior or current receipt of public benefits, in itself, has generally not sufficed for an alien to be found removable on public charge grounds. This guidance emphasizes that determinations as to admissibility involve projections regarding whether the alien is "likely to become a public charge" in the future that are based on the totality of the circumstances. These circumstances include, but are not limited to, prior receipt of benefits. The guidance similarly emphasizes that determinations as to deportability are made by applying a three-part test, previously discussed, which considers whether payment for any government-provided assistance was legally required, was demanded, and could be made. The case law interpreting and applying the public charge grounds similarly suggests that receipt of certain public benefits could result in a determination that an alien is inadmissible or deportable on public charge grounds, if certain other conditions are met. However, these cases also illustrate that prior receipt of public benefits, in itself, has not necessarily resulted in a determination that an alien is a public charge. For example, in Matter of A— , the BIA sustained an alien's appeal of a decision finding her ineligible for adjustment of status on public charge grounds. The INS district director had determined that the alien was ineligible because the alien's family had received "public cash assistance" for nearly four years, and neither the alien nor her spouse had worked for four years prior to filing the application for adjustment of status. The district director thus viewed the alien as "unable to support herself and her family without public assistance." The Board, however, disagreed, noting that the alien was "young" and had no "physical or mental defect which might affect her earning capacity." It also noted that the alien had recently begun working, and that during the time when she was absent from the workforce, she had been caring for her children. Likewise, in Matter of T— , the BIA sustained the appeal of a mother and child who had been excluded on public charge grounds after their husband/father was excluded for having committed a crime involving moral turpitude. The mother and son sought permanent residence in the United States independent of the father, but were denied. In reversing this denial, the BIA noted that the mother was "quite capable of earning her own livelihood independent of her husband," and the child had training in a field which represented "a wide field of employment for this country." Prior or current receipt of public benefits was not at issue in this case. However, the Board's focus on the aliens' ability to earn a living, even without the contributions of the husband/father, is illustrative, and recurs in cases where aliens did receive public benefits (e.g., "welfare services," food stamps, "public assistance," Aid to Families with Dependent Children (AFDC), Medi-Cal). Similar conclusions have been reached in the cases construing and applying the public charge grounds of deportability. As Matter of B — illustrates, receipt of public assistance has been merely one factor in determining deportability. There must also be (1) a legal obligation to repay that assistance; (2) a demand for repayment; and (3) a failure to repay the assistance. Where there is no legal obligation to repay the assistance, the alien has not been found deportable on public charge grounds. This was the case in Matter of B— , where Illinois law provided that residents at the state hospital were entitled to receive free maintenance, care, and treatment. In other cases, the government authorities did not request repayment, or the alien (or another responsible party) had the ability to pay. Thus, in Matter of P— , the BIA terminated removal proceedings against an alien, in part, because no demand for payment was made upon the alien or his relatives, and "it appears that the respondent had property" which could have been used for making payment had payment been demanded. The situation was the same in Matter of C— , because no demand for repayment of the assistance provided was made by the state within five years of the alien's last entry, and her husband had "some ability to pay." It should also be noted that, in making determinations regarding aliens' deportability on public charge grounds, only causes that pre-date their entry are considered. Causes which the alien can "affirmatively show" developed subsequent to entry do not factor into public charge determinations. Conclusion Congressional interest in the public charge grounds of inadmissibility and deportability seems likely to persist, in part, because of the interplay between the provisions of the INA providing for aliens' removability on public charge grounds and other provisions of immigration law that permit noncitizens to receive certain benefits. On the one hand, Congress has provided that aliens may be excluded or deported if they are likely to become, or have become, a public charge , a term which the executive branch has construed to mean that they are primarily dependent on the government for subsistence. On the other hand, Congress has also provided that certain public benefits (e.g., certain disaster relief) are exempt from PRWORA's restrictions upon the provision of federal, state, or local public benefits to aliens who are not qualified aliens. These two provisions could be seen to be reconcilable, especially if one focuses upon whether specific programs "count" as public benefits, or for purposes of public charge determinations. However, the overall picture may raise questions about how and why noncitizens can receive benefits without being subject to removal.

The Immigration and Nationality Act (INA) has long provided for aliens' exclusion and deportation from the United States on "public charge" grounds. Under current law, aliens outside the United States who seek to obtain visas at U.S. consulates overseas, or admission at U.S. ports of entry, are generally denied entry if they are deemed "likely at any time to become a public charge." Aliens within the United States who seek to adjust their status to that of lawful permanent resident (LPR), or who entered the United States without inspection, are also generally subject to this ground of inadmissibility. Similarly, LPRs and other aliens who have been admitted to the United States are removable if they become a public charge within five years after the date of their entry due to causes that preexisted their entry. These public charge grounds are of recurring interest to Members of Congress because of questions about whether aliens who receive various forms of public assistance are inadmissible or deportable on public charge grounds. The INA does not expressly define what it means for an alien to be a public charge, and, prior to 1996, there was no statutory guidance on what was to be considered in determining whether an alien is inadmissible or deportable on public charge grounds. Then, in 1996, the INA was amended to require that certain factors be taken into account when determining whether aliens are inadmissible on public charge grounds. These factors include the alien's age, health, family status, financial resources, education, and skills. There is no similar statutory guidance on what factors are to be considered in determining whether an alien is deportable on public charge grounds. Given this general lack of statutory guidance, the executive and judicial branches initially construed the meaning of public charge in adjudicating cases involving individual aliens. In so doing, administrative authorities interpreted public charge differently for purposes of the grounds of inadmissibility than for the grounds of deportability. Specifically, public charge was construed broadly in the context of admissibility, with determinations based on a "totality of the circumstances" test that considered factors like those codified in the INA in 1996. In contrast, in the context of deportability, "public charge" was construed more narrowly. Aliens could only be found to be deportable on public charge grounds if (1) they received government assistance that they were legally obligated to repay; (2) the government entity providing the assistance demanded repayment; and (3) the alien or the alien's sponsor was unable to pay. Following the enactment of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, executive agencies issued guidance regarding the public charge grounds. While PRWORA generally restricts noncitizens' eligibility for "public benefits," it permits them to receive specified benefits. Thus, its enactment raised questions about whether aliens who receive benefits for which they are eligible under PRWORA could potentially be removable on public charge grounds. Immigration officials addressed these questions in a 1999 policy letter that defined public charge and identified which benefits are considered in public charge determinations. This policy letter underlies current regulations and other guidance on the public charge grounds of inadmissibility and deportability. Collectively, the various sources addressing the meaning of public charge have historically suggested that an alien's receipt of public benefits, per se, is unlikely to result in the alien being deemed to be removable on public charge grounds. Neither the INA nor implementing regulations address the role that receipt of public benefits plays in public charge determinations. Other agency guidance and court decisions have generally indicated that, while receipt of certain public benefits could be considered in public charge determinations, other factors are also considered (e.g., age, obligation to repay).

Background The 111 th Congress is considering legislation ( S. 707 and H.R. 1722 ) to foster the development of telework in executive agencies of the federal government. Senator Daniel Akaka, for himself and Senator George Voinovich, introduced S. 707 , the Telework Enhancement Act of 2009, on March 25, 2009, and it was referred to the Senate Committee on Homeland Security and Governmental Affairs. In his statement upon introducing the bill, Senator Akaka stated that the legislation would "provide Federal agencies with an important tool to remain competitive in the modern workplace and would offer a flexible option for human capital management." Furthermore, he stated that the bill "prohibits discrimination against employees who chose to telework, guaranteeing those employees will not be disadvantaged in performance evaluations, pay, or benefits." Senator Voinovich's statement emphasized that the legislation "helps ensure that executive agencies better integrate telework into their human capital planning, establishes a level playing field for employees who voluntarily elect to telework, and improves program accountability." He noted that, telework "participation is far short of what it should be and what the Federal workforce needs if our government is to remain an employer of choice." The committee marked up the legislation on May 20, 2009, and, by voice vote, ordered it to be reported with an amendment favorably. The amendment, offered by Senator Tom Coburn and agreed to by voice vote, would amend 5 U.S.C. §5710 by amending subsections (a)(1) and (e) and adding a subsection (f) to authorize a test program for travel expenses at the Patent and Trademark Office. An estimate prepared by the Congressional Budget Office determined that administrative costs in the federal agencies would increase by $5 million in 2010, and by $25 million over the 2010-2014 period as S. 707 is implemented. The Senate Committee on Homeland Security and Governmental Affairs reported S. 707 ( S.Rept. 111-177 ) on May 3, 2010. The Senate agreed to the committee amendments, including a title change, and passed S. 707 , the Telework Enhancement Act of 2010, under unanimous consent on May 24, 2010. Representative John Sarbanes, for himself and Representatives Frank Wolf, Gerald Connolly, Stephen Lynch, Danny Davis, Jim Moran, and C.A. Dutch Ruppersberger, introduced H.R. 1722 , the Telework Improvements Act of 2010, on March 25, 2009, and the bill was referred to the House Committee on Oversight and Government Reform. The legislation would amend Title 5 of the United States Code by adding a new Chapter 65 entitled "Telework." Representative Sarbanes, upon introducing the bill, stated that it "encourages a uniform and consistent telework policy across the federal government, while imposing strict oversight and accountability that will ensure the success of this pragmatic yet innovative workforce management policy." He expressed the expectation that the bill will "bolster the federal workforce, reduce traffic and carbon emissions, and improve the quality of life for our dedicated civil servants." The House Subcommittee on Federal Workforce, Postal Service, and the District of Columbia marked up H.R. 1722 on March 24, 2010. The subcommittee, by voice vote, agreed to a manager's amendment, offered by Subcommittee Chairman Representative Lynch, and an amendment, offered by Representative Connolly, related to continuity of operations and telework, and then reported the bill to the House Committee on Oversight and Government Reform, favorably, as amended. Representative Connolly withdrew a second amendment before it could be considered that would have provided for the establishment and operation of a National Telework Research Center at an institution of higher education. The full committee marked up the bill on April 14, 2010, and, by voice vote, agreed to a manager's amendment, offered by Committee Chairman Representative Edolphus Towns, and amendments offered by Representatives Jason Chaffetz, related to telework managing officers, and Gerald Connolly, related to OPM research on telework. The committee then ordered H.R. 1722 to be reported, as amended, to the House of Representatives. The House Committee on Oversight and Government Reform reported H.R. 1722 ( H.Rept. 111-474 ) on May 4, 2010. An estimate prepared by the CBO determined that administrative costs in the federal agencies would increase by $2 million in 2010, and by $30 million over the 2010-2015 period as H.R. 1722 is implemented. The House began consideration of the bill on May 5, 2010. A motion to suspend the rules and pass H.R. 1722 , as amended, failed by the Yeas and Nays (2/3 required) 268-147 ( Roll No. 251 ) on May 6, 2010. On July 13, 2010, the House Committee on Rules reported the rule for the consideration of H.R. 1722 , H.Res. 1509 , to the House. The next day the House agreed to the rule on a 238-180 (Roll No. 438) vote after the previous question was ordered on a 232-184 (Roll No. 437) vote. Pursuant to the rule, the amendment in the nature of a substitute recommended by the House Committee on Oversight and Government Reform was considered as adopted. Following debate on the bill, the House agreed to a motion offered by Representative Darrell Issa to recommit the bill to the committee with instructions to report the bill back to the House forthwith with an amendment. The House agreed to the motion on a 303-119 (Roll No. 440) vote. Subsequently, Representative Lynch reported the bill back to the House with the amendment and the amendment was agreed to by voice vote. The House passed H.R. 1755 , as amended, on a 290-131 (Roll No. 441) vote on July 14, 2010. The title of the bill also was amended. The amendment placed specific limitations on the authorization of telework. An employee would not be authorized to telework if any of the following apply to him or her: (A) The employee has a seriously delinquent tax debt. Such a debt would be defined as an outstanding debt under the Internal Revenue Code of 1986 for which a notice of lien has been filed in public records pursuant to section 6323 of such Code. Not included under the definition would be a debt that is being paid in a timely manner under an agreement under sections 6159 or 7122 of the Code; a debt for which a levy has been issued under section 6331 of the Code upon accrued salary or wages (or, in the case of an applicant for employment, a debt for which the applicant agrees to be subject to a levy issued upon accrued salary or wages); and a debt for which a collection due process hearing under section 6330 of the Code, or relief under subsection (a), (b), or (f) of section 6105 of the Code, is requested or pending. OPM would prescribe regulations to implement this provision. The regulations would provide that an individual would be given a reasonable amount of time to demonstrate that his or her debt is not included under the definition of a seriously delinquent tax debt. (B) The employee has been officially disciplined for violations of subpart G of the Standards of Ethical Conduct for Employees of the Executive Branch for viewing, downloading, or exchanging pornography, including child pornography on a federal government computer or while performing official federal government duties. (C) The employee received a payment under the Low-Income Home Energy Assistance Act of 1981 but was ineligible to receive the payment under the criteria described in 42 U.S.C. §8624(b)(2). (D) The employee has been officially disciplined for being absent without permission for more than five days in any calendar year. Furthermore, An agency could not permit employees to telework unless the agency head certifies to the OPM Director that implementation of the policy will result in savings to the agency. Any time during which an employee teleworks may not be treated as 'official time' for purposes of the authority to carry out any activity under 5 U.S.C. §7131[on official time for negotiation of collective bargaining agreement]. Any employee who, while teleworking pursuant to a policy established under Chapter 65 of Title 5, United States Code , creates or receives a Presidential record or Vice-Presidential record within the meaning of Chapter 22 of Title 44, United States Code , through a non-official electronic mail account, a social media account, or any other method (electronic or otherwise), would electronically copy the record into the employee's official electronic mail account. The Senate received H.R. 1722 on July 15, 2010, and it was referred to the Committee on Homeland Security and Governmental Affairs. The committee discharged the bill under unanimous consent on September 29, 2010. The Senate agreed to an amendment (S.Amndt. 4689) in the nature of a substitute to H.R. 1722 , offered by Senator Richard Durbin, under unanimous consent, and then passed H.R. 1722 , as amended, under unanimous consent, on September 30, 2010. The amendment, among other provisions, incorporated several provisions from the House-passed bill related to employees who would not be eligible to telework, information and security protections for systems used while teleworking, guidance on purchasing computer systems that enable and support telework, and research on telework to be undertaken by the OPM Director. The amendment added a provision that would require OPM to consult with the National Archives and Records Administration on policy and guidance for telework related to efficient and effective records management and preservation, including records of the President and Vice President. Any House action to concur in the Senate amendment may occur in the lame duck session scheduled to convene on November 15, 2010. As passed by both the Senate and the House, H.R. 1722 would define telework as a work flexibility arrangement under which an employee performs the duties and responsibilities of his or her position, and other authorized activities, from an approved worksite other than the location from which the employee would otherwise work. The bill would require the heads of executive agencies to establish policies under which employees (with some exceptions) could be eligible to participate in telework. The policies on telework would have to be established within 180 days after enactment (Senate-passed H.R. 1722 ) or within one year after the enactment (House-passed H.R. 1722 ) of the new Chapter 65 of Title 5 United States Code . Employee participation in telework must not diminish either employee performance or agency operations (Senate-passed H.R. 1722 ) or agency operations and performance (House-passed H.R. 1722 ). In the executive agencies, employees not eligible for telework generally would include those whose duties involve the daily direct handling of secure materials determined to be inappropriate for telework by the agency head or on-site activity that cannot be handled remotely or at an alternative worksite (Senate-passed H.R. 1722 ) or the daily direct handling of classified information or are such that their performance requires on-site activity which cannot be carried out from a site removed from the employee's regular place of employment (House-passed H.R. 1722 ). Under the Senate-passed version of the bill, an employee would have to enter into a written agreement with the agency to participate in telework. H.R. 1722 , as passed by the Senate and the House, would require that a Telework Managing Officer, who would be responsible for implementing the telework policies, be appointed for each executive agency. Each agency also would be required to provide training to managers, supervisors, and employees participating in telework. Telework would be incorporated into Continuity of Operations (COOP) plans under the legislation. The Senate-passed H.R. 1722 provides that each executive agency would incorporate telework into its COOP plan and, when operating under COOP, that plan would supersede any telework policy. Under the House-passed H.R. 1722 , the agency head, for agencies named in 31 U.S.C. §901(b)(1)(2), would be required to ensure that telework is incorporated into its COOP plans and uses telework in response to emergencies. The Senate-passed and House-passed H.R. 1722 also would require the Director of the Office of Personnel Management (OPM) to submit annual reports on telework to Congress, and the Comptroller General (CG) to review the OPM report and then annually report to Congress on the progress of executive agencies in implementing telework. The CG would be required to annually submit a report to Congress on telework at the Government Accountability Office (GAO). H.R. 1722 , as passed by the Senate, would require the Chief Human Capital Officers (CHCOs) to annually report to the CHCO Council chair and vice-chair on telework implementation by their agencies. Under the Senate-passed and House-passed H.R. 1722 , test programs for telework travel expenses would be authorized. Such programs would be authorized for seven years and no more than 10 programs could be conducted simultaneously. As passed by the Senate, H.R. 1722 also would authorize a test program for telework travel expenses at the Patent and Trademark Office. Table 1 , below, compares the provisions of S. 707 , as passed by the Senate, and H.R. 1722 , as passed by the House of Representatives and the Senate.

Legislation to augment telework in executive agencies of the federal government is currently pending in the 111th Congress. S. 707, the Telework Enhancement Act of 2010, and H.R. 1722, the Telework Improvements Act of 2010, were introduced on March 25, 2009, by Senator Daniel Akaka and Representative John Sarbanes, respectively. The Senate passed S. 707, amended, under unanimous consent on May 24, 2010. The House passed H.R. 1722, amended, on July 14, 2010, on a 290-131 (Roll No. 441) vote. The Senate agreed to an amendment in the nature of a substitute to H.R. 1722, and then passed H.R. 1722, as amended, under unanimous consent on September 30, 2010. Any House action to concur in the Senate amendment may occur in the lame duck session scheduled to convene on November 15, 2010. H.R. 1722, as passed by the House and the Senate, would amend Title 5 of the United States Code by adding a new Chapter 65 entitled "Telework." The bill defines telework as a work flexibility arrangement under which an employee performs the duties and responsibilities of his or her position, and other authorized activities, from an approved worksite other than the location from which the employee would otherwise work. The heads of executive agencies would be required to establish policies under which employees (with some exceptions) could be eligible to participate in telework. Employee participation in telework must not diminish either employee performance or agency operations (Senate-passed H.R. 1722) or agency operations and performance (House-passed H.R. 1722). Executive agency employees not eligible for telework generally would include those whose duties require the daily direct handling of secure materials determined to be inappropriate for telework by the agency head or on-site activity that cannot be handled remotely or at an alternative worksite (Senate-passed H.R. 1722) or the daily direct handling of classified information or are such that their performance requires on-site activity which cannot be carried out from a site removed from the employee's regular place of employment (House-passed H.R. 1722). The Senate-passed version of the bill would require an employee to enter into a written agreement with the agency before participating in telework. The Senate- and House-passed H.R. 1722 would require each executive agency to appoint a Telework Managing Officer, who would be responsible for implementing the telework policies; provide training to managers, supervisors, and employees participating in telework; provide for telework to be incorporated into Continuity of Operations (COOP) plans; require the Director of the Office of Personnel Management (OPM) to submit annual reports on telework to Congress, and require the Comptroller General (CG) to review the OPM report and then annually report to Congress on the progress of executive agencies in implementing telework; and require the CG to annually submit a report to Congress on telework at the Government Accountability Office (GAO). The Senate-passed H.R. 1722 would require the agency Chief Human Capital Officers (CHCOs) to annually report to the chair and vice-chair of the CHCO Council on telework in their organizations. Test programs for telework travel expenses would be authorized by the Senate- and House-passed H.R. 1722. This report presents a side-by-side comparison of the provisions of S. 707, as passed by the Senate, and H.R. 1722, as passed by the House and the Senate. It will be updated as events dictate.

Introduction Some Members of Congress have expressed concern that the cost of redeveloping closed military property may place a burden on local communities. On March 12, 2009, Senator Olympia Snowe (Maine) introduced in the 111 th Congress on behalf of herself and Senator Mark L. Pryor (Arkansas), the "Defense Communities Assistance Act of 2009" ( S. 590 ). As stated under its Section 2 (Sense of Congress), the legislation is intended to assist communities located near military installations "to either recover quickly from [military base] closures or to accommodate growth associated with troop influxes" brought on by the movement of troops and activities as part of "base closures and realignments, global repositioning, and grow the force initiatives." Representative Chellie Pingree (Maine) introduced the "Defense Communities Redevelopment Act of 2009" ( H.R. 1959 ) on April 2, 2009. The bill duplicates the no-cost conveyance section of S. 590 . Representative Sam Farr, of California, introduced H.R. 2295 on May 7 on behalf of himself, Representative Kay Granger (Texas), Representative Pingree, and Representative William Delahunt (Massachusetts) as an identical companion bill to S. 590 . The three Senate and House bills have been referred to their respective Committees on Armed Services. Conveying Property to Gain Construction and Avoid Encroachment Current Statute 10 USC § 2689 authorizes the Secretary of Defense or any military department (Army, Navy, or Air Force) to convey real property to any legal entity in exchange for either other real property to limit encroachment that might restrict military activities or for housing at or near a military installation that is experiencing a housing shortage. The Secretary may transfer only property under his jurisdiction that is located on an installation being closed or realigned. Until his authority to do so expired on September 30, 2008, the Secretary could also use this conveyance authority for any other military property declared excess to defense needs. The fair market value of the property, as determined by the Secretary, received in the exchange must be at least equal to that being conveyed. Should the received property's value be less than that exchanged, the person must pay the United States an amount equal to the difference. Advance notice of any conveyance under this section must be announced in a manner prescribed by the Secretary of Defense. When military property is to be conveyed by public sale, the Secretary concerned may notify prospective purchasers that consideration may take the form described. The Secretary is required to notify Congress of a prospective conveyance and wait for a period of between 14 and 60 days before entering into an agreement. The Secretary of Defense is required to report annually on his use of this authority. Effect of the Proposed Amendment Section 3 of S. 590 / H.R. 2295 would reinstate the Secretary's authority to transfer property at any military installation, regardless of its closure or realignment status "without limitation on duration," rendering it permanent. Outsourcing Services to Municipalities Current Statute 10 U.S.C. § 2465 prohibits the Department of Defense (DOD) from entering into a contract "for the performance of firefighting or security-guard functions at any military installation or facility." Another provision of law, 10 USC § 2461 note, requires a public-private competition under Office of Management and Budget Circular A-76 before any DOD function being performed by 10 or more DOD civilian employees can be converted to performance by a contractor. Amendments to that statute authorize the Secretaries of the military departments to carry out pilot programs to contract with a county or municipality for certain municipal services. The permitted services include refuse collection, refuse disposal, library services, recreation services, facility maintenance and repair, and utilities. The number of installations permitted to be included in the pilot project is limited to three per military service, and all must be located within the United States. All pilot program contracts must terminate not later than September 30, 2012. Effect of the Proposed Amendment S. 590 / H.R. 2295 would create a new statute, 10 U.S.C. 2465a, that would permanently authorize military department secretaries to enter into an unrestricted number of contracts with "a county, municipal government, or other local governmental unit in the geographic area in which [an] installation is located" for the provision of the same municipal services as the pilot program. The new authority would permit the Secretary concerned to use "other than competitive procedures" if the contract would not exceed five years in duration, if he determines that the price for contracted municipal services represents least cost to the federal government, and if his supporting business case describes alternative sources and establishes that contract performance will not increase costs to the federal government. The authority to make the necessary determinations could not be delegated below the level of the Deputy Assistant Secretary for Installations and Environment (or DOD equivalent). The Secretary would have to notify the Committee on Armed Services of the House and of the Senate of any such contract 14 days before it could become effective. Subsection (c) of this section of the proposed amendment appears to reference the original pilot program for contracted municipal services. The pilot program was originally created under Section 325(f) of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 and authorized only the Secretary of the Army to initiate two such contracts that would terminate not later than September 30, 2010. A 2008 amendment expanded the pilot program to all military departments, raised the limit to three contracts in each, and reset the termination date to September 30, 2012. This new legislation would permit these pilot program contracts to terminate as late as September 30, 2020. Federal Reimbursements for Military Site Cleanup Current Statute Section 211 of the Superfund Amendments and Reauthorization Act of 1986 ( P.L. 99-499 ) required the Secretary of Defense to establish a Defense Environmental Restoration Program to clean up environmental contamination and address other safety hazards on current and former military installations in the United States, subject to appropriations. The Secretary is authorized to enter into agreements to reimburse other entities for expenses they may incur in participating in the cleanup of a military installation under this program. These other entities that are eligible for reimbursement include: other federal agencies, state, territorial, or local agencies, Indian tribes, nonprofit conservation organizations, and owners of "covenant" property. This latter category refers to owners of former military property conveyed with a deed that includes a covenant stating the continuing cleanup responsibility of the United States. Section 120(h) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) generally requires contaminated federal property to be cleaned up prior to transfer out of federal ownership. However, additional cleanup may be needed after the transfer if the contamination was found not to have been sufficiently remediated. To address such situations, Section 120(h)(3) requires the deed to a transferred federal property to include a covenant stating the continuing responsibility of the United States to conduct additional cleanup that may be needed subsequent to transfer. Such a covenant must be included in the deed to all surplus federal property transferred out of federal ownership, on which a hazardous substance was stored for one year or more, was known to have been released, or was disposed of. If the owner of the covenant property wishes to perform cleanup actions that may be necessary after acquiring ownership, the Secretary may enter into an agreement with the owner to reimburse its costs, as the United States ultimately would be responsible for those actions under the covenant. Historically, the Secretary has most often exercised this agreement authority to reimburse states for the expenses they incur in participating in cleanup decisions at military installations within their jurisdictions. As of the end of FY2007, the Department of Defense had entered into cooperative agreements with 47 states, the District of Columbia, and 4 U.S. territories, to govern the types of expenses that are eligible for reimbursement. These agreements typically allow the reimbursement of expenses that a state or territory may incur in exercising its statutory right under Section 120(f) of CERCLA to participate in the planning and selection of a "remedial" action to clean up a federal facility, including the review of available data and the development of studies, reports, and plans. Under current law, states cannot be reimbursed under these agreements for the costs of enforcement actions they may take against the Department of Defense for failure to carry out a planned cleanup action or to comply with other cleanup requirements. Whether enforcement action taken by a state may affect the Secretary's willingness to enter into, or renew, an agreement with such state to reimburse expenses it may incur in participating in cleanup decisions. Nevertheless, the Secretary is not required to enter into these reimbursement agreements, but may do so at his discretion. Effect of the Proposed Amendment This section of the proposed legislation would expand the scope of current law to allow the Secretary to enter into agreements for reimbursement of expenses that other entities may incur in "processing" a transfer of federal property, before or after cleanup is performed. Like the agreements for reimbursement of expenses associated with cleanup, the Secretary would not be required to enter into agreements for reimbursement of these processing expenses. Rather, the Secretary would be authorized to do so at his discretion. Although the title of the section, "Reimbursable Activities under the Defense-State Memorandum of Agreement Program," implies that this provision would apply only to agreements with states, the entities that would be eligible for reimbursement of these processing expenses would be the same as those under current law for reimbursement of expenses associated with cleanup: other federal agencies; state, tribal, or local agencies; Indian tribes; nonprofit conservation organizations; and owners of covenant property. The section does not define what activities would constitute the "processing" of a transfer of federal property, making it unclear as to what specific activities would qualify for reimbursement. Absent such definition in statute, the Secretary presumably would have the discretion to determine what processing expenses may be eligible for reimbursement. In practice, a recipient of federal property could incur legal or administrative expenses in the process of acquiring a property, in addition to the actual cost of the property itself, if payment is required to provide fair market or other value in exchange for the property. Even though a state may not be the recipient of a property, a state still could incur administrative expenses in its involvement in the transfer of a property before cleanup is complete. Although federal property generally must be cleaned up prior to transfer out of federal ownership, Section 120(h)(3)(C) of CERCLA allows transfer to occur before then if certain conditions are satisfied, including the providing of assurances that the cleanup will be performed and that the land use would be protective of human health and the environment. Transferring a federal property before cleanup is complete is subject to the concurrence of the governor of the state in which the property is located. The review and approval of such property transfers by a governor could result in a state incurring administrative expenses. The proposed language also is intended to prevent the Secretary from imposing certain conditions on the funding made available through a reimbursement agreement. If the Secretary enters into a reimbursement agreement with another entity, the Secretary would be required not to make the reimbursement conditional upon whether a state may take an enforcement action against the Department of Defense, or upon a state's willingness to enter into dispute resolution with the Department of Defense to avoid an enforcement action. This requirement would appear to apply to any reimbursement agreement entered into under this authority, including both those that would apply to expenses associated with cleanup and those that would apply to expenses associated with the processing of property transfers. Base Realignment and Closure (BRAC)15 On September 8, 2005, the Defense Base Closure and Realignment Commission submitted nearly 200 recommendations to President George W. Bush. These recommendations would fundamentally alter the stationing of military forces and the functions carried out at many posts, bases, and stations throughout the United States, its territories, and possessions. President Bush approved the recommendations and, in accordance with the Defense Base Closure and Realignment Act of 1990 (DBCRA), as amended, the Secretary of Defense is putting into effect the entire list prior to September 15, 2011. The final two sections of S. 590 / H.R. 2295 would further amend the DBCRA to expand the indemnification (holding harmless) of persons who have taken title to property on closed military installations and to require the conveyance at no cost of surplus military property under certain conditions. Indemnification of Transferees of Closing Defense Properties18 Current Statute Section 330 of the National Defense Authorization Act for FY1993 ( P.L. 102-484 ) indemnifies all recipients of property on closed military installations from any claim arising from personal injury or property damage resulting from contamination caused by past military activities on such property. This indemnification applies specifically to military properties declared surplus to the federal government under the DBCRA. As discussed earlier, Section 120(h)(3) of CERCLA states that the United States is responsible for conducting additional cleanup deemed necessary after a property is transferred out of federal ownership, generally relieving the recipient of the property from such responsibility. However, this provision does not address the responsibility of the United States for personal injury or property damage that may result from contamination caused by past activities of the federal government. This potential responsibility for personal injury as a consequence of receiving ownership upon transfer has been perceived as a deterrent to the acquisition of certain surplus federal properties. Section 330 of P.L. 102-484 specifically indemnifies recipients of BRAC property from responsibility for personal injury or property damage resulting from contamination caused by past military activities. Effect of the Proposed Amendment This section of S. 590 / H.R. 2295 would amend Section 330 of P.L. 102-484 to indemnify recipients of BRAC property not only from responsibility for personal injury or property damage arising from contamination caused by past military activities, but also specifically from environmental remediation (i.e., cleanup) of that contamination. Although Section 120(h)(3) of CERCLA already states that additional cleanup found to be necessary after the date of transfer "shall be conducted by the United States," this provision does not explicitly indemnify recipients of surplus federal property from responsibility for such additional cleanup. This section would explicitly remove recipients of BRAC property from responsibility for cleanup of contamination caused by past military activities and would indemnify them against statutory or regulatory requirement or cleanup order for contamination caused by past military activity. It would also protect the new owners from the costs of compliance with any such requirement or order. In effect, only the United States could be held subject to statutory or regulatory requirements or orders, and the associated costs, to perform additional cleanup of contamination it originally caused. Requirement for No-Cost Economic Development Conveyances Current Statute Section 2905 of the DBCRA specifies the manner in which the Secretary of Defense is to implement the approved recommendations of the Defense Base Closure and Realignment Commission (the BRAC Commission). It grants the Secretary the authority to dispose of excess and surplus property using a variety of methods, such as public sale or auction. Subsection 2905(b)(4) augments this disposal authority by stating that the "Secretary may transfer real property and personal property located at a military installation to be closed or realigned under this part to the redevelopment authority [sometimes referred to as a Local Redevelopment Authority, or LRA] with respect to the installation for purposes of job generation on the installation." This is the so-called Economic Development Conveyance (EDC). If such is the case and the installation was approved for closure or realignment after January 1, 2005, the subsection further requires the Secretary to "seek to obtain consideration in connection with any transfer under this paragraph of property located at the installation in an amount equal to the fair market value of the property, as determined by the Secretary." The statute permits the Secretary to transfer the property to the redevelopment authority under this authority at no cost if the recipient agrees to utilize proceeds from the sale or lease of any portion of the transferred property "during at least the first seven years after the initial transfer to support the economic development of, or related to, the installation," and executes the agreement of transfer and accepts control of the property "within a reasonable time after the date of the property disposal record of decision or finding of no significant impact under the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.)." Effect of the Proposed Amendment The law currently requires the Secretary concerned to seek fair market value consideration for BRAC property transferred to the LRA as part of an EDC, but allows the Secretary the discretion of granting a no-cost EDC under certain circumstances. Under S. 590 / H.R. 1959 / H.R. 2295 , the DBCRA would be returned to the provisions that were in effect on December 27, 2001, essentially removing the fair market value requirement. The Secretary would no longer have the discretion to grant a no-cost EDC. He would be required to transfer the property to the LRA at no cost as long as the LRA agrees to certain requirements. The amendment would also require the Secretary of Defense to prescribe regulations to implement the revived provisions within 60 days of enactment. The Secretary is to "ensure that the military departments transfer surplus real and personal property at closed or realigned military installations without consideration to local redevelopment authorities for economic development purposes, and without the requirement to value such property." Because the proposed legislation is silent on the question of its applicability to the 2005 round versus earlier base closures, it is unclear what impact, if any, this change would have on property now or in the future being transferred as part of the2005 BRAC round. Arguably, any agreements not concluded by the date of enactment of the bill would be subject to the new framework and would be eligible for transfer at no cost. It is uncertain if the bill would allow the LRA to modify its redevelopment plan to include a no-cost EDC that was not previously recommended. Issues for Congress Although the introductory sections of S. 590 and H.R. 2295 state that the legislation's purpose is to enhance communities' ability to recover from installation downsizing or to adjust the military population growth, the discussion above indicates that the potential impact of the proposed legislation could extend beyond the current BRAC round. As Congress considers these bills, Members may wish to weigh questions such as the following: If current law permanently authorizes DOD to exchange property on closing or realigning military installations for non-DOD property that could increase its supply of housing or ease encroachment pressure, to what extent does extending the authority to all excess DOD property serve to satisfy the stated purpose of the legislation—assisting communities to recover from the effects of base resizing or closure? What are the risks and benefits relative to the merits of authorizing the military departments to outsource base support, such as refuse removal, the operation of golf courses, libraries, and fitness centers, and public works functions, to county or local governments rather than provide for them through DOD employees or private contractors? Are there advantages in broadening the Secretary of Defense's ability to reimburse agencies and organizations for military site cleanup activities to include expenses associated with "processing" of a conveyance of the property? If there are disadvantages, what are they, and could they decrease the Secretary's willingness to enter into reimbursement agreements? An extension of indemnification to include removal of statutory and regulatory requirements for site cleanup of past military activity will effectively add to the cost of remediation borne by the federal government and correspondingly reduce the burden on the state or locality near the site or the new owners. What are the implications for future federal costs? Current law requires the Secretary of Defense to "seek fair market value" for surplus 2005 BRAC property conveyed to redevelopment authorities for the purposes of job creation on the former military site. Nevertheless, the Secretary is permitted to execute such an Economic Development Conveyance for no consideration (at no cost) under certain circumstances. Existing statute requires that all "proceeds received from the lease, transfer, or disposal of any property at a military installation closed or realigned" be used only to defray the cost of implementing BRAC recommendations or remediating environmental degradation on BRAC-surplus property. If the Secretary is required to convey surplus property at no cost, revenue could be lost that would have to be replaced by appropriated funds. What are the advantages and disadvantages of foregoing this potential revenue stream? How much in toto will these proposed changes cost the federal Treasury relative to the benefits gained by federal agencies, local governments, and private enterprise?

Several bills (S. 590, H.R. 1959, and H.R. 2295) that would modify or expand statutory authorities granted to senior executives of the Department of Defense (DOD) have been introduced to the 111th Congress. These authorities relate to the exchange of real property, the outsourcing of some military installation support services, and the reimbursement by DOD of some costs associated with military site cleanup. The proposed legislation would also amend the Defense Base Closure and Realignment Act of 1990, the BRAC law, to expand existing legal protections granted to those who have taken title to property at closed military bases and to set conditions under which future title transfers for surplus military property would be carried out at no cost to the recipient. S. 590 and H.R. 2295 are identical. If enacted, these bills would render permanent an expired authority held by the Secretary of Defense (or the Secretary of a military department) to exchange any defense real property for real property held by non-DOD entities if the exchange will limit encroachment on military activities or will relieve a shortage of military housing. They would also expand and make permanent a limited pilot program that allows certain services currently performed at military installations by DOD employees or private contractors to be non-competitively outsourced to municipal or county governments. Another section in the bills would expand the authority of the Secretary of Defense to enter into a cost-reimbursement agreement for the cleanup of a military site. Current law permits agreements that reimburse federal, state, and local agencies and other entities for certain costs incurred by participation in a cleanup program. The bill would allow reimbursement agreements to include costs incurred in the "processing" of a transfer of title of federal property and would prevent the Secretary from imposing certain conditions on the funding made available. The remaining sections of the bills would amend the Defense Base Closure and Realignment Act of 1990, the so-called BRAC law. They would expand the legal protections available to persons who have taken title to property on closed military bases and would require the conveyance of surplus military property at no cost if certain conditions are met. This report analyzes the key provisions of the legislation, identifies probable effects of the proposed amendments to existing law, and suggests issues raised for congressional consideration.

Developments in the First Half of 2014 South China Sea Tensions and Sino-Vietnam Relations1 In the late spring of 2014, longstanding tensions between Vietnam and China over competing territorial claims in the South China Sea flared, deepening U.S.-Vietnam cooperation on maritime security issues in Southeast Asia. In early May, the state-owned China National Offshore Oil Corporation (CNOOC) moved a large exploratory oil rig into waters that Vietnam says lie on its continental shelf. The rig was positioned about 120 nautical miles from Vietnam's coast and less than 20 nautical miles from one of the Paracel Islands claimed by both China and Vietnam. Around 80 Chinese ships, including some Chinese coast guard and naval vessels, reportedly entered the area escorting the rig. Vietnamese patrol boats and fishing boats have entered the same waters, and a number of collisions between the Chinese and Vietnamese boats have occurred. Both sides blame the collisions on the other. China has said that the oil rig will remain in the area until August. The U.S. State Department issued a statement describing China's deployment of the rig as a "provocative ... unilateral action" that "appears to be part of a broader pattern of Chinese behavior to advance its claims over disputed territory in a manner that undermines peace and stability in the region." Assistant Secretary of State for East Asian and Pacific Affairs Danny Russel, speaking in June 2014, said that both China and Vietnam need to "exercise restraint," and that both "should remove all of their ships, and China should remove the oil rig.... " The United States has not taken a position on specific territorial disputes in the South China Sea. Instead, the Obama Administration has focused on claimants' behavior. Among legislative initiatives that touch on the South China Sea disputes, H.R. 4495 , the Asia-Pacific Region Priority Act, states that U.S. policy urges all parties to the disputes to "refrain from engaging in destabilizing activities." S.Res. 167 , which the Senate passed in July 2013, "condemns" maritime vessels' and aircrafts' use of coercion, threats, or force in the South China Sea and East China Sea to assert disputed maritime or territorial claims or alter the status quo. Among other items, S.Res. 167 "supports" U.S. military operations in the Western Pacific, including in partnership with other countries, to support the freedom of navigation. As discussed in the " The South China Sea Dispute " section below, since 2010 the Administration has focused on encouraging all parties to negotiate a multilateral code of conduct and has criticized many of China's actions in the South China Sea for raising tensions in the region. Negotiations between the Association of Southeast Asian Nations (ASEAN) and China over a Code of Conduct started in 2013, although rising tensions and divisions over what should be included in such a code have made progress difficult. China's actions in the South China Sea also have led the Obama Administration and the Vietnamese government to intensify collaboration in a number of security and maritime-related areas and fora. For instance, in December 2013 the United States said it would provide Vietnam with $18 million in assistance, including five fast patrol vessels, to enhance Vietnam's maritime security capacity. When asked during his confirmation hearing how to help foster a peaceful resolution to the South China Sea disputes, Ted Osius, the Obama Administration's nominee to be ambassador to Vietnam, said "I think we should explore further expansion of Vietnam's maritime domain awareness and how we can help Vietnam build its capacity to deal with the challenges in the South China Sea." He also said that it may be time to consider relaxing U.S. restrictions on the sale of military items to Vietnam. For more on U.S.-Vietnam military-to-military relations, see the " Military-to-Military Ties " section below. One reason many policymakers and observers were surprised by China's move to position the oil rig in disputed waters is that over the past two years, Hanoi and Beijing had expanded high-level ties and appeared to be committed to efforts to manage their maritime disputes. In 2011, the two countries signed an Agreement on Basic Principles Guiding the Settlement of Maritime Issues. Two years later, a 2013 bilateral agreement created working groups to discuss joint development in the disputed areas and a hotline to deal with fishery incidents. For Vietnam, maintaining stability and friendship with its northern neighbor is critical for economic development and security; Hanoi usually does not undertake large-scale diplomatic moves without first calculating Beijing's likely reaction. To date, even as it has protested the oil rig and China's cordon around it, Hanoi appears to be trying to avoid taking moves that could provoke Beijing, such as increasing its naval presence in the area, inviting U.S. Navy ships for unscheduled port visits, or initiating a legal case against China's actions and/or claims. For more background on Sino-Vietnamese relations, see the " Vietnam-China Relations " section below. A factor influencing leaders in Hanoi is a significant anti-Chinese sentiment inside Vietnam. These emotions surfaced in the days after CNOOC's positioning of its oil rig. Protests involving thousands of Vietnamese ensued. Reportedly most occurred in urban areas, were peaceful, and appeared to be tolerated by Vietnamese authorities, who generally prevent large-scale gatherings. According to a Wall Street Journal investigation, Vietnamese human rights activists used the oil rig as an opportunity to organize the protests and many participants chanted slogans calling on the need for Vietnam to "change" in order to be "strong." Shortly after the peaceful protests occurred, Vietnam experienced its worst reported violent unrest in years in industrial areas on the outskirts of Ho Chi Minh City and in central Vietnam. Reportedly thousands of Vietnamese rioted, torching and creating large-scale damage at hundreds of foreign-owned factories. A number of individuals, perhaps including some Chinese nationals, appear to have been killed, though reports vary. According to several reports, most of the factories that were damaged were Taiwanese owned, though several of these employed many Chinese managers and laborers. Some Korean and Vietnamese factories also were damaged. According to some reports and analyses, the rioters appeared to be motivated at least in part by long-standing labor grievances. The aforementioned Wall Street Journal investigation reported that the rioters looted many of the targeted factories. In response, Vietnamese authorities reportedly arrested hundreds. Bilateral Nuclear Energy Agreement Signed8 U.S.-Vietnamese cooperation on nuclear energy and nonproliferation has grown in recent years along with closer bilateral economic, military, and diplomatic ties. In 2010, the two countries signed a Memorandum of Understanding that Obama Administration officials said would be a "stepping stone" to a bilateral nuclear cooperation agreement, under which the United States could license the export of nuclear reactor and research information, material, and equipment to Vietnam. In early May 2014, the two countries signed this agreement, and the Administration submitted it to Congress for review. Three bills have been introduced to date that would approve the agreement with Vietnam. Senate Foreign Relations Committee Chairman Robert Menendez introduced a resolution that would approve the agreement ( S.J.Res. 36 ) on May 22. On June 9, 2014, Senator Majority Leader Harry Reid introduced S.J.Res. 39 and Representative Adam Kinzinger with Ranking Member of the House Foreign Affairs Committee Eliot Engel introduced H.J.Res. 116 . Both of these bills provide for the approval of the U.S.-Vietnam nuclear cooperation agreement. The agreement will enter into force upon the 90 th day of continuous session after its submittal to Congress (a period of 30 plus 60 days of review) unless Congress enacts a Joint Resolution of disapproval. At least three issues are expected to be prominent if and when Congress takes up the agreement: (1) whether the agreement should have included stronger nonproliferation commitments, such as a legally binding commitment by Vietnam not to build uranium enrichment and reprocessing facilities; (2) the extent to which U.S. companies might benefit from an agreement; and (3) the extent to which Vietnam's human rights record and the growing U.S.-Vietnam strategic relationship should affect the decision to enter into a nuclear energy agreement. In a move related to the bilateral nuclear energy agreement signing, in May 2014 Vietnam's government announced that it would participate in the multinational Proliferation Security Initiative (PSI), a U.S.-led group of about 100 countries that was established in 2003 to increase international cooperation in interdicting shipments of weapons of mass destruction (WMD), their delivery systems, and related materials. In the past, Vietnamese officials said they would not join PSI because it operates outside the United Nations system. Introduction Since 2002, overlapping strategic and economic interests have led the United States and Vietnam to improve relations across a wide spectrum of issues. Starting in 2010, the two countries accelerated this process, effectively forming a partnership on several fronts. Obama Administration officials identify Vietnam as one of the new partners they are cultivating as part of their "rebalancing" of U.S. priorities toward the Asia-Pacific, a move commonly referred to as the United States' "pivot" to the Pacific. In 2010, the two countries mobilized a multinational response to China's perceived attempts to boost its claims to disputed waters and islands in the South China Sea, and they have continued to work closely on issues of maritime freedom and security. Additionally, the Obama Administration encouraged Vietnam to be a "full partner" in the ongoing 12-country Trans Pacific Partnership (TPP) free trade agreement negotiations and has given a higher priority to cleaning up sites contaminated by Agent Orange/dioxin used by U.S. troops during the Vietnam War. Over the past several years, the two sides also have signed a new agreement on civilian nuclear cooperation and have increased their non-proliferation cooperation. In 2013, President Obama and Vietnamese President Truong Tan Sang met in the White House and announced a bilateral "comprehensive partnership" that is to provide an "overarching framework" for moving the relationship to a "new phase." As discussed in detail below, the biggest obstacle to the two countries taking a dramatic step forward in their relationship is disagreements over Vietnam's human rights record. U.S. Interests and Goals in the Bilateral Relationship Currently, factors generating U.S. interest in the relationship include growing trade and investment flows, the population of more than 1 million Americans of Vietnamese descent, the legacy of the Vietnam War, the perception that Vietnam is becoming a "middle power" with commensurate influence in Southeast Asia, and shared concern over the rising strength of China. U.S. goals with respect to Vietnam include opening markets for U.S. trade and investment, furthering human rights and democracy within the country, countering China's increasing regional influence, cooperating to ensure freedom of navigation and operation in and around the South China Sea, and expanding U.S. influence in Southeast Asia. The array of policy instruments the United States employs in relations with Vietnam includes trade incentives and restrictions, foreign assistance, cooperation in international organizations, diplomatic pressures, educational outreach, and security cooperation. Since 2010, strategic concerns about China have taken on a larger role in the Obama Administration's formulation of U.S. policy toward Vietnam. Vietnam's Interests and Goals in the Bilateral Relationship For Vietnam's part, since the mid-1980s, Hanoi essentially has pursued a four-pronged national strategy: (1) prioritize economic development through market-oriented reforms; (2) pursue good relations with Southeast Asian neighbors that provide Vietnam with economic partners and diplomatic friends; and (3) deepen its relationship with China, while (4) simultaneously buttressing this by improving relations with the United States as a counterweight to Chinese ambition. By virtue of its economic importance and great power status, the United States has loomed large not only in Vietnam's strategic calculations, but also in domestic developments. For instance, Vietnam's protracted decision from 1999 to 2001 to sign and ratify the landmark bilateral trade agreement (BTA) with the United States—which Congress approved in October 2001—helped to break the logjam that had effectively paralyzed debate in Hanoi over the future direction and scope of economic reforms. Additionally, notwithstanding the legacies of the Vietnam War era, the Vietnamese public appears to hold positive views of the United States. There are a number of strategic and tactical reasons behind Vietnam's efforts to upgrade its relationship with the United States. Many Vietnamese policymakers seek to counter Chinese ambitions in Southeast Asia, and preserve its territorial and other interest in the South China Sea, by encouraging a sustained U.S. presence in the region. Vietnam also needs a favorable international economic environment—for which it sees U.S. support as critical—to enable the country's economy to continue to expand so it can achieve its goal of becoming an industrialized country by 2020. Securing greater access to the U.S. market, which already is the largest destination for Vietnam's export, would boost Vietnam's economy and is a major reason Vietnam is participating in the TPP negotiations. A Ceiling on the Relationship? Ultimately, the pace and extent of the improvement in bilateral relations is limited by several factors, including Hanoi's wariness of upsetting Beijing, U.S. scrutiny of Vietnam's human rights record, and Vietnamese conservatives' suspicions that the United States' long-term goal is to end the Vietnamese Communist Party's (VCP's) monopoly on power through a "peaceful evolution" strategy. However, it is possible that these concerns could be lessened, and the possibilities for strategic cooperation increased, if the United States and Vietnam both believe China is becoming unduly assertive in Southeast Asia. Human Rights in the U.S.-Vietnam Relationship As was true of their predecessors, Obama Administration officials have continuously expressed concerns—including via public criticisms—about human rights incidents. Indeed, criticisms of Vietnam's human rights record appear to have played a significant role in convincing the Administration to oppose a number of items desired by Hanoi, such as expanding the types of arms that U.S. companies can sell to Vietnam. Concerns over human rights also appear to have been part of the reason the Administration chose not to hold a standalone summit meeting until July 2013. Likewise, Vietnamese leaders do not appear willing to fundamentally alter their treatment of dissenters or minority groups in order to more rapidly advance strategic relations with the United States. However, differences over human rights have not prevented the two countries from improving relations overall, despite many signs that human rights conditions have deteriorated over the past few years. Barring a much more dramatic downturn in Vietnam's human rights situation, Administration officials appear to see Vietnam's human rights situation not as an impediment to short-term cooperation on various issues, but rather as a ceiling on what might be accomplished between the two countries, particularly over the long term. Congress's Role Throughout the process of normalizing relations with Vietnam, Congress has played a significant role. Not only has Congress advanced and designed bilateral initiatives, and provided oversight and guidance, but it also has shaped the bilateral interaction by imposing constraints and providing relevant funding, as well as through its approval process for agreements. Many Members have been at the forefront of efforts to highlight human rights conditions in Vietnam, as well as "legacy issues" of the Vietnam War, such as recovering the remains of missing U.S. troops and providing for the environmental remediation and the provision of health care services to areas contaminated by Agent Orange/dioxin used by the U.S. military during the Vietnam War. In the 1990s and early 2000s, many Members of Congress who favored improved bilateral relations provided the Clinton and George W. Bush Administrations with political backing for their policies of upgrading relations with Vietnam. Notably, these voices either have left Congress or appear to have become less vocal in recent years, coinciding with a rising perception that Vietnam's human rights situation has deteriorated. U.S. and Vietnamese participation in the TPP talks may provide Congress with another opportunity to exert influence over U.S.-Vietnam relations; Congress must approve implementing legislation if the TPP is to apply to the United States. Sometime in 2014, Congress may also take up the U.S.-Vietnam nuclear energy cooperation agreement. However, the rules regarding consideration of such "123 agreements" reduce Congress' ability to use them to influence U.S. policy: the agreements enter into force upon the 90 th day of continuous session after its submittal to Congress (a period of 30 plus 60 days of review) unless Congress enacts a Joint Resolution of disapproval. Even if both chambers of Congress pass such a resolution, it is subject to a Presidential veto. Brief History of the Normalization of U.S.-Vietnam Relations The United States' post-World War II military involvement in Vietnam began in the early 1960s, with the dispatch of military advisers to assist the South Vietnamese government (officially known as the Republic of Vietnam) in its battles with communist North Vietnam and indigenous (i.e., South Vietnamese) communist forces and their allies. Thereafter, the U.S. presence escalated. By the time the Nixon Administration withdrew U.S. forces in 1973, millions of U.S. troops had served in Vietnam, with more than 50,000 killed. The war became increasingly unpopular in the United States and in Congress. In 1973, following the conclusion of a Paris Peace Agreement that brought an end to U.S. military involvement in Vietnam, Congress began cutting Nixon Administration requests for military and economic assistance to South Vietnam. U.S.-Vietnam diplomatic and economic relations were virtually nonexistent for more than 15 years following North Vietnam's victory in 1975 over South Vietnam. The United States maintained a trade embargo and suspended foreign assistance to unified Vietnam. Obstacles to improved relations included U.S. demands that Vietnam withdraw from Cambodia (which Vietnam invaded in 1978), U.S. insistence on the return of and information about U.S. Prisoners of War/Missing in Action (POW/MIAs), and Vietnamese demands that the United States provide several billion dollars in postwar reconstruction aid, which they claimed had been promised by the Nixon Administration. A series of actions by Vietnam following the end of the Vietnam War had a long-term negative effect on U.S.-Vietnamese relations. Stymied in its efforts to establish relations with the United States, Vietnam aligned itself economically and militarily with the Soviet Union. In addition, it invaded Cambodia and installed a government backed by 200,000 Vietnamese troops. China conducted a one-month military incursion along Vietnam's northern border in 1979, which led to nearly three decades of disputes over the land border, and kept strong military pressure on Vietnam until 1990. U.S. policy toward Vietnam was also influenced by the exodus of hundreds of thousands of Vietnamese "boat people," including many ethnic Chinese, who fled or were expelled under Vietnam's harsh reunification program. Developments in the mid- and late 1980s set the stage for the rapid normalization of ties in the following decade. Inside Vietnam, disastrous economic conditions and virtual diplomatic isolation led the VCP to adopt (at its 6 th National Party Congress in 1986) a more pragmatic, less ideological, line. Hanoi adopted market-oriented economic reforms (dubbed doi moi , or "renovation"), loosened many domestic political controls, and began to seek ways to extract itself from Cambodia. U.S.-Vietnam cooperation on the POW/MIA issue began to improve following a 1987 visit to Vietnam by General John Vessey, President Reagan's Special Emissary for POW-MIA Issues. As Vietnam withdrew forces from Cambodia in 1989 and sought a compromise peace settlement there, the George H. W. Bush Administration decided to improve relations with Hanoi, which was also interested in restoring ties to the United States. In April 1991, the United States laid out a detailed "road map" for normalization with Vietnam. Later that year, Vietnam allowed the United States to open an office in Hanoi to handle POW/MIA affairs. In 1993, President Clinton built on the thaw by signaling the end of U.S. opposition to Vietnam receiving international financial assistance. In February 1994, President Clinton announced the end of the U.S. trade embargo on Vietnam. Two months later, Congress passed the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ), which contained a "Sense of the Senate" section expressing that chamber's support for the normalization of relations with Vietnam. Despite congressional efforts to tie normalization to the POW/MIA issue and Vietnam's human rights record, President Clinton continued to advance U.S. relations with Vietnam. He appointed the first post-war ambassador to Vietnam in 1997 and signed the landmark U.S.-Vietnam bilateral trade agreement (BTA) in 2000. Throughout this period, the normalization process was made possible by Vietnam's strategic desire to improve relations with the United States, continued improvements in POW/MIA cooperation, Vietnam's ongoing reform efforts, and by Vietnam's general cooperation on refugee issues. President Clinton visited Vietnam from November 16-20, 2000, the first trip by a U.S. President since Richard Nixon went to Saigon (now Ho Chi Minh City) in 1969. The visit was notable for the unexpected enthusiasm expressed by ordinary Vietnamese, who thronged by the thousands to greet or catch a glimpse of the President and the First Lady. These spontaneous outbursts, combined with the President's public and private remarks about human rights and democratization, triggered rhetorical responses from conservative Vietnamese leaders. During the visit, Vietnamese leaders pressed the United States for compensation for Agent Orange victims, for assistance locating the remains of Vietnam's soldiers still missing, and for an increase in the United States' bilateral economic assistance program. Progress towards the resumption of normal bilateral relations continued under the George W. Bush Administration. Despite growing concerns about the Vietnamese government's human rights record, Congress ratified the U.S.-Vietnam BTA in October 2001 and the new agreement went into effect on December 10, 2001. Under the BTA, the United States granted Vietnam conditional normal trade relations (NTR), a move that significantly reduced U.S. tariffs on most imports from Vietnam. In return, Hanoi agreed to undertake a wide range of market-liberalization measures. Vietnam's conditional NTR status was renewed every year until December 2006, when Congress passed P.L. 109-432 , a comprehensive trade and tax bill, which granted Vietnam permanent NTR status as part of a wider agreement that saw Vietnam become a member of the World Trade Organization (WTO) as of January 11, 2007. During the Bush Administration, the United States and Vietnam dramatically upgraded diplomatic and strategic aspects of their relationship to the point where the two countries had all-but-normalized bilateral relations, at least from the U.S. point of view. However, many Vietnamese still consider relations to not be completely normalized until the United States provides more compensation for purported victims of " Agent Orange " and/or drops its legal categorization of Vietnam as a non-market economy. Major Issues in U.S.-Vietnam Relations Diplomatic Ties High Level Meetings, the July 2013 Summit, and the Comprehensive Partnership In the middle of the last decade, leaders in both Hanoi and Washington, DC, sought new ways to upgrade the bilateral relationship. As part of this process, both countries began increasing the number, frequency, and breadth of high-level bilateral visits. During each of the four years of George W. Bush's second term, the United States and Vietnam held an annual summit. The Bush Administration appeared to use these top-level meetings to encourage economic and political reforms inside Vietnam, as well as to signal the two countries' budding partnership on strategic issues. During the Obama Administration, the intensity and frequency of high-level bilateral meetings have expanded. Until 2013, an exception to frequent bilateral meetings was at the leaders' level (i.e. between the U.S. President and either the Vietnamese President or Prime Minister). For the first five years of his presidency, despite multiple trips to Southeast Asia and the desire of Vietnamese officials to hold a summit meeting, President Obama neither visited Vietnam nor held a standalone meeting with Vietnamese President Truong Tan Sang or Prime Minister Nguyen Tan Dung. The Obama Administration appeared to be reluctant to schedule one in part due to concerns about the perceived deterioration in Vietnam's human rights conditions. This changed in July 2013, when President Barack Obama hosted a meeting at the White House with Vietnam's President Sang. It was President Sang's first trip to the United States. The two presidents announced a bilateral "comprehensive partnership" that is to provide an "overarching framework" for moving the relationship to a "new phase." Among other items, the partnership is to include an increase in high level exchanges, the conclusion of a TPP agreement, and the discussion of constructing new and improved embassies. The two sides agreed to create new mechanisms for cooperation across nine sectors. Bilateral cooperation already has been underway, in some cases for years, in most of the items listed in each sector. At the leaders' joint remarks following their meeting, President Sang announced that President Obama had agreed to "try his best" to visit Vietnam before the end of his term in office. Both sides had sought the completion of an official partnership for years, but progress had stalled, apparently due to U.S. concerns about Vietnam's human rights situation and to some Vietnamese concerns about creating a perception in Vietnam and China that Hanoi was drawing too close to Washington. According to the two presidents, in their meeting they discussed progress in the TPP negotiations, maritime disputes in the South China Sea, Vietnam's human rights situation, people-to-people ties, and war legacy issues. The United States reportedly resisted Vietnam's push for declaring a "strategic partnership," which according to one analysis generally includes a multi-year plan of action and a high-level joint mechanism to oversee implementation across all sectors of cooperation. The South China Sea Dispute Since 2007, even as Vietnam and China have deepened their ties, bilateral tensions have intensified over competing territorial claims in the South China Sea. China has taken a number of actions to assert its claims since 2007, including reportedly warning Western energy companies not to work with Vietnam to explore or drill in disputed waters, announcing plans to develop disputed islands as tourist destinations, cutting sonar cables trailed by seismic exploration vessels working in disputed waters for PetroVietnam, and in May 2014, positioning the large CNOOC oil and gas exploration rig in disputed waters. For its part, Vietnam also has stepped up its presence in the disputed areas. For instance, since 2005 Vietnam has been active in soliciting bids for the exploration and development of offshore oil and gas blocks off its central coast, in areas disputed with China, and Vietnam's last two Five Year Plans placed a strong emphasis on offshore energy development. Both Vietnam and China have seized fishing boats and harassed ships operating in the disputed waters. Vietnam has been active in soliciting international support to pressure China not to act unilaterally on its claims. A primary target of the Vietnamese campaign has been the United States, which takes no position on the question of sovereignty over disputed South China Sea landmasses. Vietnamese officials tend to say that while they do not expect the United States to take sides in the dispute, it would be helpful if the United States did more to emphasize, through language or actions, that all parties to the dispute—including China—should adhere to common principles, such as promoting transparency, adhering to the rule of law, refraining from undertaking unilateral actions, and committing to the freedom of the seas and navigation. In 2010, the Obama Administration dramatically raised its involvement in the South China Sea disputes. In July of that year, then-Secretary of State Clinton stated at that year's annual ASEAN Regional Forum gathering of foreign ministers from the Asia-Pacific region that freedom of navigation on the sea is a U.S. "national interest" and that the United States opposes the use or threat of force by any claimant. Clinton also said that "legitimate claims to maritime space in the South China Sea should be derived solely from legitimate claims to land features," which many interpreted as an attack on the basis for China's claims to the entire sea. Since 2010, such remarks have become a staple of U.S. officials' statements on the South China Sea disputes, and U.S. policy since then has been to work with Asian countries like Vietnam to include the disputes on the agenda of regional fora. China generally objects to discussing maritime security issues in multilateral settings, preferring to deal with the matter bilaterally. Relatedly, the Obama Administration also has continued its policy of upgrading its defense ties with and the capacities of many Southeast Asian militaries, including with Vietnamese security forces. The Lower Mekong Initiative One aspect of the Obama Administration's upgrading its relationship with Vietnam involves forming partnerships in multilateral fora. One such group, created in 2009, is the Lower Mekong Initiative (LMI), comprised of the United States and the lower Mekong countries (i.e., Burma/Myanmar, Cambodia, Laos, Thailand, and Vietnam). The State Department describes the initiative as "the primary U.S.-led platform for advancing Mekong sub-regional integration" and boosting development among Cambodia, Laos, Thailand, and Vietnam (Burma joined the LMI in 2012). To this end, the group aims to foster cooperation and capacity building among the members in the areas of agriculture and food security, "connectivity" (promoting physical, institutional, and people-to-people connections), education, energy security, the environment and water, and health. Another motivation for the LMI is to monitor and coordinate responses to the construction of dams—particularly but not exclusively those being built in China—and other projects on the upper portions of the Mekong that are affecting the downriver countries. Foreign ministers from participating countries have held five meetings, the last during Secretary Kerry's July 2013 visit to Brunei to participate in the ASEAN Regional Forum meeting. Initially, the LMI largely encompassed or overlapped with existing U.S. regional aid programs and did not represent a significant increase to existing levels of U.S. funding. In July 2012, at the ASEAN Regional Forum in Phnom Penh, then-Secretary of State Clinton announced the creation of the Asia Pacific Strategic Engagement Initiative (APSEI), which would significantly expand LMI programming. The first stage of the Initiative included a three-year, $50 million program, the "Lower Mekong Initiative 2020." LMI 2020 is coordinated by the USAID regional office in Bangkok, Thailand, and administered largely through East Asia and Pacific (EAP) regional programs and the Regional Development Mission-Asia (RDM/A). The Obama Administration expects to spend around $16.2 million for LMI programs in FY2014 and has requested $10.4 million for FY2015. Economic Ties32 Economic ties arguably are the most mature aspect of the bilateral relationship, as symbolized by the two countries' participation in the TPP negotiations. Since the mid-2000s, the United States has been Vietnam's largest single-country export market; in 2013, exports to the United States represented about 18% of Vietnam's total exports. However, China is Vietnam's single largest trading partner. By value, nearly 30% of Vietnam's imports in 2013 came from China. Collectively, U.S. firms have become one of the country's largest sources of foreign direct investment (FDI). Since 2002, Vietnam has run an overall current account deficit with the rest of the world, though strong export growth in 2012 and 2013 narrowed the gap to near zero in 2013. U.S.-Vietnam trade has soared since the early 2000s. As shown in Table 1 , trade flows were nearly $30 billion in 2013, more than three times the level they were in 2006, the year before the United States restored permanent normal trade relations status to Vietnam. Increased bilateral trade also has been fostered by Vietnam's market-oriented reforms and the resulting growth in its foreign-invested and privately owned sectors. Over the last three years, Congress has appropriated approximately $10 million each year to support Vietnam's economic reforms. Most of the increase in U.S.-Vietnam trade since 2001 has come from the growth in imports from Vietnam, particularly clothing items. Indeed, Vietnam has emerged as the United States' second-largest source of imported clothing, after China, and is a major source for footwear, furniture, and electrical machinery. Trade Initiatives: GSP, TIFA, BIT, and TPP Vietnam has applied for acceptance into the U.S. Generalized System of Preferences (GSP) program and is participating in negotiations toward a Bilateral Investment Treaty (BIT) with the United States. The United States also has expressed an interest in closer economic relations, but has told Vietnam that it needs to make certain changes in the legal, regulatory, and operating environment of its economy to conclude the BIT agreement, as well as to qualify for the GSP program. Legislation submitted in the 113 th Congress, H.R. 1682 (Lofgren), would prohibit Vietnam's entry into the GSP program unless the Vietnamese government made certain improvements in the human rights and trafficking in persons arenas. The most ambitious trade initiative with Vietnam involves negotiating a multilateral free trade agreement under the TPP. According to many sources, Vietnam's presence in the talks has created challenges because in contrast to most other participants it is a developing economy with considerable government intervention. As part of its desire to use the TPP talks to achieve greater access to the U.S. market, Vietnam is trying to persuade the United States to accept more liberal rules of origin for clothing and textile trade, among other items. U.S. and other backers of Vietnam's participation in the negotiations believe that it further opens a sizeable market to U.S. exports and investments, could accelerate economic reforms in Vietnam, and could set a precedent for the entry into the agreement of other countries, such as China, with sizeable government intervention in their economies. Trade Friction As bilateral economic relations have expanded, so have trade disputes. Significant areas of friction include clothing trade, fish (particularly catfish), the United States' designation of Vietnam as a "non-market economy" (NME), and Vietnam's record on protecting intellectual rights. Trade in catfish has been particularly controversial, both with Vietnam and within the United States. In 2008, in response to continued growth in imports of catfish-like fish (called tra and basa) from Vietnam, the 110 th Congress passed legislation that transferred the regulation of catfish from the Food and Drug Administration (FDA) to the U.S. Department of Agriculture (USDA), which generally is viewed as maintaining stricter inspection standards than the FDA. The Agricultural Act of 2014 ( P.L. 113-79 ) included language that confirmed the inspection transfer to USDA, as well as defined catfish to include basa and tra exported from Vietnam. The Vietnamese government strongly protested these actions as largely protectionist measures. In general, while bilateral trade disputes have been irritants, as of mid-2014 they have not spilled over to affect the course or tone of bilateral relations. U.S. Foreign Assistance to Vietnam As the normalization process has proceeded, the United States has eliminated most of the Cold War-era restrictions on aid to Vietnam. U.S. assistance has increased markedly from the approximately $1 million that was provided when assistance was resumed in 1991. Annual aid levels increased steadily during the 1990s, rising to the $20 million level by 2000. The George W. Bush Administration raised bilateral assistance by an order or magnitude—aid surpassed $100 million by the late 2000s—and made Vietnam one of the largest recipients of U.S. aid in East Asia. U.S. assistance to Vietnam in FY2011 was over $140 million. For FY2014, the Obama Administration expects to spend over $100 million on aid programs in Vietnam. Most of the decline comes from reduced spending on programs to combat HIV/AIDS and to promote market-oriented reforms. In recent years, some Members of Congress have attempted to link increases in non-humanitarian aid to progress in Vietnam's human rights record (see the " Human Rights Issues " section). The U.S. bilateral aid program has been dominated by health-related assistance. In particular, spending on HIV/AIDS treatment and prevention in Vietnam has risen since President Bush designated Vietnam as a "focus country" eligible to receive increased funding to combat HIV/AIDS in June 2004 under the President's Emergency Plan for AIDS Relief (PEPFAR). Some Vietnamese, as well as some Western aid providers, have questioned the wisdom of allocating these sums of money for Vietnam, which does not appear to have a severe HIV/AIDS problem. Other sizeable U.S. assistance items include programs assisting Vietnam's economic reform efforts and governance, programs to combat trafficking in persons, and de-mining programs. Cumulatively, since 2007 Congress has appropriated over $100 million for dioxin removal and related health care services (for more details, see the " Agent Orange " section). The governments of the United States and Vietnam run a number of educational exchange programs. These generally total around $10 million a year, a sum not included in the above estimates of U.S. assistance. Human Rights Issues Overview Vietnam is a one-party, authoritarian state. The government security organs maintain an extensive surveillance network throughout the country that allows it to monitor the daily activities of Vietnamese citizens when it chooses to do so. For more than a decade, the Vietnamese Communist Party (VCP) appears to have followed a strategy of informally permitting (while not necessarily legalizing) most forms of personal and religious expression while selectively repressing individuals and organizations that it deems a threat to the party's monopoly on power. On the one hand, the gradual loosening of restrictions since Vietnam's doi moi ("renovation") economic reforms were launched in 1986 has opened the door for Vietnamese to engage in private enterprise and has permitted most Vietnamese to observe the religion of their choice. On the other hand, the authorities crack down harshly on what they deem to be anti-government activity. According to numerous accounts, since at least early 2007 the Vietnamese government's suppression of dissent has intensified and its tolerance for criticism has lessened markedly. These trends appear to have continued into the first half of 2014, particularly with ongoing arrests of Internet activists, notwithstanding the government's release of some high-profile political prisoners in the early spring. As opposed to a massive suppression, the Vietnamese government's actions appear to be selective, targeting specific individuals and organizations that have called for the institution of democratic reforms and/or publicly criticized government policy on sensitive issues, such as policy toward China. The government increasingly has targeted bloggers and lawyers who represent human rights and religious freedom activists, particularly those linked to pro-democracy activist networks. Many of the targeted blogs, bloggers, and lawyers have criticized Vietnam's policy toward China and/or have links to pro-democracy activist groups. More dissident groups began to appear publicly beginning in 2006. It is unclear to what extent these groups or their various goals are supported by the broader Vietnamese public. Most analysts believe that the pro-democracy movement in Vietnam is much too weak to pose any systemic threat to the VCP. However, the government's heightened sensitivity and stiffened response may be due to its concerns about growing public discontent over alleged government corruption, land seizures by government institutions and officials, worsened economic conditions, and a sense among some Vietnamese that Hanoi has been unable to prevent China from asserting its maritime claims at Vietnam's expense. Additionally, reported power struggles among Vietnam's top leaders may be contributing to the intensified crackdown. Human Rights in U.S.-Vietnam Relations In general, differences over human rights between the U.S. and Vietnamese governments have not prevented the two countries from improving the overall relationship. Barring a dramatic downturn in Vietnam's human rights situation, Obama Administration officials appear to see Vietnam's human rights situation not as an impediment to short-term cooperation on various issues, but rather as establishing a ceiling on what might be accomplished. In the view of some policymakers and observers, the two countries increasingly are bumping up against this ceiling. Over the past four years, criticisms of Vietnam's human rights record, including from some Members of Congress, appear to have played a significant role in convincing the Administration to oppose a number of items desired by Hanoi, including expanding the types of arms that U.S. companies can sell to Vietnam. Additionally, concerns about Vietnam's human rights record are likely to complicate Congress' debate over a TPP agreement, if the current negotiations are successful. It is unclear to what extent—if at all—the Obama Administration has attempted to use the TPP negotiations as a way to encourage Vietnamese officials to make changes in its human rights regime. If applied, such pressure is unlikely in the view of some to have much impact unless and until a final TPP agreement begins to take shape. Press and Internet Freedoms Vietnam has a variety of newspapers and magazines available, but virtually all of them are published by government or party organizations. For example, Thanh Nien , a leading daily newspaper, is published by the Vietnam National Youth Federation. In recent years, Vietnam's press has demonstrated a greater willingness to cover stories and issues that could be controversial or risk post-publication reprisals from the Vietnamese government, such as allegations of official corruption or incompetence. At times, the Vietnamese government appears to appreciate these stories, if they support the Party's specific efforts to target particular instances of corruption among VCP and government officials. However, a journalist or publication that crosses the vague and fluid boundary of acceptability to Party leaders frequently faces official retribution, including loss of job, temporary closure, fines, and possibly imprisonment. Besides increasingly targeting journalists and bloggers, the Vietnamese government also has brought charges against lawyers who have represented the accused in court or have spoken out against the Vietnamese government. Many of the targeted blogs, bloggers, and lawyers criticized Vietnam's policy toward China and/or have links to pro-democracy activist groups such as Bloc 8406, the banned Democratic Party of Vietnam, or the banned Independent Workers' Union of Vietnam. There are reports that these groups have received help from expatriate Vietnamese, including some in the United States, a charge that Vietnamese officials often make in conversations with their U.S. counterparts. Ethnic Minorities Ethnic minorities account for the majority of the population in three regions of the country: the Central Highlands (home to Montagnard groups), the Northwest Highlands (Hmong), and along portions of the Mekong Delta in the south (Khmer). A number of these minority groups report cases of discrimination, which the State Department calls "longstanding and persistent," and repression. The situations in all three regions are complicated. In each, the individuals and groups that frequently clash with government authorities are often ethnic minorities, belong to religious groups (such as Protestant denominations) that are not legally recognized by the government, and/or at various points in history have opposed being ruled by Vietnam's dominant ethnic group (the Kinh) and/or by the communist government. Many of the larger-scale tensions between the government and minority groups occur because of protests against land seizures by local government officials. Indeed, corruption related to inappropriate land taking and use is one of the most sensitive and problematic issues for Vietnam. In Vietnam, the state owns the land on behalf of the people of Vietnam. Residents and investors can buy and sell "land-use rights," but the government legally can reclaim land, often with allegedly low levels of compensation. Many of the larger-scale tensions between the government and minority groups (including religious minorities) occur when land used by these groups—which already feel they have been the victims of discrimination, harassment, or worse—is seized by local government officials, some of whom allegedly personally profit from the transaction. According to several sources, abuses against the "Montagnards" who live in the country's Central Highlands region appear to have fallen since the last major anti-government protests in 2004. Various government programs have attempted to improve educational and economic opportunities for minorities in the region. (For the location of the Central Highlands region, see Figure 1 at the end of this report.) However, accurate reporting is complicated by restrictions on foreigners' access to the region and ability to meet freely with Montagnards who have fled to Cambodia. No major demonstrations appear to have taken place in the Central Highlands since 2008. Some human rights advocates have criticized the U.S. government for failing to advocate sufficiently for the release of the scores, if not hundreds, of Montagnards whom Vietnamese authorities have imprisoned since 2001, as well as for the dozens of Montagnards who have fled to Thailand seeking asylum in a third country. Additionally, some Montagnard Americans have complained that the Vietnamese authorities either have prevented them from visiting Vietnam or have been subjected to interrogation upon re-entering the country on visits. As for the Northwest Highlands, in 2011, Vietnamese authorities reportedly forcibly suppressed protests by ethnic Hmong, the first such unrest in that region in years. Reports of abuses against ethnic Khmer in the Mekong Delta region peaked in 2007 and 2008, when widespread protests erupted against local government land seizures. There do not appear to have been large-scale demonstrations or protests since that time, though it is unclear whether this is due to the resolution of the underlying issues or to the government's crackdown against the protest leaders. Religious Freedom Buddhism is the dominant religion in Vietnam, comprising approximately half of the population, according to the State Department. An estimated 7% of the population is Roman Catholic, which is concentrated in the southern part of the country. Other religious groupings include Cao Dai organizations (2.5%-4.0%), Hoa Hao (the one officially recognized sect comprises 1.5%-3.0% of the population), and Protestant groups (recognized groups comprise 1%-2%). According to a variety of reports, most Vietnamese now are able to observe the religion of their choice in accordance with Vietnamese laws and regulations governing religious observance, which require religious groups to be officially recognized and registered. However, while the freedom to worship generally exists in Vietnam, the government strictly regulates and monitors the activities of religious organizations. Periodically, authorities have increased restrictions on certain groups. Although the constitution provides for freedom of religion, Vietnamese law requires religious groups to be officially recognized or registered. According to many reports, the government uses this process to monitor and restrict religious organizations' operations. Additionally, many groups either refuse to join one of the official religious orders or are denied permission to do so, meaning that these groups' activities technically are illegal. This legal status can make their leaders and practitioners vulnerable to arrest and harassment. Human Rights Watch and other groups have reported harassment over the past three years against a number of unrecognized branches of several faiths, including the Cao Dai church; the Hoa Hao Buddhist church; independent Protestant house churches (particularly in the Central Highlands); Khmer Krom Buddhist temples in the Mekong Delta; and the Unified Buddhist Church of Vietnam (UBCV). Disputes between the government and religious groups have been growing in recent years over the seizure of church and temple land by local governments. Many of these cases involve recent confiscations for both civic reasons (e.g., public works projects) and also for resale that allegedly benefits local government officials and/or their families. Some noted religious figures in Vietnam are politically active. When such figures are subjected to official abuse, it is not always clear whether they are targeted for their religious or political activism. For example, Roman Catholic priest Father Nguyen Van Ly is one of a number of prominent religious leaders who have also been vocal in their opposition to the VCP and their support for multi-party democracy, and as a result, have been convicted of crimes against the Vietnamese government. In 2004, the State Department designated Vietnam as a "country of particular concern" (CPC), principally because of reports of worsening harassment of certain ethnic minority Protestants and Buddhists. When the Vietnamese responded by negotiating with the Bush Administration and adopting internal changes, the two sides reached an agreement on religious freedom, in which Hanoi agreed to take steps to improve conditions for people of faith, particularly in the Central Highlands. The May 2005 agreement enabled Vietnam to avoid punitive consequences, such as sanctions, associated with its CPC designation. The agreement was faulted by human rights groups on a number of grounds, including the charge that religious persecution continues in the Central Highlands. Vietnam was redesignated a CPC in the 2005 and 2006 Religious Freedom Reports. In November 2006, the State Department announced that because of "many positive steps" taken by the Vietnamese government since 2004, the country was no longer a "severe violator of religious freedom" and was removed from the CPC list. The announcement, which came two days before President Bush was due to depart to Hanoi for the APEC summit, cited a dramatic decline in forced renunciations of faith, the release of religious prisoners, an expansion of freedom to organize by many religious groups, and the issuance of new laws and regulations, and stepped up enforcement mechanisms. Over the course of 2006, as part of the bilateral U.S.-Vietnam human rights dialogue, Vietnam released a number of prominent dissidents the Bush Administration had identified as "prisoners of concern." Vietnam also reportedly told the United States that it would repeal its administrative decree allowing detention without trial. The U.S. Committee on International Religious Freedom, among others, disputed the Administration's factual basis for the decision to remove Vietnam from the CPC list, arguing that abuses continue and that lifting the CPC label removes an incentive for Vietnam to make further improvements. Members of Congress introduced several pieces of legislation that have called on the State Department to re-list Vietnam as a CPC. Workers' Rights46 Vietnam's participation in the TPP trade negotiations and application to join the GSP program have focused attention on labor conditions in Vietnam. The government and the VCP's efforts to maintain one-party rule while adapting to rapid social and economic changes may help to explain the often contradictory trends that can be observed in Vietnam's evolving labor rights regime. The U.S. government and a number of non-governmental organizations (NGOs) such as Human Rights Watch have been critical of Vietnam's restrictions on workers' rights. There is a general recognition that Vietnam has made significant improvements in its labor laws, but that local government enforcement and business compliance remain ongoing problems. The State Department's 2013 human rights report on Vietnam singled out problems with suppression of independent labor unions, failure to enforce laws governing the right to organize, forced or compulsory labor, child labor, and unacceptable working conditions. Workers in Vietnam have the legal right to collective bargaining. At present, all labor unions in Vietnam must be a member of the Vietnam General Confederation of Labor (VGCL). The VGCL is supposed to organize a union within six months of the establishment of any new business, regardless of its ownership—state, foreign, or private. Human Rights Watch also has raised concern about the ability of Vietnamese workers to call an official strike, especially at state-owned enterprises (SOEs). Vietnamese workers are not legally allowed to form unions independent of the VGCL, and efforts to organize independent unions in Vietnam reportedly have been thwarted by government suppression, including the arrest and imprisonment of union leaders. Some analysts have argued that restrictions of the right of association in Vietnam have impeded the improvement of labor rights in other areas. According to some reports, there were signs that the aforementioned May 2014 riots against foreign-owned firms in industrial areas near Ho Chi Minh City were partly motivated by workers' frustrations with factory conditions. Other observers, however, counter that since the launch of doi moi , worker rights have made progress despite the restrictions on the independent right to organize. These observers point out that hundreds of unaffiliated (and therefore unofficial) "labor associations" have sprouted without significant repression, that the VGCL has evolved into a more aggressive advocate for workers, and in many recent cases, Vietnamese workers have gone on strike reportedly because they felt that they were not well-represented by the official union. The State Department reports that in the first half of 2013, the Vietnamese government took "no action" against the more than 150 strikes that occurred, despite the fact that none were technically legal. Human Trafficking50 Vietnam is both a source and destination for people trafficked for forced labor and commercial sexual exploitation. Additionally, state-owned and private labor export companies send tens of thousands of Vietnamese construction, fishing, and manufacturing workers overseas, where many are vulnerable to abuse and exploitation. Among Asian expatriate workers, Vietnamese reportedly incur some of the highest debts, due among other factors to high recruitment fees. Since 2001, the first year in which the State Department issued a Trafficking in Persons (TIP) Report pursuant to the Trafficking Victims Protect Act, as amended (TVPA, Div. A of P.L. 106-386 ), Vietnam has variously been designated a "Tier 2" (in 2001-2003, 2005-2009, and 2012) or a "Tier 2 Watch List" (in 2004, 2010, and 2011) country. In the 2012 TIP report, Vietnam's tier ranking improved to "Tier 2," a ranking the 2013 and 2014 reports maintained. Countries designated as Tier 2 do not fully comply with the minimum standards to eliminate severe forms of human trafficking, but are making significant efforts to do so. Vietnam's elevation to Tier 2 status in the 2012 TIP Report was due in large part to the adoption of a new law to prevent and combat human trafficking in March 2011 and the completion of a five-year national action plan to combat human trafficking. The new law went into effect on January 1, 2012, and included an expanded list of prohibited trafficking-related acts. The 2014 TIP report listed the government's prosecution and conviction of some transnational sex trafficking offenders, as well as the issuance of regulations under the 2012 trafficking law, as evidence that it is making "significant efforts" to comply with the minimum standards for eliminating trafficking. H.R. 1897 / S. 1649 , the Vietnam Human Rights Act, contains a sense of the Congress provision declaring that Vietnam's activities to combat human trafficking are insufficient to justify its "Tier 2" status. The Vietnam Human Rights Act Since the 107 th Congress, when Members of Congress became concerned with Vietnamese government crackdowns against protestors in the Central Highlands region, various legislative attempts have been made to link U.S. assistance to the human rights situation in Vietnam. A number of measures entitled "The Vietnam Human Rights Act" have been introduced, with most proposing to cap existing non-humanitarian U.S. assistance programs to the Vietnamese government at existing levels if the President does not certify that Vietnam is making "substantial progress" in human rights. As introduced, the most recent version of the Vietnam Human Rights Act ( H.R. 1897 / S. 1649 in the 113 th Congress) would prohibit increases in many forms of U.S. non-humanitarian assistance to the Vietnamese government unless (a) Vietnam's human rights conditions are certified as improving, or (b) the President issues a waiver. The bill explicitly exempts specific categories of assistance such as dioxin remediation and HIV/AIDS programs, and it would grant the President waiver authority that allows him to exempt any programs that are deemed to promote the goals of the act and/or to be in the national interests of the United States. Among other items, H.R. 1897 / S. 1649 also state that the sense of Congress is that the United States should not reduce Vietnamese language services of the Voice of America and Radio Free Asia; that Vietnam should be redesignated as a country of particular concern for religious freedom; and that Vietnam's activities to combat human trafficking are insufficient to justify its elevation to "Tier 2" status in the State Department's annual trafficking in persons report. The act would require the State Department to file an annual report to Congress on various items. The House passed H.R. 1897 on August 1, 2013, by a vote of 405-3 (Roll Call 435). Proponents of the Vietnam Human Rights Act argue that additional pressure should be placed on the Vietnamese government to improve its human rights record. Critics have argued that the bill could chill the warming of bilateral political and security ties and could weaken economic reformers in ongoing domestic political battles inside Vietnam. Military-to-Military Ties At the end of the previous decade, the United States and Vietnam began upgrading their military-to-military relationship, driven in large measure by Vietnam's increased concerns about China and enabled by over a decade of smaller, trust-building programs between the two military bureaucracies. In the 1990s, the bulk of military-to-military cooperation consisted of programs dealing with "legacy" issues from the Vietnam War era. Notably, the two militaries developed a cooperative relationship in locating the remains of U.S. missing servicemen. Since at least the early 2000s, the Pentagon and State Department began seeking to expand and deepen security relations and military ties with Vietnam. More than a decade later, many of these efforts have borne fruit. An International Military Education and Training (IMET) agreement was signed in 2005, followed two years later by the United States allowing sales of non-lethal defense items to Vietnam. In August 2010, the United States and Vietnam held their inaugural Defense Policy Dialogue, a high-level channel for direct military-to-military discussions. Previously, the main formal vehicle for the two militaries to hold regular annual dialogues had been through the U.S.-Vietnam Security Dialogue on Political, Security, and Defense Issues, a forum that is run by the U.S. State Department and Vietnamese Ministry of Foreign Affairs and includes officials from the two countries' militaries. Other signs of a deepening military-military relationship include U.S.-Vietnam joint naval engagements (involving noncombat training), Vietnamese shipyards repairing U.S. noncombatant naval vessels, cooperation in peacekeeping and search-and-rescue training operations, and the Vietnamese Ministry of Defense sending Vietnamese officers to U.S. staff colleges and other military institutions. Notwithstanding these developments, the evolution of bilateral military ties has come incrementally and more slowly than many U.S. military planners would prefer. Vietnamese military officials generally have been resistant to taking major steps forward, perhaps due to a concern of alarming China. Military Assistance The United States-Vietnam IMET agreement allows Vietnamese officers to receive English language training in the United States. In 2007, the United States modified International Traffic in Arms Regulations (ITAR) regarding Vietnam by allowing licenses for trade in certain non-lethal defense items and services to Vietnam. Such transactions are reviewed on a case-by-case basis. In FY2009, the United States provided foreign military financing (FMF) for Vietnam for the first time. According to annual State Department reports covering fiscal years 2007-2010, the department licensed the export of approximately $98.5 million of defense articles and $3.7 million of defense services to Vietnam during that time. Regarding foreign military sales (FMS), according to the State Department, Vietnam has submitted letters of request for helicopter spare parts and English language labs. In FY2009, the United States extended foreign military financing (FMF) for the Vietnamese government for the first time. According to State Department officials, "very little" of the approved FMF has been spent, with most going toward English training labs/instructors, spare parts for helicopters, and ship radios. As mentioned earlier, in December 2013 the United States said it would provide Vietnam with $18 million in assistance, including five fast patrol vessels, to enhance Vietnam's maritime security capacity. Vietnamese leaders have asked the Obama Administration and Members of Congress to remove U.S. restrictions on lethal weapons sales to Vietnam, and have stated that they will not consider bilateral relations to be fully normalized until that decision is taken. Under questioning from Senator John McCain during his June confirmation hearing to be Ambassador to Vietnam, Ted Osius said that because Vietnam had made "some progress" in improving selected human rights conditions, it "may mean it's time to begin exploring the possibility of lifting the ban" on lethal weapons sales. When asked for more explanation, Osius added, "what we haven't done is lay out a precise roadmap for what would get the Vietnamese to lifting the lethal weapons ban. And it may be time to consider that." Vietnam War "Legacy" Issues Agent Orange58 One major legacy of the Vietnam War that remains unresolved is the damage that Agent Orange, and its accompanying dioxin, has done to the people and the environment of Vietnam. According to various estimates, the U.S. military sprayed approximately 11-12 million gallons of Agent Orange over nearly 10% of then-South Vietnam between 1961 and 1971. One scientific study estimated that between 2.1 million and 4.8 million Vietnamese were directly exposed to Agent Orange. Vietnamese advocacy groups claim that there are over three million Vietnamese suffering from serious health problems caused by exposure to the dioxin in Agent Orange. In the past, this issue generally was pushed to the background of bilateral discussions by other issues considered more important by the United States and/or Vietnam. As the relationship has improved and matured, and with most other wartime "legacy" issues now resolved, the issue of Agent Orange/dioxin has emerged as a regular topic in bilateral discussions and is one to which several Members of Congress have brought attention. Recently, the U.S. government has shown a greater willingness to cooperate on some aspects of the issue. Since 2007, Congress has appropriated nearly $110 million for dioxin removal and related health care services in Da Nang, and has begun an environmental assessment of the Bien Hoa airbase near Ho Chi Minh City. However, the Vietnamese government and people would like to see the United States do more to remove dioxin from their country and provide help for victims of Agent Orange. Unexploded Ordnance59 According to estimates, U.S. military aircraft dropped between 5 million and 7.8 million tons of ordnance on Vietnam during the war. An estimated 800,000 tons of unexploded ordnance (UXO) remain from the Vietnam War, including bombs and landmines that contaminate 20% of the country's area and affect 5% of its arable land. There reportedly have been over 105,000 Vietnamese casualties from UXO since the end of the Vietnam War, including roughly 35,000 deaths. In 2012, there were 73 casualties. Less than 10% of UXO and landmine survivors reportedly have access to rehabilitation programs. International donors spent $8.7 million on clearance and related activities in Vietnam in 2012. The largest donors were the United States, the United Kingdom, Norway, and Germany. Between 1993 and 2012, the United States provided nearly $35.5 million for demining efforts and $26.8 million for programs for war victims. In recent years, the United States has spent roughly $4.5 million annually on demining programs through the Non-proliferation, Anti-terrorism, Demining, and Related Activities (NADR) foreign assistance account. Separately, since 1989, USAID's Leahy War Victims Fund has supported programs for prosthetics, physical rehabilitation, occupational training, employment, and access for the handicapped. In December 2013, the United States and Vietnam signed a Memorandum of Understanding on cooperation to overcome the effects of "wartime bomb, mine, and unexploded ordnance" in Vietnam. Unlike Laos and Cambodia, two countries heavily impacted by Vietnam War-related UXO, the Vietnamese government, through the National Mine Action Center, takes a predominant role in running and funding the country's demining efforts. In 2010, the Vietnamese government approved a five-year plan to remove UXO from up to 5,000 square kilometers (1,931 square miles) in six provinces with the help of international donors. According to some experts, more international assistance would be forthcoming if Vietnam acceded to international treaties on landmines and cluster munitions, created a civilian-led, transparent national authority on UXO, and maintained a comprehensive database. Some U.S. NADR funding has been devoted to strengthening the capacity of the Vietnam Bomb and Mine Action Center, assisting Vietnam in implementing a national strategy for addressing UXO, and creating a centralized database. POW/MIA Issues Officially, more than 1,000 Americans who served in Indochina during the Vietnam War era are still unaccounted for. From 1975 through the late 1990s, obtaining a full accounting of the U.S. POW/MIA cases was one of the dominant issues in bilateral relations. Beginning in the early 1990s, cooperation between the two sides increased. By 1998, a substantial permanent U.S. staff in Vietnam was deeply involved in frequent searches of aircraft crash sites and discussions with local Vietnamese witnesses throughout the country. The Vietnamese authorities also have allowed U.S. analysts access to numerous POW/MIA-related archives and records. The U.S. Defense Department has reciprocated by allowing Vietnamese officials access to U.S. records and maps to assist their search for Vietnamese MIAs. The increased efforts have led to account for nearly 700 missing U.S. service personnel. Hundreds of thousands of Vietnamese remain missing from the Vietnam War period. For years, Vietnam has expressed in interest in receiving U.S. help in locating and identifying the remains of these MIAs. In November 2010, the U.S. Agency for International Development (USAID) and Vietnam's Ministry of Labor and Social Affairs (MOLISA) agreed to a two-year program under which the United States was to spend $1 million to help Vietnam locate and recover the remains of the hundreds of thousands of Vietnamese soldiers missing from the Vietnam War. Conditions in Vietnam For the first decade after reunification in 1975, Vietnamese leaders placed a high priority on ideological purity and rigid government controls. By the mid-1980s, disastrous economic conditions and diplomatic isolation led the country to adopt a more pragmatic line, enshrined in the doi moi (renovation) economic reforms of 1986. Under doi moi , the government gave farmers greater control over what they produce, abandoned many aspects of central state planning, cut subsidies to state enterprises, reformed the price system, and opened the country to foreign direct investment (FDI). After stalling somewhat in the late 1990s, economic reforms were accelerated in the early 2000s, as Vietnam made sweeping changes that were necessary to enter the WTO. Politically and socially, the country became much less repressive, even tolerating some expressions of dissent in certain areas that had been considered sensitive. That said, although Vietnam appears to be a freer country than it was two decades ago, according to many sources human rights conditions have worsened compared to the middle of the last decade, particularly for dissenters. There are signs that factional battles among Vietnamese leaders have intensified since at least 2011. Prime Minister Nguyen Tan Dung, who has held his post since 2006, has come under increasing criticism for allegations of corruption of his allies and for an array of nationwide economic problems. Economic Developments During the 25 years since the doi moi reforms were launched, Vietnam was one of the world's fastest-growing countries. Agricultural production has soared, transforming Vietnam from a net food importer into the world's second-largest exporter of rice and the second-largest producer of coffee. The move away from a command economy also helped reduce poverty levels from around 60% in the early 1990s to less than 20% two decades later, and the government has set a goal of becoming a middle-income country by 2020. A substantial portion of the country's growth has been driven by foreign investment. After years of annual growth rates above 7%, Vietnam's economic growth has slowed considerably following the global financial crisis of 2007. The shocks of the crisis hit Vietnam's economy hard, in part due to Vietnam's dependence on trade and on foreign direct investment inflows, and the subsequent economic difficulties increased social strife and raised concerns about the country's economic stability. Although macro-economic conditions appear to have stabilized somewhat, some of these concerns linger. In 2013, Vietnam's real GDP grew by around 5.4%, about the same level as the previous year, and its inflation rate was around 6%, significantly lower than the double-digit price increases earlier in the decade. Over the past decade, Vietnam has seen a rising income and wealth disparity, which at times has fueled discontent among Vietnam's poor and lower-income population. Despite its considerable economic gains over the past generation, Vietnam remains a poor country; per capita GDP in 2013 was about $4,000 when measured on a purchasing power parity basis. Economists point to Vietnam's failure to tackle its remaining structural economic problems—including unprofitable state-owned enterprises (SOEs), a weak banking sector, massive red tape, and bureaucratic corruption—as major impediments to continued growth. According to some sources, many if not most of Vietnam's SOEs are functionally bankrupt, and require significant government subsidies and assistance to continue operating. Although thousands of SOEs officially have been partially privatized since the early 1990s under the government's "equitization" program, most of these are small and medium-sized firms, and the government still owns substantial stakes in them. Other SOE reform measures are being discussed. Vietnam's Energy Plans71 As Vietnam's economy has grown, so have its energy demands, which, according to one source, grew by 15% annually in the first decade of the 2000s. To help keep pace with its growing energy demand, Vietnam plans to build several nuclear power plants—and the first in Southeast Asia—in the coming decades. It is against this backdrop that Vietnam and the United States negotiated their aforementioned bilateral nuclear energy cooperation agreement. (See the " Bilateral Nuclear Energy Agreement Signed " section above.) In 2011, the Prime Minister's office published an energy plan that called for nuclear power providing around 10% of the country's electricity needs by 2030 and other projections forecast that nuclear power will provide nearly a third of the country's electricity by 2050. Construction on the first plant, to be built by a Russian company in Phuoc Dinh, Ninh Thuan province, was planned to start in 2015. In January 2014, however, Vietnam's Prime Minister announced a delay until 2020, potentially pushing back the planned completion of the first reactor to the mid-2020s. Difficulties in training staff for the planned nuclear power program have been mentioned by news reports as a possible reason for the delay. Two additional 1,000 MWe reactors are planned to be built in nearby Vinh Hai ( Ninh Thuan 2 plant) and be brought on-line by 2026. Vietnam's Politics and Political Structure In general, Vietnam's experiments with political reform have lagged behind its economic changes. A new constitution promulgated in 1992, for instance, reaffirmed the central role of the VCP in politics and society, and Vietnam remains a one-party state. In practice, the Communist Party sets the general direction for policy while the details of implementation generally are left to the four lesser pillars of the Vietnamese polity: the state bureaucracy, the legislature (the National Assembly), the Vietnamese People's Army (VPA), and the officially sanctioned associations and organizations that exist under the Vietnamese Fatherland Front umbrella. The Party's major decision-making bodies are the Central Committee, which has 175 members, and the Politburo, which has 14 members. Membership on the Politburo generally is decided based upon maintaining a rough geographic (north, south, and central) and factional (conservatives and reformers) balance. The three top leadership posts are, in order of influence, the VCP general secretary, followed by the prime minister, and the president. Since the death in 1986 of Vietnam's last "strong man," Le Duan, decision-making on major policy issues typically has been arrived at through consensus within the Politburo, a practice that often leads to protracted delays on contentious issues. Vietnam's Leadership Team In mid-January 2011, the ruling Vietnamese Communist Party (VCP) held a weeklong National Congress, the 11 th since the Party was founded. Party Congresses, held every five years, are often occasions for major leadership realignments and set the direction for Vietnam's economic, diplomatic, and social policies. At the 11 th Party Congress, delegates selected Nguyen Phu Trong (born 1944), formerly the chairman of Vietnam's National Assembly, to serve as the next VCP General Secretary, Vietnam's top post. Prime Minister Nguyen Tan Dung (b. 1949, pronounced "dzung") retained his membership in the 14-member Politburo, and was reappointed to his post by the National Assembly later in 2011. Likewise, the Assembly approved the Party Congress's decision to select Truong Tan Sang (b. 1949) as Vietnam's next president. Dung and Sang are both believed to have sought to become general secretary. Despite his apparent re-appointment, Dung's power base is believed to have been reduced at the Congress. Trong and Sang are both believed to be assertive rivals and according to some analysts battles between them have hamstrung Vietnamese policymaking. The National Assembly77 Over the past 10-15 years, Vietnam's legislative organ, the National Assembly, has slowly and subtly increased its influence to the point where it is no longer a rubber stamp. In recent years the Assembly has vetoed Cabinet appointments, forced the government to revise major commercial legislation, and successfully demanded an increase in its powers. These include the right to review each line of the government's budget, the right to hold no-confidence votes against the government, and the right to dismiss the president and prime minister (though not the VCP general secretary). It remains to be seen how much influence the Assembly will ultimately have over policymaking, given the VCP's dominant role and the centralization of decision-making in Vietnam. More than 85% of parliamentarians are Party members, and the VCP carefully screens all candidates before elections are held. Moreover, the Communist Party and the central government generally have encouraged the National Assembly's evolution into a more robust body, to help create the legal system and culture most Vietnamese leaders feel are necessary to support a modern, middle-income state. The latest elections for National Assembly members were held in May 2011. Vietnam-China Relations History Vietnam's relations with China, Vietnam's most important bilateral relationship, have been fraught with ambivalence for thousands of years. China ruled Vietnam for over 1,000 years until Vietnam successfully fought for its independence in the year 939. During China's Ming dynasty (1368-1644), China ruled Vietnam from 1407 to 1428, until another rebellion drove the Chinese out. Despite this restoration of Vietnam's independence, Ming China continued to exert a profound influence on Vietnamese culture and governance, particularly among the elite. In the 20 th Century, for nearly 25 years after China's Communists defeated Chinese Nationalist forces in 1949, Beijing was an important patron for Vietnamese communists who fought first against French colonial rule and then against South Vietnam and the United States. Long-repressed Sino-Vietnamese tensions resurfaced in the 1970s, coinciding with the United States' military withdrawal from Vietnam in 1973 and communist North Vietnam's defeat of the U.S.-backed Republic of Vietnam in 1975. Beijing and Hanoi clashed over competing territorial claims, and China sought to limit Vietnamese influence in Cambodia, which also had territorial disputes with Vietnam. The turning point came in late 1978. In November of that year Vietnam formed an alliance with the Soviet Union, which had emerged as China's number one threat. The following month, Vietnam invaded Cambodia, partly in response to the communist Cambodian government's incursions into Vietnamese territory. In early 1979, China attacked Vietnam for a two month period, in a brief but bloody border conflict, during which the two sides severed relations. Vietnamese forces exacted an unexpected heavy toll on Chinese troops. Military skirmishes continued during the 1980s. In the 1990s the two sides restored relations, which have expanded greatly over the past quarter century. Relations Today In recent years, Sino-Vietnam relations have followed seemingly contradictory trends. On the one hand, since Vietnam and China repaired relations in the early 1990s, China has become Vietnam's most important bilateral partner and its biggest trading partner. Maintaining stability and friendship with its northern neighbor is critical for Vietnam's economic development and security, and Hanoi does not undertake large-scale diplomatic moves without first calculating Beijing's likely reaction. Over the past four years, Hanoi and Beijing have continued to expand their diplomatic and party-to-party ties and appear to be seeking ways to prevent their maritime disputes from spilling over into other areas of the relationship. Many Vietnamese, particularly in the VCP, see China's Communist Party as an ideological bedfellow, as well as a role model for a country that seeks to allow more market forces into its economy without threatening the Communist Party's dominance. China also is Vietnam's largest trading partner. On the other hand, Vietnam's historical ambivalence and suspicions of China have increased in recent years due to concerns that China's expanding influence in Southeast Asia is having a negative effect on Vietnam. These concerns, in turn, have led Vietnamese leaders to take steps to lessen their dependence on and vulnerabilities to Chinese influence. For instance, since the late 2000s Vietnam has sought to upgrade its relations with outside powers, such as the United States and Japan. In other moves widely interpreted as related to increased maritime tensions, Vietnam in 2009 signed contracts to purchase billions of dollars of new military equipment from Russia, including six Kilo-class submarines that reportedly have begun to arrive in Vietnam. According to Vietnam's most recent Defense Ministry White paper, released in 2009, Vietnam's defense budget increased by nearly 70% between 2005 and 2008. That said, Hanoi feels like it must tiptoe carefully along the tightrope between Washington and Beijing, such that improved relations with one capital not be perceived as a threat to the other. Vietnamese leaders have become increasingly sensitive to rising domestic criticism that they are being overly solicitous toward China. Vietnam's trade deficit with China has soared over the past decade, which sometimes causes bilateral trade friction; Chinese imports represent around a quarter of Vietnam's total imports by value, up from less than 10% in 2000. The Environment Rapid industrialization, agricultural development, and urbanization have brought an array of environmental challenges. As Vietnam's Environment Administration (VEA), which is part of the Ministry of Natural Resources and the Environment (MONRE), writes on its website, "apparently, environmental pollution and economic development is a paradoxical development of the country." Among the problems that the VEA and outside observers cite are water pollution, inadequate sewage treatment facilities, deforestation, overuse of pesticides, and destruction of natural coastal and riverine features such as mangrove forests. Vietnam has a number of environmental laws and regulations, such as the 2005 Environmental Protection Law, but enforcement is frequently identified as a problem. Compounding the challenges is Vietnam's historic vulnerability to storms and flooding, particularly along the low-lying central coastal region. The government estimates that asset losses due to natural disasters subtract around 1.5% of GDP annually, with nearly three-quarters of the losses occurring in the central provinces. It is not clear to what extent the Vietnamese government has reconciled the tension between its environmental challenges and its overriding domestic goal of becoming a middle-income economy by 2020. Doi moi 's emphasis on growth and output often has created a disincentive for officials and factory managers to comply with environmental regulations, as many have learned that they likely will not be punished for polluting if they increase production. In climate modeling exercises, Vietnam often is listed as one of the most vulnerable countries to the possible effects of climate change. This is due to its climate, long coastline, and topography (particularly the extent of its low-lying, populated coastal areas), among other factors. Rising sea levels and increased precipitation associated with a warming climate are anticipated to combine with other phenomena (e.g., sinking river deltas associated with groundwater withdrawal, floodplain engineering, and sediment trapped by dams) to exacerbate problems such as salt-water intrusion and flooding; these impacts may particularly affect Vietnam's poorer communities. Additionally, Vietnam's rapid economic growth has led to increased energy demand and greenhouse gas emissions. According to one source, Vietnam's carbon dioxide emissions from fossil fuel consumption doubled between 2002 and 2011, and the government is exploring a number of options to reduce its emissions. Environmental cooperation is one of several areas targeted for expansion in the U.S.-Vietnam "comprehensive partnership." According to information provided by the State Department, the United States spent over $35 million between 2009 and early 2014 on environmental programs in Vietnam. Nearly all of these funds were spent on climate change issues. In December 2013, Secretary of State Kerry in Hanoi announced that USAID would launch a Vietnam Forest and Deltas Program, under which around $25 million will be spent to help four provinces in Vietnam's Mekong delta region adapt to climate change and restore the region's "natural ecosystems." The project also is designed to help Vietnam develop and implement its national level climate change policies. It is unclear to what extent these funds represent new monies, a repackaging of existing programs, or a combination of the two. Selected Legislation in the 113th Congress H.R. 772 (Faleomavaega). States that the United States has an interest in ensuring that "no party threatens or uses force or coercion unilaterally to assert maritime territorial claims in East Asia and Southeast Asia, including in the South China Sea.... " Condemns Chinese vessels' "use of threats or force" in the South China Sea and the East China Sea. Supports U.S. military operations to uphold freedom of navigation rights in the waters and air space of the South China Sea and East China Sea. Requires the Secretary of State to submit to Congress a report on the negotiations over a Code of Conduct in the South China Sea. Introduced February 15, 2013; referred to House Subcommittee on Asia and the Pacific. H.R. 1682 (Lofgren). Adds Vietnam to the list of countries ineligible for participating in the Generalized System of Preferences program unless the President certifies that Vietnam is meeting certain requirements in human rights and combating human trafficking. Contains a presidential waiver provision. Introduced April 23, 2013; referred to House Ways and Means Committee. H.R. 1897 (Smith)/ S. 1649 (Boozman). Vietnam Human Rights Act of 2013. Prohibits increases in many forms of U.S. non-humanitarian assistance to Vietnam over FY2012 amounts unless (a) Vietnam's human rights conditions are certified as improving, or (b) the President issues a waiver. States that the sense of Congress is that the United States should not reduce Vietnamese language services of the Voice of America and Radio Free Asia; that Vietnam should be redesignated as a country of particular concern for religious freedom; and that Vietnam's activities to combat human trafficking are insufficient to justify its elevation to "Tier 2" status in the State Department's annual trafficking in persons report. Requires the Secretary of State to submit an annual report to Congress on various matters. H.R. 1897 was introduced May 8, 2013; passed by the House 405-3 (Roll Call 435) on August 1, 2013; referred to Senate Foreign Relations Committee. S. 1649 was introduced November 5, 2013; referred to Senate Foreign Relations Committee. H.R. 2519 (Lee) . Directs the Departments of State and Veterans Affairs to provide assistance and support research to help "covered individuals" affected by Agent Orange. Defines "covered individual" as a Vietnam resident who is affected by health issues related to Agent Orange exposure between January 1, 1961, and May 7, 1975, or who lives or had lived in or near geographic areas in Vietnam that continue to contain high levels of Agent Orange, or who is affected by such health issues as the child or descendant of such resident. Introduced June 26, 2013; referred to House Subcommittee on Disability Assistance and Memorial Affairs. H.R. 4495 (Forbes). The Asia-Pacific Region Priority Act. Contains a number of provisions regarding maritime disputes in the South China Sea and various countries' actions there. States that the United States has an interest in "maintaining freedom of navigation, freedom of the seas, respect for international law, and unimpeded lawful commerce" in the South China Sea. States that U.S. policy urges all parties to the disputes to "refrain from engaging in destabilizing activities." Introduced April 28, 2014; referred to House Armed Services Committee and House Foreign Affairs Subcommittee on Asia and the Pacific. H.R. 4254 (Royce). Imposes financial and immigration sanctions on certain Vietnamese who are complicit in human rights abuses. Requires the President to submit to Congress a list of individuals complicit in certain human rights abuses. Introduced March 14, 2014; referred to the House Foreign Affairs Committee, Ways and Means Committee, Financial Services Committee, and Judiciary Subcommittee on Immigration and Border Security. H.J.Res. 116 (Kinzinger)/ S.J.Res. 39 (Reid). State that Congress approves of the U.S.-Vietnam nuclear cooperation agreement. H.J.Res. 116 introduced June 9, 2014; referred to House Committee on Foreign Affairs. S.J.Res. 39 introduced June 9, 2014; referred to Senate Foreign Affairs Committee. H.Res. 218 (Royce). "Encourages" the State Department to redesignate Vietnam as a country of particular concern for "particularly severe violations of religious freedom." "Urges" the State Department to demonstrate that the expansion of U.S.-Vietnam relations will depend on improvements in religious freedom in Vietnam. Introduced May 16, 2013; referred to the House Subcommittee on Asia and the Pacific. S. 929 (Cornyn). The Vietnam Human Rights Sanctions Act. Requires the President to (a) compile and submit to Congress a list of Vietnamese deemed to be complicit in human rights abuses, (b) prohibit these individuals from entering the United States, and (c) impose financial sanctions on these individuals. Authorizes the President to waive sanctions to comply with international agreements or if in the U.S. national interest. Expresses the sense of Congress that the Secretary of State should designate Vietnam as a country of particular concern (CPC) with respect to religious freedom, and that bilateral relations cannot expand unless Vietnam's human rights conditions improve. Introduced May 9, 2013; referred to the Senate Committee on Foreign Relations. S.J.Res. 36 (Menendez). States that Congress favors the U.S.-Vietnam nuclear cooperation agreement. Except for certain allied countries and institutions, prohibits issuance of any export license pursuant to a nuclear cooperation agreement 30 years after the agreement's entry into force. Introduced May 22, 2014; referred to Senate Foreign Relations Committee. S.Res. 167 (Menendez). States that the United States has an interest in freedom of navigation and overflight in Asia-Pacific maritime domains. "Condemns" maritime vessels' and aircrafts' use of coercion, threats, or force in the South China Sea and East China Sea to assert disputed maritime or territorial claims or alter the status quo. "Supports" ASEAN and China's efforts to develop a Code of Conduct for the South China Sea. "Supports" U.S. military operations in the Western Pacific, including in partnership with other countries, to support the freedom of navigation. Introduced June 10, 2013; passed by the Senate by unanimous consent July 29, 2013.

After communist North Vietnam's victory over U.S.-backed South Vietnam in 1975, the United States and Vietnam had minimal relations until the mid-1990s. Since the establishment of diplomatic relations in 1995, overlapping security and economic interests have led the two sides to expand relations across a wide range of sectors. In 2013, President Obama and his Vietnamese counterpart announced a "comprehensive partnership" that is to provide a framework for moving the relationship to a "new phase." A key factor driving the two countries together is a shared concern about China's increased assertiveness in Southeast Asia, particularly in the South China Sea. In 2014, the 113th Congress is likely to confront four inter-related issues with respect to U.S. relations with Vietnam: a 2014 bilateral nuclear energy cooperation agreement; Vietnam's participation with the United States in the 12-country Trans-Pacific Partnership (TPP) free trade agreement negotiations; questions about how the United States can influence human rights conditions inside Vietnam; and a debate over bilateral security ties, including whether to consider relaxing restrictions on military sales to Vietnam. U.S. and Vietnamese Interests In the United States, voices favoring improved relations have included those reflecting U.S. business interests in Vietnam's growing economy and U.S. strategic interests in expanding cooperation with a populous country—Vietnam has over 90 million people—that has an ambivalent relationship with China. Others argue that improvements in bilateral relations should be contingent upon Vietnam's authoritarian government improving its record on human rights. The population of more than 1 million Vietnamese Americans, as well as legacies of the Vietnam War, also drive continued U.S. interest. Vietnamese leaders have sought to upgrade relations with the United States in part due to the desire for continued access to the U.S. market and to their worries about China's expanding influence in Southeast Asia. That said, Vietnam's relationship with China is its most important. Also, some Vietnamese officials remain suspicious that the United States' long-term goal is to erode the Vietnamese Communist Party's (VCP's) monopoly on power. Economic Ties The United States is Vietnam's largest export market and in some years its largest source of foreign direct investment. Bilateral trade in 2013 was almost $30 billion, a more than 60% increase since 2010. The United States and Vietnam are 2 of 12 countries negotiating the TPP. To go into effect, legislation to implement a TPP agreement (if one is reached) would require approval by both houses of Congress. Since the late 2000s, annual U.S. aid typically surpasses $100 million, much of it for health-related activities. Human Rights Human rights are perhaps the most contentious issue in the relationship. Although disagreements over Vietnam's human rights record have not prevented the two sides from improving relations, they appear to limit the pace and extent of these improvements. Vietnam is a one-party, authoritarian state ruled by the VCP, which appears to be following a strategy of informally permitting (though not necessarily legalizing) most forms of personal and religious expression while selectively repressing individuals and organizations that it deems a threat to the party's monopoly on power. Most human rights observers contend that for the past several years, the government has intensified its suppression of dissenters and protestors. Some human rights advocates have argued that the United States should use Vietnam's participation in the TPP talks as leverage to pressure Hanoi to improve the country's human rights situation. Also, since the 107th Congress, various legislative attempts have been made to link the provision of U.S. aid, as well as arms sales, to Vietnam's human rights record. U.S.-Vietnam Nuclear Energy Cooperation Agreement In May 2014 the Obama transmitted to Congress a U.S.-Vietnam nuclear energy cooperation agreement, under which the United States could license the export of nuclear reactor and research information, material, and equipment to Vietnam. S.J.Res. 36, S.J.Res. 39, and H.J.Res. 116 would approve the agreement, which will enter into force upon the 90th day of continuous session after its submittal to Congress (a period of 30 plus 60 days of review) unless Congress enacts a Joint Resolution of disapproval.

Introduction Early in the 110 th Congress, the Chairmen of the House and Senate Judiciary Committees introduced essentially identical versions of the Court Security Improvement Act of 2007, as H.R. 660 and S. 378 , that mirrored legislation that passed the Senate at the close of the 109 th Congress. Each House reported and passed somewhat different variations, although the basic structure of the legislation remained unchanged in both instances. The Senate subsequently accepted and passed H.R. 660 with slight amendments, which the House in turn accepted under suspension of the rules. The President the bill on January 7, 2008. The bill as passed, Public Law 110-177 ( P.L. 110-177 ), consists of four components: adjustments to applicable provisions of criminal law, reenforcement of the authority and oversight features of the law that governs federal judicial security, grant programs to facilitate increased security for the judiciary of the states, and miscellaneous provisions whose relation to judicial security might initially appear remote. Existing Criminal Law Existing federal criminal law seeks to ensure the safety and integrity of federal judicial and other official proceedings by proscribing threats and violence (1) against federal personnel, (2) against witnesses in official proceedings, and (3) against federal proceedings and facilities. Federal Judges, Officers and Employees It is a federal crime to: assault, kidnap or kill a federal judge during or on account of the performance of his or her duties; or assault, kidnap, or murder an immediate member of a federal judge's family with the intent to obstruct (or retaliate for) the judge's performance of his or her duties; or assault, kidnap, or murder a former federal judge or member of his or her family on account of the performance of judge's duties; or threaten, attempt, or conspire to do so. Moreover, the proscriptions are not limited to federal judges. They protect federal law enforcement officers as well as prosecutors and in fact protect any federal officer or employee or anyone assisting them, as long as the threat, assault, kidnaping or killing has the necessary connection (during or on account of) to the performances of federal duties. The penalties for the offenses are calibrated according to the seriousness of the obstructing offense. P.L. 110-177 Section 1114 (killing federal officers and employees, etc.) adopts by cross reference the penalties of 18 U.S.C. 1112 (manslaughter in the special maritime and territorial jurisdiction) when the offense involves manslaughter committed against federal judges, officials or employees. Section 207 of P.L. 110-177 increases the maximum penalty for manslaughter committed in violation of Section 1114 by increasing the penalties under 18 U.S.C. 1112. In the case of voluntary manslaughter, the term of imprisonment goes from not more than 10 years to not more than 15 years, and in the case of involuntary manslaughter from not more than 6 years to not more than 8 years. Several other federal statutes also adopt the penalty structure of Section 1112 by cross-reference. Consequently, when P.L. 110-177 enhances sanctions of Section 1112 the increases the penalties for manslaughter in violation of both Sections 1112 and 1114, but also manslaughter committed: against a Member of Congress, a senior executive branch official, or, a Supreme Court Justice; in connection with a federal offense that involves the use or possession of armor piercing ammunition during and furtherance of the offense; in connection with the possession of a firearm or dangerous weapon in a federal facility; against protected diplomatic officials; against an American by an American overseas; in the course of an obstruction of justice in violation of 18 U.S.C. 1503, 1512, or 1513; against the President, Vice-President, or senior executive branch officials. Section 208 of P.L. 110-177 leaves the penalties for assaulting federal judges, officers or employees unchanged, but increases those for assaulting members of their families or former judges, officers or employees to: imprisonment for not more than 30 years for assault with a dangerous weapon; not more than 15 years for assault resulting in serious bodily injury; and not more than 10 years for assault resulting in serious injury, 18 U.S.C. 115(b)(1). Section 209 directs the United States Sentencing Commission to review the sentencing guidelines applicable to threats committed in violation of 18 U.S.C. 115 and communicated over the Internet. Federal Witnesses Federal obstruction of justice statutes protect witnesses and potential witnesses in federal judicial, Congressional and administrative proceedings by outlawing murder, assault and threats intended to prevent or influence a witness' testimony or to retaliate for past testimony, 18 U.S.C. 1512 and 1513. The penalties for murder, manslaughter and attempted murder of federal witnesses under Sections 1512 and 1513 are the same as when those crimes are committed against federal officials, but the penalties for assault and conspiracy are a bit more severe. P.L. 110-177 In addition to the penalty increases occurring when the bills change the Section 1112 manslaughter penalties that apply to manslaughter committed in violation of Sections 1512 and 1513 (from imprisonment for not more than10 years to imprisonment for not more than 15 years for voluntary manslaughter; and from not more than 6 years to not more than 8 years for involuntary manslaughter), Sections 205 and 206 boost the maximum penalties for witness tampering or retaliation in violation of 18 U.S.C. 1512 or 1513 when the offense involves the use of physical force from 20 years to 30 years; when it involves the threat of the use of physical force from 10 years to 20 years; and for harassment from 1 year to 3 years. Section 204 adds a venue provision to the witness retaliation offenses in 18 U.S.C. 1513 purporting to permit prosecution of offenses under the section either in the place where the violation occurs or in place where the proceeding occurs. Section 1512 already contains a similar provision. The Constitution may confine Section 204's reach and that of the comparable provision in Section 1512. The Constitution provides that the "trial of all crimes ... shall be held in the state where the said crimes shall have been committed," and in "all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed." The Supreme Court has indicated that the prosecution of offenses, other than where one of its "conduct elements" occurs, poses serious constitutional problems. Federal Proceedings Federal obstruction of justice law also prohibits the use of force or threats to obstruct or to endeavor to obstruct the "due administration of justice" in federal courts or to obstruct Congressional or administrative proceedings. Obstruction of Congressional and administrative proceedings carries a flat sanction of imprisonment for not more than 5 years (not more than 8 years if the proceedings involve international or domestic terrorism). Penalties for the obstruction of federal judicial proceedings are more structured, particularly if a killing occurs. Other than the change attributable to the manslaughter amendments in Section 1112 mentioned earlier, the bill leaves sentencing under Section 1503 as it finds it. Means of Obstruction Beyond the proscriptions addressed to the use of violence against federal officials, witnesses and proceedings, there are federal criminal prohibitions directed at the misuse of firearms, explosives and other dangerous instrumentalities that may be implicated by a breach of court security. For example, the use of explosives as the means of obstruction may trigger a federal proscription that outlaws damaging federal property with explosives, one that exposes offenders to imprisonment for not less than 7 nor more than 40 years if the offense involves a substantial risk of injury; to imprisonment for not less than 20 years or for life (and possible to the death penalty) if the offense results in death; and to imprisonment for not less than 5 nor more than 20 years in all other instances. When firearms are the violent obstructive means employed, a second statute calls for imposition of a progression of mandatory minimum terms of imprisonment based on the type and manner of firearm use. Under its provisions when a firearm is used or carried during and in furtherance of a federal crime of violence, a mandatory minimum term of imprisonment of 5 years is imposed; and the mandatory minimum is 7 years, if the firearm is brandished; 10 years, if it is discharged; 10 years, if it is a short-barreled shotgun or short-barreled rifle; 30 years, if it is a machine gun or fitted with a silencer; 25 years, if the offender has a prior conviction under the section; and life imprisonment, if the offender has such a prior conviction and the firearm is a machine gun or fitted with a silencer. A third federal provision, 18 U.S.C. 930, outlaws the use of a firearm or other dangerous weapon in a fatal attack in a federal facility. It adopts by cross reference the penalties assigned elsewhere for murder, manslaughter, attempted murder or manslaughter, and conspiracy to murder or manslaughter. The same statute punishes possession or attempted possession of a firearm or dangerous weapon within a federal facility with intent to use it there with imprisonment for not more than 5 years, simple possession of a firearm or dangerous weapon within a federal facility other than a federal courthouse with imprisonment for not more than 1 year, and simple possession or attempted possession of a firearm within a federal courthouse with imprisonment for not more than 2 years. P.L. 110-177 Dangerous Weapons Section 203 amends the proscription for simple courthouse firearm possession found in Section 930(e) to include possession of other dangerous weapons as well. The possession with intent proscription already includes coverage of both firearms and dangerous weapons. The existing statute has a definition that excludes small pocket knives from the term "dangerous weapon." Yet, it describes dangerous weapons as any item capable of inflicting serious injury. When used to describe the objects that may be impermissibly used in an assault, its breadth is understandable. In such circumstances, it has been understood to include shoes, belts, rings, chairs, desks, teeth, screwdrivers, and a host of other ordinarily innocent objects that could be misused to inflict serious injury. When the definition makes it a crime to possess such items in a federal courthouse regardless of how innocently they are used, practical problems may arise. If the courts read the definition out of the statute for purposes of simple courthouse possession prosecutions, they may take the small knife exception with it and be left to their own devices to define what constitutes a dangerous weapon. The same incongruity, however, appears to have escaped notice in the case of simple possession of a dangerous weapon in a federal facility other than a federal courthouse under 18 U.S.C. 930(a). Harassing Federal Officials with False Liens Retaliation against federal officials in the past has sometimes taken the form of filing false liens and other legal nuisance actions against their property. Such obstructions have been prosecuted under federal statutes that prohibit obstruction of the due administration of justice (18 U.S.C. 1503) or that prohibit conspiracy to retaliate against federal officials by inflicting economic damage (18 U.S.C. 372). These statutes are not without limitation, however, since most courts insist that a prosecution under Section 1503 requires that the misconduct occur during the pendency of a judicial proceeding and that a prosecution under Section 372 requires a conspiracy, that is, a scheme of two or more defendants. Section 201 of P.L. 110-177 makes it a separate federal crime, punishable by imprisonment for not more than 10 years, to knowingly file a false lien or similar encumbrance against the property of a federal officer or employee on account of the performance of his or her federal duties or to conspire or attempt to do so, 18 U.S.C. 1521. Aiding the Intimidation of Federal Officials It is a federal crime to threaten to kill, kidnap or assault a federal officer or employee, a retired federal officer or employee, or a member of their immediate family to impede or on account of the performance of their federal duties. It is likewise a federal offense to threaten a witness or potential witness in a federal proceeding in order to impede or retaliate for their performance as a witness. And it is a federal crime to threaten federal grand or petit jurors in order to impede or influence their service. Moreover, anyone who aids or abets the commission of these or of any other federal crime is criminally liable to the same extent as the individual who actually commits them. Liability for aiding or abetting, however, can only be incurred upon the commission of the underlying offense. Section 202 of P.L. 110-177 makes it a federal crime to make publicly available certain identifying information such as home addresses, telephone numbers, and social security numbers of federal officials, employees, witnesses, and jurors (grand and petite) either (1) with the intent to threaten, intimidate, or incite a crime of violence against such individuals or members of their immediate families, or (2) with the intent and knowledge that the information will be used for such purpose, 18 U.S.C. 119. Offenders are subject to a term of imprisonment for not more than 5 years, id. There is no requirement that the victims be targeted on account of their federal or family status, that any incited violence be imminent, or that the information be publicly unavailable otherwise. The new section also covers federal, territorial, state and local public safety officers whose agencies receive federal funding, witnesses and informants in federal criminal investigations and prosecutions, and witnesses and informants in state investigations and prosecutions of crimes that have an impact on interstate or foreign commerce, 18 U.S.C. 119(b)(2)(c),(d). First Amendment considerations may color the section's application. The First Amendment has been held to prohibit the punishment of a newspaper for publishing the name of rape victim when her identity was otherwise available as a matter of public record. And it has been held to preclude punishing a newspaper for publishing the name of a juvenile subject to delinquency proceedings when it obtained the information lawfully. On the other hand, neither true threats nor incitement to immediate criminal action are entitled to First Amendment protection. Moreover, in a somewhat analogous case, the Ninth Circuit found a want of First Amendment protection for "true threats" in the form of "wanted" bulletins, posted on the Internet, that listed the pictures, names and address of various doctors after other doctors similarly identified in previous bulletins had been murdered. The statute prohibits disclosure of identifying information only where publication is intended to threaten or incite violence or is intended to be used for such purposes. Proof of such an intent is likely to require evidence that demonstrates the existence of a true threat or the incitement of an immediate crime of violence and therefore satisfies First Amendment concerns. Implementation of Judicial Security Responsibilities of the Marshals Service The United States Marshals Service is located in the Department of Justice. The Director of the Marshals Service and the Marshals for each of the 94 judicial districts and for the Superior Court of the District of Columbia are appointed by the President, with the advice and consent of the Senate. Marshals serve four year terms at the pleasure of the President. Marshals are responsible for the security of the U.S. District Courts, U.S. Courts of Appeal and Court of International Trade sitting in their districts, and for the execution of warrants, subpoenas and other process of those courts. The Marshals are also responsible for the protection of witnesses, the asset forfeiture program, and the arrest of fugitives from federal law. P.L. 110-177 Additional Authorizations Section 105 calls for $20 million in additional authorization of appropriations for each fiscal year through 2011 in order to hire additional marshals to provide security for federal judges and assistant United States attorneys and to augment the resources of the Marshals Service's Office of Protective Intelligence. In a related matter, the President's budget for FY2008 indicates that the Administration will request additional appropriations for the Marshals Service of $25.7 million "for investigating threats against the Judiciary, high-threat trial security, judicial security in the Southwest Border district offices, and enforcement of the Adam Walsh Child Protection and Safety Act." Security for Tax Court Activities The Marshals Service is authorized to provide security and service of process for the federal District Courts, Courts of Appeal and the Court of International Trade. Section 102 expands those responsibilities to the Tax Court, 28 U.S.C. 566(a). They also bolster the authority to serve the Tax Court. Section 7456 of the Internal Revenue Code (26 U.S.C. 7456) ends with the instruction that, "The United States marshal for any district in which the Tax Court is sitting shall, when requested by the chief judge of the Tax Court, attend any session of the Tax Court in such district." P.L. 110-177 amends the section to include an explicit instruction to provide security for the Court, its judges, personnel, witnesses, and other participants in its proceedings, when requested by the Chief Justice of the Tax Court. Coordination with the Judicial Conference The Judicial Conference of the United States oversees the rules and conditions under which the federal courts operate. Section 101 amends the organic statutes for the Marshals Service and the Judicial Conference to ensure regular consultation between the two concerning the judicial security, assessment of threats against members of the judiciary and protection of judicial personnel. Safety of Federal Prosecutors Like federal judges, federal prosecutors have been the subject of both threats and plots to kill them. Neither have express authority to carry firearms in the performance of their duties. Marshals and deputy marshals, on the other hand, do have such express authority. And prosecutors, at least, can be deputized as deputy marshals, a process that carries with it the authority of the office, e.g., the authority to carry a firearm. Section 401 directs the Attorney General to report to the House and Senate Judiciary Committees within 90 days on the security of federal prosecutors. The report must include: the extent and a description of the threats made against federal prosecutors, the steps taken for their security, the number of prosecutors deputized in response to such threats, the policies governing the practices of Department attorneys with state firearm licenses, the security consequences of the considerations under which threatened prosecutors must perform such as after hours work and parking priorities, a discussion of related training available to prosecutors, the identity of the officials responsible for the development of Department policies to deal with such matters, and the role of the Marshals Service and other Department security components in such matters. Redacted Financial Disclosure Statements The Ethics in Government Act requires federal judges, Members of Congress, and senior officials in the legislative, executive and judicial branches to file publicly available financial disclosure reports. Concerned that information contained in the financial disclosure statements of federal judges might be misused in efforts to threaten or intimidate them, Congress temporarily authorized the redaction of certain information from the financial disclosure statements of certain federal judges. Section 104 temporarily extends the provision until December 31, 2011. Grants to the States Witness Protection Part H of the Violent Crime Control and Law Enforcement Act of 1994, 42 U.S.C. 13861-13868, authorizes community-based grants for state, territorial, and tribal prosecutors. Appropriations were last authorized for FY2000, 42 U.S.C. 13867. Section 301 of P.L. 110-177 amends Part H to include state witness protection programs and authorizes appropriations for Part H of $20 million for each fiscal year through 2012. State and Tribal Court Security Sections 515 and 516 of Title I of the Omnibus Crime and Safe Streets Act of 1968 authorizes discretionary Bureau of Justice Assistance Correctional Options grants, 42 U.S.C. 3762a, 3762b. Section 2501 of Title I authorizes a matching grant program to purchase armored vests for state, territorial and tribal law enforcement officers, 42 U.S.C. 3796ll to 3796ll-2. Section 302 of P.L. 110-177 amends Sections 515 and 516 to permit 10 per cent of the funds appropriated for grants under those sections to be available for grants to improve security for state, territorial, or tribal court systems with priority to be given to those demonstrating the greatest need, 42 U.S.C. 3762a, 3762b. To accommodate the new allotment, the percent of appropriations available for corrections alternatives would be reduced from 80 percent to 70 percent of the funds appropriated, 42 U.S.C. 3762b. Section 302 also amends Section 2501 of the Omnibus Crime Control and Safe Streets Act to include matching grants for the purchase of armored vests for state and territorial court officers, 42 U.S.C. 3796ll. Section 302 further permits the Attorney General to require when appropriate that state, territorial or tribal applicants for grants under programs administered by the Department of Justice show that they have considered the security needs of their judicial branch following consultation with judicial and law enforcement authorities. Section 303 authorizes the Attorney General to award grants to permit the highest courts in each state to establish and maintain threat assessment databases in a manner to allow access by other states and the Justice Department. The section authorizes the necessary appropriations for fiscal years 2008 through 2011 as well. Miscellaneous Provisions U.S. Sentencing Commission Procurement Authority The United States Sentencing Commission was established in 1984 as an independent entity located within the judicial branch. Its purpose is to promulgate sentencing guidelines for use by federal courts in criminal cases. Those guidelines, once binding upon the courts, are now simply advisory, although the courts must continue to consider them and the guidelines continue to carry considerable persuasive force. The Commission may enter into contracts in fulfillment of its responsibilities. As a general rule, appropriated funds are available for obligation under contract or otherwise only during the fiscal year for which they were appropriated. There are several exceptions to the general rule. For example, the heads of executive agencies may contract for services that begin in one fiscal year and end in the next. They may also enter into multi-year contracts. And with sufficient security, they may make advance payments on contract obligations to be fulfilled at a later date. In the judicial branch, the Administrative Office of the United States Courts enjoys similar authority. Section 501 temporarily grants the Sentencing Commission comparable authority, 28 U.S.C. 995(f)(expiring on September, 30, 2010). Life Insurance Costs Judges of the United States Courts of Appeal and United States District Courts serve during good behavior, which ordinarily means for life. When they reach 65 years of age with at least 15 years of service or at such later date as their age and years of service equal 80 years, they may remain in active service, they may retire at an annuity equal to their salary on the date of retirement, or they may retire to senior status. Judges in senior status continue to serve but are considered to have left office for vacancy purposes so that replacements may be appointed. Senior judges receive full salary, including any pay increases or adjustments given judges on active service, as long as they essentially carry at least the equivalent of 25% of the workload of a full time member of the court. When the Office of Personnel Management announced life insurance premium increases for District and Appeals Court judges in 1999, the judges and the Administrative Office objected that the increase would operate as a disincentive to serve on senior status. The appropriations legislation for that year included a provision now found in 28 U.S.C. 604(a)(5): The Director ... shall ... pay on behalf of Justices and judges of the United States appointed to hold office during good behavior, aged 65 or over, any increases in the cost of Federal Employees' Group Life Insurance imposed after April 24, 1999, including any expenses generated by such payments, as authorized by the Judicial Conference of the United States. Similar provisions have been made for judges of the Tax Court and the Court of Federal Claims, judges who serve 15 year terms. They may be recalled to perform judicial duties for periods up to 90 days a year. Section 502 makes this provision applicable to magistrate judges. Assignment of Senior Judges The chief judges of the various United States Courts of Appeal or the various circuit judicial councils may designate and assign senior judges to perform judicial duties within the circuit. As a general matter, senior judges who are designated and assigned enjoy all of the powers of the court, circuit or district to which they are assigned, except for the power to permanently designate a publisher for legal notices or depository of funds or "to appoint any person to a statutory position." Federal statutes describe the appointment authority for several positions in the judicial branch. Bankruptcy judges are appointed by the circuit Court of Appeals, who also appoint their clerks and librarians; circuit judges appoint their own law clerks and secretaries; and circuit chief justices appoint senior staff attorneys. Magistrate judges are appointed by the district court judges, who also appoint their clerks and court reporters; individual judges appoint their own bailiffs, law clerks and secretaries. Beyond the explicit exceptions and the general rule notwithstanding, there are several powers that only a judge in "regular active service" and no senior judge may exercise. Thus, only a judge in regular active service may serve as a chief judge of a federal district or circuit. The decision to present an appeal to all of the judges of a particular circuit (to grant a hearing or rehearing en banc) is made by a majority vote of the judges of that circuit who are in regular active service. A senior judge may participate in an en banc appeal only if he or she was a member of the panel that initially decided the case being heard en banc. Senior judges may serve on the United States Sentencing Commission and on the Board of the Federal Judicial Center. They may serve as well as members of the Judicial Conference of the United States, the rule propounding body for the federal courts. They may also sit on the judicial councils for their circuits, the local rule making authority for the circuit, but the number of members of such councils and their terms of service are determined by a majority vote of the judges in regular active service in the circuit. Section 503 amends 28 U.S.C. 296 to declare that senior judges "when designated and assigned to the court to which such judge was appointed, having performed in the preceding calendar year an amount of work equal to or greater than the amount of work an average judge in active service on that court would perform in 6 months, and having elected to exercise such powers, shall have all the powers of a judge of that court, including participation in appointment of court officers and magistrates, rulemaking, governance, and administrative matters," 28 U.S.C. 296. Although the amendment might under other circumstances be thought to extend merely to those judicial powers and tasks for which there is no contrary instruction by statute or rule, the specific mention of the appointment of magistrate seems to preclude such a construction. It would presumably override the circuit court en banc limitations as well. Appointment of Magistrates Magistrate judges are appointed pursuant to a statute that declares that, "the judges of each United States district court and the district courts of the Virgin Islands, Guam, and the Northern Mariana Islands shall appoint United States magistrate judges..." 28 U.S.C. 631(a). Section 504 amends this language to add, after "the Northern Mariana Islands", the parenthetical "(including any judge in regular active service and any judge who has retired from regular active service under Section 371(b) of this title, when designed and assigned to the court to which such judge was appointed)". The amendment may present an interpretative challenge. The problem is that only United States district court judges retire under Section 371(b); the judges in the Virgin Islands, Guam and the Northern Mariana Islands retire under Section 373. So does the amendment intend to add only senior United States district court judges to the core of judges who may participate in the decision to appoint magistrate judges for their districts? Probably, but that intent would have been more clearly demonstrated if the parenthetical had been added immediately after the phrase "United States district court." Such a reading might be thought to render the amendment redundant since the prior section vests senior judges with share in the appointment of magistrate judges for their districts, but it can also be read as simply confirming the operation of the previous section. Or does the amendment intend to permit both United States district court senior judges who retired under Section 371(b) and territorial judges who retired under Section 373 to participate in the appointment magistrate judges of their courts? Possibly, but read literally it would mean that territorial judges could participate as long as they had elected eligibility for senior status upon retirement regardless of whether they had been actually recalled. Or does the amendment intend only to permit appointment by a senior judge in the district court of the Northern Mariana Islands who retired under Section 373? Very unlikely, for while it is perhaps the most grammatically faithful reading, it would mean affording a senior judge of the Northern Mariana Islands authority that is denied the other territorial district courts. Moreover, senior judges of the Northern Mariana Islands retire under Section 373 rather than 371 as stated in the amendment. Payment of Fines by Former Prisoners Federal courts that sentence an offender to prison may also include a term of supervised release to be served upon completion of the defendant's term of imprisonment, 18 U.S.C. 3583. They may at the same time impose a fine upon the defendant of up to $250,000 for most felonies and lesser amounts for misdemeanors, 18 U.S.C. 3571. Prior law stated that a defendant was not to be released on supervised release unless he agreed to follow an installment schedule for any remaining fine obligations, 18 U.S.C. 3624(e)(2000 ed.). Since the defendant must be released upon service of his sentence, the language suggested he might avoid supervised release simply by refusing to accept an installment schedule. Section 505 amends the prior language to compel the Bureau of Prisons to notify prisoners upon their release of their obligation to follow an installment payment schedule in order to satisfy any outstanding fine obligations, 18 U.S.C. 3624(e). Study of State Open Record Laws Section 506 instructs the Attorney General to study whether public access to state and local public records imperils the safety of federal judges. Authorization of Fugitive Apprehension Task Forces The Presidential Threat Protection Act authorized the Marshals Service to direct and coordinate permanent Fugitive Apprehension Task Forces composed of federal, state and local law enforcement officers in order to capture fugitives from justice. The act authorized appropriations of $30 million for the purpose for FY2001 and $5 million per year for each of the two fiscal years thereafter. Section 507 authorizes appropriations of $10 million for each of the fiscal years from 2008 through 2012 for the Fugitive Apprehension Task Forces. Judicial Exemption from the REAL ID Act The REAL ID Act establishes certain minimum requirements for state drivers' licenses and other state identification documents if they are to be received for federal identification purposes – including the individual's home address. In the case of federal judges, Section 508 allows the states to substitute the address of the court where the federal judge has his or her chambers. Judgeships in the Ninth Circuit Section 509 increases the number of judgeships on the Ninth Circuit Court of Appeals from 28 to 29 and reduces the number on the District of Columbia Circuit Court of Appeals from 12 to 11. The statement in the report of the section's sponsor, Senator Feinstein, indicates the amendment is intended to reflect the relative workloads of the two Circuits and the need to address the growing backlog of cases in the Ninth Circuit, id . at 10 (additional views of Senator Feinstein). Collateral Consequences of Conviction Offenders of federal and state criminal law face the prospect of probation, imprisonment, parole, supervised release, assessments, fines, forfeiture, and/or restitution orders. They may also suffer obligations, disabilities, disqualifications, and ineligibility as a consequence of their convictions, quite apart from the sanctions imposed at the time of sentencing. The law of a particular jurisdiction may authorize authorities to lift the burden of some of these under some circumstances. Section 510 directs the National Institute of Justice to study and report on the collateral consequences of conviction under federal law and the laws of the various states. Although the section provides explicit descriptions of the "collateral sanctions" and "disqualifications" it anticipates the report will describe, the diversity of P.L. 110-177 in the area may make the task challenging. Appendix. 18 U.S.C. 1114 Whoever kills or attempts to kill any officer or employee of the United States or of any agency in any branch of the United States Government (including any member of the uniformed services) while such officer or employee is engaged in or on account of the performance of official duties, or any person assisting such an officer or employee in the performance of such duties or on account of that assistance, shall be punished – (1) in the case of murder, as provided under section 1111; (2) in the case of manslaughter, as provided under section 1112; or (3) in the case of attempted murder or manslaughter, as provided in section 1113. 18 U.S.C. 111 (a) In general.– Whoever– (1) forcibly assaults, resists, opposes, impedes, intimidates, or interferes with any person designated in section 1114 of this title while engaged in or on account of the performance of official duties; or (2) forcibly assaults or intimidates any person who formerly served as a person designated in section 1114 on account of the performance of official duties during such person's term of service, shall, where the acts in violation of this section constitute only simple assault, be fined under this title or imprisoned not more than one year, or both, and in all other cases, be fined under this title or imprisoned not more than 8 years, or both. (b) Enhanced penalty.– Whoever, in the commission of any acts described in subsection (a), uses a deadly or dangerous weapon (including a weapon intended to cause death or danger but that fails to do so by reason of a defective component) or inflicts bodily injury, shall be fined under this title or imprisoned not more than 20 years, or both. 18 U.S.C. 1201 (a) Whoever unlawfully seizes, confines, inveigles, decoys, kidnaps, abducts, or carries away and holds for ransom or reward or otherwise any person, except in the case of a minor by the parent thereof, when ... (5) the person is among those officers and employees described in section 1114 of this title and any such act against the person is done while the person is engaged in, or on account of, the performance of official duties; shall be punished by imprisonment for any term of years or for life and, if the death of any person results, shall be punished by death or life imprisonment. * * * (c) If two or more persons conspire to violate this section and one or more of such persons do any overt act to effect the object of the conspiracy, each shall be punished by imprisonment for any term of years or for life. (d) Whoever attempts to violate subsection (a) shall be punished by imprisonment for not more than twenty years. * * * 18 U.S.C. 115 (a)(1) Whoever – (A) assaults, kidnaps, or murders, or attempts or conspires to kidnap or murder, or threatens to assault, kidnap or murder a member of the immediate family of a United States official, a United States judge, a Federal law enforcement officer, or an official whose killing would be a crime under section 1114 of this title; or (B) threatens to assault, kidnap, or murder, a United States official, a United States judge, a Federal law enforcement officer, or an official whose killing would be a crime under such section, with intent to impede, intimidate, or interfere with such official, judge, or law enforcement officer while engaged in the performance of official duties, or with intent to retaliate against such official, judge, or law enforcement officer on account of the performance of official duties, shall be punished as provided in subsection (b). (2) Whoever assaults, kidnaps, or murders, or attempts or conspires to kidnap or murder, or threatens to assault, kidnap, or murder, any person who formerly served as a person designated in paragraph (1), or a member of the immediate family of any person who formerly served as a person designated in paragraph (1), with intent to retaliate against such person on account of the performance of official duties during the term of service of such person, shall be punished as provided in subsection (b). (b)(1) An assault in violation of this section shall be punished as provided in section 111 of this title. (2) A kidnaping, or attempted kidnaping of, or a conspiracy to kidnap, a person in violation of this section shall be punished as provided in Section 1201 of this title for the kidnaping, attempted kidnaping, or conspiracy to kidnap of a person described in section 1201(a)(5) of this title. (3) A murder, attempted murder, or conspiracy to murder in violation of this section shall be punished as provided in sections 1111, 1113, and 1117 of this title. (4) A threat made in violation of this section shall be punished by a fine under this title or imprisonment for a term of not more than 10 years, or both, except that imprisonment for a threatened assault shall not exceed 6 years. (c) As used in this section, the term – (1) "Federal law enforcement officer" means any officer, agent, or employee of the United States authorized by law or by a Government agency to engage in or supervise the prevention, detection, investigation, or prosecution of any violation of Federal criminal law; (2) "immediate family member" of an individual means— (A) his spouse, parent, brother or sister, child or person to whom he stands in loco parentis; or (B) any other person living in his household and related to him by blood or marriage; (3) "United States judge" means any judicial officer of the United States, and includes a justice of the Supreme Court and a United States magistrate judge; and (4) "United States official" means the President, President-elect, Vice President, Vice President-elect, a Member of Congress, a member-elect of Congress, a member of the executive branch who is the head of a department listed in 5 U.S.C. 101, or the Director of the Central Intelligence Agency. (d) This section shall not interfere with the investigative authority of the United States Secret Service, as provided under sections 3056, 871, and 879 of this title 18 U.S.C. 1512 (a)(1) Whoever kills or attempts to kill another person, with intent to – (A) prevent the attendance or testimony of any person in an official proceeding; (B) prevent the production of a record, document, or other object, in an official proceeding; or (C) prevent the communication by any person to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a Federal offense or a violation of conditions of probation, parole, or release pending judicial proceedings; shall be punished as provided in paragraph (3). (2) Whoever uses physical force or the threat of physical force against any person, or attempts to do so, with intent to – (A) influence, delay, or prevent the testimony of any person in an official proceeding; (B) cause or induce any person to – (i) withhold testimony, or withhold a record, document, or other object, from an official proceeding; (ii) alter, destroy, mutilate, or conceal an object with intent to impair the integrity or availability of the object for use in an official proceeding; (iii) evade legal process summoning that person to appear as a witness, or to produce a record, document, or other object, in an official proceeding; or (iv) be absent from an official proceeding to which that person has been summoned by legal process; or (C) hinder, delay, or prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a Federal offense or a violation of conditions of probation, supervised release, parole, or release pending judicial proceedings; shall be punished as provided in paragraph (3). (3) The punishment for an offense under this subsection is – (A) in the case of murder (as defined in section 1111), the death penalty or imprisonment for life, and in the case of any other killing, the punishment provided in section 1112; (B) in the case of – (i) an attempt to murder; or (ii) the use or attempted use of physical force against any person; imprisonment for not more than 20 years; and (C) in the case of the threat of use of physical force against any person, imprisonment for not more than 10 years. (b) Whoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to – (1) influence, delay, or prevent the testimony of any person in an official proceeding; (2) cause or induce any person to – (A) withhold testimony, or withhold a record, document, or other object, from an official proceeding; (B) alter, destroy, mutilate, or conceal an object with intent to impair the object's integrity or availability for use in an official proceeding; (C) evade legal process summoning that person to appear as a witness, or to produce a record, document, or other object, in an official proceeding; or (D) be absent from an official proceeding to which such person has been summoned by legal process; or (3) hinder, delay, or prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a Federal offense or a violation of conditions of probation supervised release,, parole, or release pending judicial proceedings; shall be fined under this title or imprisoned not more than ten years, or both. (c) Whoever corruptly – (1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding; or (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so, shall be fined under this title or imprisoned not more than 20 years, or both. (d) Whoever intentionally harasses another person and thereby hinders, delays, prevents, or dissuades any person from – (1) attending or testifying in an official proceeding; (2) reporting to a law enforcement officer or judge of the United States the commission or possible commission of a Federal offense or a violation of conditions of probation supervised release, parole, or release pending judicial proceedings; (3) arresting or seeking the arrest of another person in connection with a Federal offense; or (4) causing a criminal prosecution, or a parole or probation revocation proceeding, to be sought or instituted, or assisting in such prosecution or proceeding; or attempts to do so, shall be fined under this title or imprisoned not more than one year, or both. (e) In a prosecution for an offense under this section, it is an affirmative defense, as to which the defendant has the burden of proof by a preponderance of the evidence, that the conduct consisted solely of lawful conduct and that the defendant's sole intention was to encourage, induce, or cause the other person to testify truthfully. (f) For the purposes of this section – (1) an official proceeding need not be pending or about to be instituted at the time of the offense; and (2) the testimony, or the record, document, or other object need not be admissible in evidence or free of a claim of privilege. (g) In a prosecution for an offense under this section, no state of mind need be proved with respect to the circumstance – (1) that the official proceeding before a judge, court, magistrate judge, grand jury, or government agency is before a judge or court of the United States, a United States magistrate judge, a bankruptcy judge, a Federal grand jury, or a Federal Government agency; or (2) that the judge is a judge of the United States or that the law enforcement officer is an officer or employee of the Federal Government or a person authorized to act for or on behalf of the Federal Government or serving the Federal Government as an adviser or consultant. (h) There is extraterritorial Federal jurisdiction over an offense under this section. (i) A prosecution under this section or section 1503 may be brought in the district in which the official proceeding (whether or not pending or about to be instituted) was intended to be affected or in the district in which the conduct constituting the alleged offense occurred. (j) If the offense under this section occurs in connection with a trial of a criminal case, the maximum term of imprisonment which may be imposed for the offense shall be the higher of that otherwise provided by law or the maximum term that could have been imposed for any offense charged in such case. (k) Whoever conspires to commit any offense under this section shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy. 18 U.S.C. 1513 (a)(1) Whoever kills or attempts to kill another person with intent to retaliate against any person for – (A) the attendance of a witness or party at an official proceeding, or any testimony given or any record, document, or other object produced by a witness in an official proceeding; or (B) providing to a law enforcement officer any information relating to the commission or possible commission of a Federal offense or a violation of conditions of probation supervised release, parole, or release pending judicial proceedings, shall be punished as provided in paragraph (2). (2) The punishment for an offense under this subsection is – (A) in the case of a killing, the punishment provided in sections 1111 and 1112; and (B) in the case of an attempt, imprisonment for not more than 20 years. (b) Whoever knowingly engages in any conduct and thereby causes bodily injury to another person or damages the tangible property of another person, or threatens to do so, with intent to retaliate against any person for – (1) the attendance of a witness or party at an official proceeding, or any testimony given or any record, document, or other object produced by a witness in an official proceeding; or (2) any information relating to the commission or possible commission of a Federal offense or a violation of conditions of probation supervised release, parole, or release pending judicial proceedings given by a person to a law enforcement officer; or attempts to do so, shall be fined under this title or imprisoned not more than ten years, or both. (c) If the retaliation occurred because of attendance at or testimony in a criminal case, the maximum term of imprisonment which may be imposed for the offense under this section shall be the higher of that otherwise provided by law or the maximum term that could have been imposed for any offense charged in such case. (d) There is extraterritorial Federal jurisdiction over an offense under this section. (e) Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both. (e) Whoever conspires to commit any offense under this section shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy. 18 U.S.C. 1503 (emphasis added) (a) Whoever corruptly, or by threats or force, or by any threatening letter or communication, endeavors to influence, intimidate, or impede any grand or petit juror, or officer in or of any court of the United States, or officer who may be serving at any examination or other proceeding before any United States magistrate judge or other committing magistrate, in the discharge of his duty, or injures any such grand or petit juror in his person or property on account of any verdict or indictment assented to by him, or on account of his being or having been such juror, or injures any such officer, magistrate judge, or other committing magistrate in his person or property on account of the performance of his official duties, or corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be punished as provided in subsection (b). If the offense under this section occurs in connection with a trial of a criminal case, and the act in violation of this section involves the threat of physical force or physical force, the maximum term of imprisonment which may be imposed for the offense shall be the higher of that otherwise provided by law or the maximum term that could have been imposed for any offense charged in such case. (b) The punishment for an offense under this section is – (1) in the case of a killing, the punishment provided in sections 1111 and 1112; (2) in the case of an attempted killing, or a case in which the offense was committed against a petit juror and in which a class A or B felony was charged, imprisonment for not more than 20 years, a fine under this title, or both; and (3) in any other case, imprisonment for not more than 10 years, a fine under this title, or both. 18 U.S.C. 1505 Whoever, with intent to avoid, evade, prevent, or obstruct compliance, in whole or in part, with any civil investigative demand duly and properly made under the Antitrust Civil Process Act, willfully withholds, misrepresents, removes from any place, conceals, covers up, destroys, mutilates, alters, or by other means falsifies any documentary material, answers to written interrogatories, or oral testimony, which is the subject of such demand; or attempts to do so or solicits another to do so; or Whoever corruptly, or by threats or force, or by any threatening letter or communication influences, obstructs, or impedes or endeavors to influence, obstruct, or impede the due and proper administration of the law under which any pending proceeding is being had before any department or agency of the United States, or the due and proper exercise of the power of inquiry under which any inquiry or investigation is being had by either House, or any committee of either House or any joint committee of the Congress – Shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. 18 U.S.C. 930 (a) Except as provided in subsection (d), whoever knowingly possesses or causes to be present a firearm or other dangerous weapon in a Federal facility (other than a Federal court facility), or attempts to do so, shall be fined under this title or imprisoned not more than 1 year, or both. (b) Whoever, with intent that a firearm or other dangerous weapon be used in the commission of a crime, knowingly possesses or causes to be present such firearm or dangerous weapon in a Federal facility, or attempts to do so, shall be fined under this title or imprisoned not more than 5 years, or both. (c) A person who kills any person in the course of a violation of subsection (a) or (b), or in the course of an attack on a Federal facility involving the use of a firearm or other dangerous weapon, or attempts or conspires to do such an act, shall be punished as provided in sections 1111, 1112, 1113, and 1117. (d) Subsection (a) shall not apply to – (1) the lawful performance of official duties by an officer, agent, or employee of the United States, a State, or a political subdivision thereof, who is authorized by law to engage in or supervise the prevention, detection, investigation, or prosecution of any violation of law; (2) the possession of a firearm or other dangerous weapon by a Federal official or a member of the Armed Forces if such possession is authorized by law; or (3) the lawful carrying of firearms or other dangerous weapons in a Federal facility incident to hunting or other lawful purposes. (e)(1) Except as provided in paragraph (2), whoever knowingly possesses or causes to be present a firearm in a Federal court facility, or attempts to do so, shall be fined under this title, imprisoned not more than 2 years, or both. (2) Paragraph (1) shall not apply to conduct which is described in paragraph (1) or (2) of subsection (d). (f) Nothing in this section limits the power of a court of the United States to punish for contempt or to promulgate rules or orders regulating, restricting, or prohibiting the possession of weapons within any building housing such court or any of its proceedings, or upon any grounds appurtenant to such building. (g) As used in this section: (1) The term "Federal facility" means a building or part thereof owned or leased by the Federal Government, where Federal employees are regularly present for the purpose of performing their official duties. (2) The term "dangerous weapon" means a weapon, device, instrument, material, or substance, animate or inanimate, that is used for, or is readily capable of, causing death or serious bodily injury, except that such term does not include a pocket knife with a blade of less than 2 ½ inches in length. (3) The term "Federal court facility" means the courtroom, judges' chambers, witness rooms, jury deliberation rooms, attorney conference rooms, prisoner holding cells, offices of the court clerks, the United States attorney, and the United States marshal, probation and parole offices, and adjoining corridors of any court of the United States. (h) Notice of the provisions of subsections (a) and (b) shall be posted conspicuously at each public entrance to each Federal facility, and notice of subsection (e) shall be posted conspicuously at each public entrance to each Federal court facility, and no person shall be convicted of an offense under subsection (a) or (e) with respect to a Federal facility if such notice is not so posted at such facility, unless such person had actual notice of subsection (a) or (e), as the case may be.

The proposals of the Court Security Improvement Act of 2007 ( P.L. 110-177 , H.R. 660 and S. 378 ), fall within one of four categories. One consists of amendments to existing federal criminal law. The bill increases the penalties for manslaughter committed during the course of an obstruction of justice and for witness intimidation and retaliation. It creates new federal crimes proscribing (1) the use of nuisance liens and encumbrances to harass federal officials; (2) the public disclosure of personal, identifying information concerning federal officials in order to intimidate them or incite crimes of violence against them; and (3) the possession of dangerous weapons in federal courthouses. A second category seeks to improve implementation of judicial security measures through increased appropriations, enhanced security for the Tax Court, explicit provisions for consultation between the Department of Justice and the Judicial Conference relating to court security, a report on concerns for the safety of federal prosecutors, and a revival of authority to redact information from certain publicly available judicial financial disclosure statements. A third authorizes grants for state witness protection programs; for increased security of state, territorial and tribal courts; and for acquisition of armored vests for state court officials. The fourth category consists of proposals whose relation to security may appear more tangential: procurement authority for the United States Sentencing Commission; life insurance costs for bankruptcy, magistrate, and territorial judges; the appointment and en banc participation for senior judges; and judgeships in the Ninth Circuit and District of Columbia Courts of Appeal. This report is available in an abridged version – stripped of its footnotes, and most of its citations to authority – as CRS Report RS22607, Court Security Improvement Act of 2007: Public Law 110-177 (H.R. 660 and S. 378) in Brief , by [author name scrubbed].

Expiring Provision Defined For purposes of this report, expiring provisions are defined as health insurance-related statutes in current law that are time limited to expire and may require the attention of Congress. The list of expiring provisions covers those that are scheduled to expire between the date of this report and immediately after the end of the 114 th Congress, second session (i.e., after December 31, 2016). Table 1 provides a list of each expiring provision, the applicable program, and the date after which the provision expires. Exclusions That Do Not Meet the Definition Certain expiring provisions not included in this report are transitional or routine in nature or have been superseded by congressional action that otherwise modifies the intent of the expiring provision. For example, a change in Medicare payment policy included in the ACA requires the home health payment rates to be rebased over four years to reflect more current utilization patterns. Such a change would not meet the definition of an expiring provision because the payment modification was constructed to be transitional. Although Medicare payments are reviewed for modifications and updates each year, not every provision that changes Medicare payments is considered an expiring provision. Services that receive statutorily required payment reductions are not considered to require the attention of Congress and are not included in this report. (See Appendix B for a list of abbreviations used throughout this report.) Expiring Provisions in the 114th Congress SSA Title XVIII: Medicare Community-Based Care Transitions Program (42 U.S.C. 1395b-1) The ACA established a five-year Community Care Transitions Program under Medicare beginning January 1, 2011. Under this program, the Secretary of Health & Human Services (HHS) is to fund eligible hospitals (those with high admission rates, as defined under ACA §3025) and certain community-based organizations (those that provide transition services across a continuum of care through arrangements with certain hospitals and whose governing body includes sufficient representation of multiple health care stakeholders) that furnish improved care transition services to high-risk Medicare beneficiaries. High-risk Medicare beneficiaries are those who have attained a minimum hierarchical condition category score, as determined by the Secretary, based on a diagnosis of multiple chronic conditions or other risk factors associated with a hospital readmission or substandard transition into post-hospitalizations. In selecting participating entities, the Secretary is required to prioritize those hospitals and organizations that either participate in a program administered by HHS's Administration on Aging or provide services to medically underserved populations, small communities, and rural areas. A total of $500 million was transferred by the Secretary from the Hospital Insurance trust fund and the Supplementary Medical Insurance trust fund for this program. ACA Section 3026 established the Community-Based Care Transitions Program for a five-year period beginning January 1, 2011, through December 31, 2015. Current Status: This demonstration expires after December 31, 2015; however, the Secretary has the authority to continue or expand the scope and duration of the program if it were to be determined that quality of care would improve and projected Medicare spending could be reduced. Bonus Payment for Primary Care and General Surgery Services (42 U.S.C. 1395l) Medicare uses a fee schedule to pay physicians for the covered services they provide to program beneficiaries. In certain circumstances, physicians receive an additional payment to encourage targeted activities. These bonuses, typically a percentage increase above the Medicare fee schedule payments, can be or have been awarded for a number of activities, including demonstrating quality achievements, participating in electronic prescribing, and practicing in underserved areas. For instance, SSA Section 1833(m) provides bonus payments for physicians who furnish medical care services in geographic areas that are designated by the Health Resources and Services Administration as primary medical care health professional shortage areas (HPSAs) under Section 332 (a)(1)(A) of the Public Health Service Act (P.L. 78-410). The bonus payment equals 10% of what otherwise would be paid under the fee schedule. ACA Section 5501 established a new 10% bonus on select evaluation and management and general surgery codes under the Medicare fee schedule for five years, beginning January 1, 2011, through December 31, 2015. The primary care service codes to which this bonus applies are office visits, nursing facility visits, and home visits. The bonus has been available to primary care practitioners who (1) are physicians with a specialty designation of family medicine, internal medicine, geriatric medicine, or pediatric medicine or are nurse practitioners, clinical nurse specialists, or physician assistants and (2) furnish 60% of their services in the select codes. Practitioners providing major surgical procedures in HPSAs also have been eligible for a bonus under this provision. Over the same five-year period, general surgeons providing care in an HPSA have been eligible for a 10% bonus on major surgical procedure codes, defined as surgical procedures for which a 10-day or 90-day global period is used for payment under the Medicare fee schedule. Current Status: Bonus payments provided under ACA Section 5501 expire after December 31, 2015. Enforcement of Supervision Requirements for Outpatient Therapeutic Services in Critical Access and Small Rural Hospitals (128 Stat. 2057) In the CY2009 Medicare hospital outpatient prospective payment system (OPPS) final rule, the Centers for Medicare & Medicaid Services (CMS) restated and clarified a policy that required direct physician supervision for outpatient therapeutic services furnished in a hospital outpatient department unless another supervision level is specified for the service. Direct supervision means a physician or nonphysician practitioner must be immediately available to furnish assistance and direction throughout a procedure in the hospital outpatient department. Critical access hospitals (CAHs) and small rural hospitals raised concerns that the policy increased confusion about the types of therapeutic services that would fall under the supervision requirements. In 2010, CMS instructed its Medicare contractors not to enforce the supervision requirements for therapeutic services furnished to individuals in CAHs for all of CY2010. As CMS continued to refine its direct supervision policy, the agency extended its nonenforcement instruction through CY2011 and expanded it to include both CAHs and small rural hospitals (which CMS defined as having 100 or fewer beds, being geographically located in a rural area, or being paid under the OPPS using a rural wage index). Additionally, in 2012, CMS established an independent review process that allows the Advisory Panel on Hospital Outpatient Payment (HOP) to advise CMS regarding stakeholder requests for changes in the required supervision level for a specific hospital outpatient therapeutic service. As the HOP Panel conducted its review, in CY2012 CMS again delayed enforcement of the direct supervision policy for CAHs and small rural hospitals through CY2013. CMS noted, however, that CY2013 would be the final year for which the agency would extend the nonenforcement instruction. Section 1 of P.L. 113-198 required CMS to continue through CY2014 the instruction to Medicare administrative contractors not to enforce Medicare's direct supervision requirement for outpatient therapeutic services furnished at CAHs and small rural hospitals. Section 1 of S. 1461 , which was passed by both the House and Senate on December 8, 2015, extended the nonenforcement instructions through CY2015 (December 31, 2015). Current Status: The nonenforcement instruction of Medicare's direct supervision requirement for outpatient therapeutic services furnished at CAHs and small rural hospitals expires after December 31, 2015. Funding to Fight Fraud, Waste, and Abuse (42 U.S.C. 1395i(k)) Medicare program integrity and antifraud activities are funded in part through annual appropriations from the Medicare trust funds to the Health Care Fraud and Abuse Control (HCFAC) account. HCFAC was established by the Health Insurance Portability and Protection Act of 1996 (HIPAA; P.L. 104-191 ), which sought to increase and stabilize federal Medicare program-integrity activities. Prior to HIPAA, program-integrity activities were funded from CMS's program management budget, which fluctuated with annual appropriations and resulted in funds for program-integrity activities frequently being redirected to administrative activities. With the HIPAA authority and appropriation, HHS was assured of stable Medicare program-integrity funding. HCFAC finances program-integrity activities conducted by the HHS Secretary, the HHS Office of Inspector General (OIG), the Department of Justice (DOJ), and the Federal Bureau of Investigation (FBI). The HHS Secretary and the Attorney General jointly determine the annual amount necessary to finance HCFAC activities. SSA specifies the maximum amount that may be transferred annually from the Hospital Insurance trust fund as well as the percentages of those funds available to CMS, OIG, DOJ, and FBI. HIPAA Section 201 established and appropriated funds to HCFAC for FY1997 through FY2003. Section 303 of the Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-432 ) appropriated annual mandatory HCFAC funding through 2010. TRHCA also increased the annual HCFAC appropriations by adjusting the previous year's appropriations for inflation based on changes to the Consumer Price Index for All Urban Consumers (CPI-U) and allowed HCFAC appropriations to be available until expended. ACA Section 6402 made the annual HCFAC appropriations authorized by TRHCA through 2010 permanent and authorized an annual CPI-U inflation adjustment. ACA appropriated an additional $100 million ($10 million per year) for FY2011 through FY2020. Section 1303 of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ) appropriated additional funding ($250 million) to the HCFAC program, which was allocated in varying amounts in FY2011 through FY2016. Current Status: The additional HCFAC appropriation authorized by HCERA for FY2016 ($20 million) expires after September 30, 2016. Rural Community Hospital Demonstration Program (42 U.S.C. 1395ww note)5 The Rural Community Hospital (RCH) demonstration tests the feasibility and advisability of establishing rural community hospitals in states with low population densities for Medicare hospital inpatient payment purposes initially over a five-year period. Under the demonstration, hospitals can participate if they (1) are classified as being in rural areas; (2) have fewer than 51 acute-care inpatient beds; (3) have 24-hour emergency care services; and (4) are not eligible to be or are not currently designated as CAHs. Under the demonstration, participating hospitals are paid the reasonable costs of providing Medicare-covered inpatient services (excluding psychiatric or rehabilitation care) and extended care services, rather than reimbursement under Medicare's prospective payment systems. Section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173 ) established the RCH demonstration program. Participation was limited to 15 hospitals in 10 eligible low-population-density states for a five-year period (which began for cost-reporting years that start between October 2004 and January 2005 through December 2009). ACA Section 3123 extended the RCH demonstration program an additional five years. The demonstration began with the start of a hospital's cost-reporting year that began on or after April 2011 through December 2016. The provision also expanded the number of participating hospitals to 30 and the number of eligible low-population-density states to 20. Current Status: According to CMS, the second five-year period of the RCH demonstration program will expire after December 2016. SSA Title XIX: Medicaid Additional FMAP Increase for Certain Expansion States (42 U.S.C. 1396d) Medicaid is jointly financed by the federal government and the states. The federal government's share of a state's expenditures for most Medicaid services is called the federal medical assistance percentage (FMAP), which varies by state and is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). Exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. ACA Sections 2001 and 10201 and HCERA Section 1201 added an additional FMAP increase of 2.2 percentage points for certain expansion states during 2014 and 2015 . The FMAP rate increase applies to expansion states (i.e., states that had provided health benefits coverage meeting certain criteria statewide to parents with dependent children and adults without dependent children up to at least 100% of the federal poverty level [FPL] as of March 23, 2010) that (1) the HHS Secretary determines would not receive any FMAP rate increase for newly eligible individuals under the ACA Medicaid expansion and (2) had not been approved to use Medicaid disproportionate share hospital funds to pay for the cost of health coverage under a waiver in effect as of July 2009. The 2.2 percentage point increase is applied to the state's regular FMAP rate and used for Medicaid expenditures for enrollees who are not newly eligible individuals. Vermont is the only state that has been confirmed as meeting the criteria for the additional FMAP increase for certain expansion states. Current Status: The additional Medicaid FMAP increase for certain expansion states expires after December 31, 2015. Incentives for Prevention of Chronic Diseases in Medicaid (42 U.S.C. 1396a note) The ACA authorized the HHS Secretary to award grants to state Medicaid programs to encourage Medicaid beneficiaries to participate in programs to promote healthy lifestyles. To qualify for the Medicaid Incentives to Prevent Chronic Disease (MIPCD) grant awards, state programs must be comprehensive and uniquely suited to address the needs of Medicaid beneficiaries. In addition, the MIPCD programs must have demonstrated success in helping individuals to lower cholesterol and/or blood pressure, lose or control weight, quit smoking, and/or manage or prevent diabetes. The programs also may address comorbidities, such as depression, associated with these conditions. MIPCD was designed to test approaches that may encourage behavior modification and to determine scalable solutions. The Secretary solicited MIPCD proposals from state Medicaid programs and awarded five-year grants to 10 states. ACA Section 4108 authorized a $100 million appropriation for MIPCD grants from Treasury funds not otherwise appropriated beginning January 1, 2011. The MIPCD appropriation was to remain available until expended. Current Status: The ACA authorized an appropriation for a five-year grant program that expires after December 31, 2015. Money Follows the Person Rebalancing Demonstration (42 U.S.C. 1396a note) The Money Follows the Person (MFP) Rebalancing Demonstration program authorizes CMS to provide grants to states to transition Medicaid beneficiaries who reside in institutional settings, such as nursing facilities, into community-based settings, with the goal of increasing Medicaid spending on home- and community-based services. Section 6071(h) of the Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) established the MFP Rebalancing Demonstration program and appropriated a total of $1.75 billion in funding from January 1, 2007, through September 30, 2011. ACA Section 2403 extended the demonstration program for five years (from October 1, 2011, through September 30, 2016) and appropriated an additional $2.25 billion ($450 million for each fiscal year). Current Status: Appropriated funds to carry out the MFP Rebalancing Demonstration will no longer be available after September 30, 2016. Demonstration Project to Evaluate Integrated Care Around a Hospitalization (42 U.S.C. 1396a note) For the most part, states establish their own payment rates for Medicaid providers. Federal statute requires that these rates be sufficient to enlist enough providers so that covered benefits will be available to Medicaid enrollees at least to the same extent they are available to the general population in the same geographic area. Most states pay for services on a fee-for-service basis, which means health care providers are paid by the state Medicaid program for each service provided to a Medicaid enrollee. Increasingly, states are using different Medicaid payment models, such as capitated payments (i.e., fixed per-member, per-month payments), shared savings arrangements (i.e., providers share in achieved savings), and bundled payments (i.e., single, preestablished amounts for the set of services). ACA Section 2704 established the Demonstration Project to Evaluate Integrated Care Around a Hospitalization to evaluate the use of bundled payments for the provision of integrated care for Medicaid enrollees. Such payments will be made for episodes of care that include beneficiaries' hospital stays and concurrent physician services. The demonstration project is limited to eight states, and it was to begin on January 1, 2012, and last for five calendar years. However, this demonstration was never implemented. Current Status: This demonstration expires after December 31, 2016. Expired Provisions in the 114 th Congress, First Session Appendix A provides a list of expired health insurance provisions. Specifically, it lists Medicare, Medicaid, State Children's Health Insurance Program (CHIP), and private health insurance programs and activities under Chapter 7 of the United States Code (U.S.C.)—Social Security—and Chapter 157 of the U.S.C.—Quality, Affordable Health Care for All Americans, as created by the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended)—where available, that have expired during the 114 th Congress, first session (i.e., after December 31, 2014, and before the date of this report). Health insurance-related programs and activities under Social Security include Title XI of the Social Security Act (SSA; P.L. 74-271), General Provisions, Peer Review, and Administrative Simplification; SSA Title XVIII, Medicare; SSA Title XIX, Medicaid; and SSA Title XXI, CHIP . This report includes only those expired provisions for which congressional action would have been needed to extend the application of a provision once the deadline was reached. SSA Title XI: General Provisions, Peer Review, and Administrative Simplification Delay in Transition from ICD-9 to ICD-10 (42 U.S.C. 1320d-2) To promote the growth of electronic record keeping and claims processing in the nation's health care system, the Administrative Simplification provisions of the Health Insurance Portability and Protection Act of 1996 (HIPAA; P.L. 104-191 ) instructed the Secretary of Health and Human Services (HHS) to adopt electronic format and data standards for various routine administrative and financial transactions between health care providers and health plans. Those transactions include patient eligibility inquiries, claims for reimbursement, and payment and remittance advice, among others. On August 17, 2000, the Centers for Medicare & Medicaid Services (CMS) published an initial set of standards and listed the code sets that must be used in the transactions to identify specific diagnoses and clinical procedures. The code sets include the International Classification of Diseases, 9 th Revision (ICD-9) codes that are used for diagnoses and inpatient procedures. As required under HIPAA, the Secretary published updated standards on January 16, 2009, to replace the existing versions and established a deadline of October 1, 2013, for providers to switch from using the ICD-9 codes to report diagnoses and clinical procedures to using the greatly expanded ICD, 10 th Revision (ICD-10) codes. In a September 5, 2012, final rule, CMS postponed the ICD-10 compliance deadline by one year to October 1, 2014. Section 212 of the Protecting Access to Medicare Act of 2014 (PAMA; P.L. 113-93 ) postponed the ICD-10 compliance deadline by an additional year to October 1, 2015. Current Status: Postponement of the ICD-10 compliance deadline expired after September 30, 2015. Health care providers now report diagnoses and clinical procedures using ICD-10 codes. SSA Title XVIII: Medicare Two-Midnight Rule Delay (42 U.S.C. 1395ddd note) CMS finalized the Two-Midnight Rule on August 19, 2013, to provide clarification on when hospital inpatient admissions and hospital outpatient services generally are appropriate. CMS instructed Medicare administrative contractors (MACs)—entities that process Medicare claims—to implement a "probe and educate" medical review period to assess hospitals' understanding of the rule and to assist hospitals in compliance with it. Additionally, with the implementation of this rule, CMS instructed recovery audit contractors (RACs)—entities that identify and correct improper payments—to no longer conduct patient status reviews on inpatient stays of two midnights or more. For inpatient stays of less than two midnights, RACs could continue to conduct patient status reviews to determine if the inpatient stay could have been safely provided on an outpatient basis; however, CMS prohibited RACs from conducting patient status reviews on hospital inpatient admissions of less than two midnights from October 1, 2013, through September 30, 2014. PAMA Section 111 permitted CMS to extend the MAC probe and education period and to extend the moratorium on RAC patient status reviews of hospital inpatient admissions from October 1, 2014, through March 31, 2015. Section 521 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10 ) permitted CMS to extend both the MAC probe and educate period and the moratorium on RAC patient status reviews of hospital inpatient admissions from April 1, 2015, through September 30, 2015. Current Status: Congressional extension of the probe and educate period and the moratorium on RAC patient status reviews expired after September 30, 2015. On October 30, 2015, CMS finalized that it would provide added flexibility on a case-by-case basis for hospital inpatient stays of less than two midnights. SSA Title XIX: Medicaid Payments to Primary Care Providers (42 U.S.C. 1396a, 42 U.S.C. 1396u-2) Under Medicaid, for the most part, states establish their own payment rates for Medicaid providers. Federal statute requires that these rates be sufficient to enlist enough providers so that covered benefits will be available to Medicaid enrollees at least to the same extent they are available to the general population in the same geographic area. Section 1202 of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ) added a required increase to the Medicaid primary care rates. Specifically, for CY2013 and CY2014, Medicaid payment rates for certain primary care services furnished by physicians with certain subspecialties (i.e., family medicine, general internal medicine, and pediatrics) were required to be the same as what Medicare pays for these services. The federal government picked up the entire cost of that increase in primary care rates (i.e., the difference between states' Medicaid payment rates as of July 1, 2009, and Medicare payment rates) for those two years. Current Status: The requirement for states to provide Medicaid primary care payments at parity with Medicare and the full federal financing of the increased primary care rates expired after December 31, 2014. Balancing Incentive Payments Program (42 U.S.C. 1396d note) The Balancing Incentive Payments (BIP) Program authorized CMS to provide incentive payment grants to qualifying state Medicaid programs for expanding and diversifying their noninstitutional long-term services and supports (LTSS) through certain structural changes, such as establishment of a single entry point system, optional presumptive eligibility, case management services, and the use of core standardized assessment instruments. Participating states also had to increase their share of total LTSS expenditures on home- and community-based services by reaching certain percentage targets. To be eligible to receive a BIP grant, a state had to have spent less than 50% of its total Medicaid LTSS expenditures on non-institutionally based services in FY2009, among other requirements. Participating states received a federal medical assistance percentage rate increase for eligible medical assistance payments. Section 10202 of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) authorized CMS to provide incentive payment grants to states, which were not to exceed $3 billion, from October 1, 2011, through September 30, 2015. Current Status: Authority for the Medicaid BIP Program payments to states expired after September 30, 2015. Quality, Affordable Health Care for All Americans Federal Grants for Health Insurance Exchanges (42 U.S.C. 18031) The ACA authorizes grants to states for the planning and establishment of health insurance exchanges. Exchanges are marketplaces in which individuals and small businesses can shop for health insurance sold by private insurance companies. ACA Section 1311(a) provided an indefinite appropriation for the exchange grants. For each fiscal year, the HHS Secretary was to determine the total amount that would be made available to each state for exchange grants. Current Status: Authority for the exchange grants expired after January 1, 2015. List of Abbreviations ACA: Patient Protection and Affordable Care Act ( P.L. 111-148 ) BIP: Balancing Incentive Payments CAH: Critical Access Hospital CHIP: State Children's Health Insurance Program CRS: Congressional Research Service CPI-U: Consumer Price Index for All Urban Consumers CMS: Centers for Medicare & Medicaid Services DOJ: Department of Justice DRA: Deficit Reduction Act of 2005 ( P.L. 109-171 ) FBI: Federal Bureau of Investigation FMAP: Federal Medical Assistance Percentage HCERA: Health Care and Education Reconciliation Act of 2010 ( P.L. 111-152 ) HCFAC: Health Care Fraud and Abuse Control HHS: Department of Health & Human Services HIPAA: Health Insurance Portability and Protection Act of 1996 ( P.L. 104-191 ) HOP: Hospital Outpatient Payment HPSA: Health Professional Shortage Area ICD-9: International Classification of Diseases, 9 th Revision ICD-10: International Classification of Diseases, 10 th Revision LTSS: Long-Term Services and Supports MAC: Medicare Administrative Contractor MACRA: Medicare Access and CHIP Reauthorization Act of 2015 ( P.L. 114-10 ) MIPCD: Medicaid Incentives to Prevent Chronic Disease MFP: Money Follows the Person MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ( P.L. 108-173 ) OIG: Office of Inspector General OPPS: Outpatient Prospective Payment System PAMA: Protecting Access to Medicare Act of 2014 ( P.L. 113-93 ) RAC: Recovery Audit Contractor RCH: Rural Community Hospital SSA: Social Security Act (P.L. 74-271) TRHCA: Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ) U.S.C.: United States Code

This report provides a list of expiring health insurance provisions. Specifically, it lists Medicare, Medicaid, State Children's Health Insurance Program (CHIP), and private health insurance programs and activities under Chapter 7 of the United States Code (U.S.C.)—Social Security—and Chapter 157 of the U.S.C.—Quality, Affordable Health Care for All Americans, as created by the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended)—that are scheduled to expire between the date of this report and after the end of the 114th Congress (i.e., December 31, 2016). Health insurance-related programs and activities under Social Security include Title XI of the Social Security Act (SSA; P.L. 74-271), General Provisions, Peer Review, and Administrative Simplification; SSA Title XVIII, Medicare; SSA Title XIX, Medicaid; and SSA Title XXI, CHIP. This report includes only those expiring provisions for which congressional action would be needed to extend the application of a provision once the deadline is reached. Additionally, this report provides a list of Medicare, Medicaid, CHIP, and private health insurance provisions that have expired during the 114th Congress. Although the Congressional Research Service (CRS) has attempted to be comprehensive, it cannot guarantee that every relevant provision is included here. The report defines what constitutes an expiring provision, clarifies which issues do not meet the definition of an expiring provision, and lists the legislative history of each relevant program and policy that already has expired in the 114th Congress or is scheduled to expire between the date of this report and the end of the 114th Congress (i.e., after December 31, 2016). It also includes future deadlines, when applicable, for those programs and policies.

Labor Supply The effect of marginal tax rates on labor supply occurs through what economists term the "substitution effect." In the context of labor supply, the substitution effect represents the effect of taxes on the relative prices of leisure and consumption. According to economic theory, the substitution effect predicts that an increase in taxes on labor will decrease the amount of labor supplied because lower after-tax wages make the alternative use of time, leisure, less expensive. The magnitude of this reduction depends upon two factors, the change in effective marginal tax rates and the responsiveness of workers to the change in effective marginal tax rates (what economists refer to as the elasticity). The analysis in this section examines the effects of several base-broadening proposals that have appeared in tax reform proposals. In particular, all of the proposals examined would limit itemized deductions. The resulting changes in effective marginal tax rates are then multiplied by commonly used labor supply elasticities of substitution to arrive at the estimated effects on labor supply. This calculation does not take into account feedback effects from the economy. The contraction in supply causes the wage to decline which could, in turn, affect labor supply. As shown in Appendix C , such effects are likely to be negligible. Similarly, eventual changes in the capital stock are likely to have negligible effects on labor supply. Effects on investment, where the effective marginal rate is only one input, are examined in the " Capital Stock " section. Effective Marginal Tax Rates for Selected Policy Options Effective marginal tax rates in this report are calculated by applying a simplified individual income tax calculator to the 2008 IRS Statistics of Income Public Use File (see Appendix A ). The parameters in the calculator are from 2014, with dollar values discounted to 2008 dollars. Tax rates are estimated for six options to limit itemized deductions (plus a current law base case). The tax rate estimates are weighted by their shares of labor income, interest income, dividend income, capital gains income, and business income for each decile (see Table A-4 in Appendix A ). These estimates are used as inputs into the analysis in the next section of the report. The remainder of this section estimates effective marginal tax rates and changes in effective marginal tax rates for the following policy options: Elimination of itemized deductions for state and local taxes Elimination of itemized deductions for charitable giving Elimination of itemized deductions for state and local taxes and charitable giving Elimination of itemized deductions Capping itemized deductions at $17,000 Capping itemized deductions at $25,000 These policy options were chosen to illustrate the potential effects, though they do not necessarily reflect current policy proposals. The resulting effective marginal tax rates for itemizers for current law and each of the six options are shown in Table 1 . The rows in Table 1 differ by how they treat tax rates faced over different portions of the income distribution—for each of the listed sources. For example, taxpayers in the top decile of income earn just over one-third of all interest income. As a result, the tax rate faced by taxpayers in the top decile receives a weight of just over one-third for all estimates weighted by labor income. To estimate the effects of the policy options on the effective marginal tax rates of itemizers as calculated in this report, one can subtract the effective marginal tax rate in the current law column from the columns representing the policy options. While the resulting differences reflect the effect of the policy option on itemizers, they cannot be correctly applied to economy-wide estimates of labor supply—as this difference does not account for the income earned by taxpayers that do not itemize. Table 2 presents the effects of the policy options after adjustment for non-itemizers. Regardless of the type of income used to weight the change in effective marginal tax rates across deciles, the option to eliminate itemized deductions for charitable contributions yields the smallest effect—well less than one percentage point. Conversely, the option to eliminate all itemized deductions results in the largest effect in all cases. Finally, in order to calculate the labor supply effects, the estimated percentage point changes presented in Table 2 need to be converted into the percentage changes in the after-tax share (the change in the tax rate divided by one minus the tax rate). These percentage point changes are presented in Table 3 . Responsiveness of Labor Supply to Changes in the Effective Marginal Tax Rate The size of the taxpayer response to policy options to limit itemized deductions is governed by how sensitive their work decision is to changes in the effective marginal tax rate. As noted earlier, the substitution effect between leisure and consumption causes the labor supply to increase in response to increases in the marginal wage. The elasticities discussed in this subsection are estimates of the labor supply response to a permanent wage change (such as one that would arise from a permanent tax cut or increase) for the labor force. That type of supply response is incorporated in dynamic models with supply-side effects. The labor supply response to a change in wage is uncertain in direction because it is the result of a positive elasticity of substitution and a negative elasticity of income (i.e., as wages increase, consumption of both goods and leisure increases). Previous analyses have accounted for income effects as well as the substitution effects from changing tax rates, and this analysis considers only the additional marginal (substitution) effects from base-broadening. Recent surveys of labor supply responses of men indicated that labor supply was largely inelastic. A working paper by researchers at the Congressional Budget Office reviewed recent research and indicated a substitution elasticity for men from 0.1 to 0.3; married women had substitution elasticities from 0.2 to 0.4. For the work force as a whole, a substitution elasticity of 0.1 to 0.3 was indicated and is reported in Table 4 . In addition, a 2014 Macroeconomic Analysis conducted by the Joint Committee on Taxation used a wage-weighted population substitution elasticity of 0.1 to 0.2. Overall Labor Supply Response to Limiting Itemized Deductions As discussed above, the supply-side response to limiting itemized deductions—as a manner of base broadening—can be calculated using the percentage change in marginal effective tax rates and the labor supply substitution elasticity. Increases in effective marginal tax rates—which decrease the portion of labor income that a person keeps—provide an incentive for individuals to work less and, in aggregate, supply less labor to the economy. Estimates of this aggregate labor supply response are presented in Table 5 . In tax reform proposals, these negative effects on labor supply from base broadening would partly offset the positive effects on labor supply from lower marginal tax rates. To put the results presented in Table 5 in perspective, the Joint Committee on Taxation (2014) analysis of a comprehensive tax reform proposal, the Tax Reform Act of 2014 ( H.R. 1 , 113 th Congress), found labor supply increases ranging from 0.4% to 0.8% for FY2014-FY2023. This estimate was for a complex proposal with many elements. Depending on how changes in effective marginal tax rates are incorporated in macroeconomic models, including these effects could reduce estimated growth effects of tax reform. It appears, however, that incorporating the supply reductions from using the high elasticity estimates associated with eliminating itemized deductions for state and local income taxes (a provision included in that proposal) could offset a significant share of the gains in labor supply estimated in an analysis of the growth effects of tax reform. Capital Stock The effects of many base-broadening provisions, such as slowing depreciation, have frequently been included in calculations of how tax reform affects savings and investment. Increases in individual income rates through base broadening, however, also affect the return on savings and investment, through effects on the tax rate for unincorporated businesses, as well as taxes on passive investment returns (interest, dividends, and capital gains). These effects have generally been excluded from calculations of tax reforms' effects on economic growth. This section examines the effect of both individual base-broadening provisions as discussed in the previous section and of other base-broadening changes that have been widely considered in analyzing the macroeconomic effects of tax reform. These effects are estimated for the returns on investment in equipment, structures, and intangible business assets. In the 10-year budget horizon, the effect of base broadening on the capital stock is likely to be smaller than the effect on labor because capital changes accrue gradually while labor participation can change more quickly. And, as in the case of labor supply, the response is likely to be modest. Capital could also be attracted from abroad for some changes, but these effects are also likely small. In addition, with base-broadening effects, a revenue-neutral tax reform accompanied by rate reduction can have no effect or even a negative effect on the cost of capital. The effective marginal tax rates for investment income are the same measure as the marginal tax rates for labor income: they estimate the share of the earnings from investments that are paid in taxes. Many features of the tax code outside of statutory rates affect this share, which depends on the amount and timing of tax payments, deductions, and credits. The effective marginal tax rates on earnings from investment are calculated by first determining a required after-tax rate of return and an expected rate of decline in productivity of the asset due to economic depreciation. Economic depreciation measures the change in the value of the asset as it is used up over time, and in an infinitely lived investment the rate of decline in this value is equal to the rate of decline in productivity. The analysis then determines how much the investment must initially produce in order for the sum of after-tax profits over time, discounted by the after-tax rate of return, to equal the investment outlay (i.e., to break even). Then all of the tax payments and deductions are eliminated, and the before-tax profit flows are used to determine what pre-tax discount rate would match the flows to the original cost. The effective tax rate is the pre-tax rate of return minus the after-tax rate of return, divided by the pre-tax rate. This discounted cash flow method produces a formula termed the user cost of capital or the rental price of capital, which can be used to derive an effective tax rate. The formula accounts for the major tax provisions that affect tax burdens, including tax rates and the speed with which the investment cost is deducted (tax depreciation rates). The analysis begins with the tax rates under current law. These estimates do not include the effects of "extender" provisions: bonus depreciation and the tax credit for research and development. They include all business assets (and thus exclude owner-occupied housing) except for land (where taxes are likely to be capitalized) and inventories (which are expected to be relatively unresponsive to rates of return). Tax rates are estimated for 32 different assets: 22 equipment assets, 7 structures assets, and 3 categories of intangible assets. Separate estimates are provided for corporate and noncorporate capital stocks with the totals weighted by their shares of different types of assets. The details of the asset distribution and other measures incorporated in these estimates are shown in Appendix B . The remainder of this section estimates effective tax rate effects for the following changes: Three capital cost recovery provisions that affect how quickly the cost of an investment is deducted for tax purposes. One is to move to the alternative depreciation system that forms the baseline used by the Joint Committee on Taxation for measuring the benefits of accelerated depreciation. The other two provisions are to depreciate two types of intangible investments, research and development and advertising, over a 10-year period. These investments are currently expensed (deducted immediately). Repeal of the production activities deduction, which allows a 9% deduction from taxable income for certain domestic production, such as manufacturing. Indexation of interest deductions and payments for inflation. Elimination of the itemized deduction for state and local income taxes. Elimination of all itemized deductions. Tax Rates Under Current Law Current effective tax rates for equity investments, just considering the firm's taxes, are shown for each asset in Table 6 . These rates capture the effects of accelerated depreciation (deducting the cost of investments faster than their decline in economic value), as well as the production activities deduction. The rates in this table can be compared with the statutory corporate tax rate of 35% and the estimated statutory tax rate for noncorporate firms of 27% (as determined by the analysis of the Public Use Files as discussed in the previous section on labor). As this table indicates, most assets are taxed at effective rates below the statutory rate. Most equipment assets, along with public utility structures (treated as equipment in the tax code), are taxed at rates well below the statutory rate, even after considering the effects of the production activity deduction (which decreases the corporate statutory rate by about a percentage point and the noncorporate rate by less than 0.2 percentage points). These lower rates are due to generous tax depreciation rules that allow costs to be recovered faster than the estimated economic decline in the value of capital. Tax rates on intangibles are zero because these costs are expensed (deducted in full when acquired), and tax rates on mining structures (primarily oil and gas) are also low because much of the cost is expensed. Commercial and industrial structures, such as office buildings and plants, tend to be taxed at a higher rate because of the much longer recovery period (39 years), although farm buildings and residential rental structures are favored relative to other buildings due to shorter depreciation periods. Table 7 provides some aggregated tax rates, combining equipment and nonresidential structures other than public utility structures into groups. Equipment overall and public utility structures are taxed at about two-thirds of the statutory rate for corporations and about 77% of the rate for noncorporate businesses. Intangibles have a zero tax rate. Note that the tax rates may be understated because they do not incorporate the effects of bonus depreciation, which allows half of investment in equipment to be expensed (deducted when acquired). Bonus depreciation further accelerates deductions and reduces the effective tax rate on equipment by about 40%, so that the rate for equipment would be around 14%. It also does not include the effects of the research and experimentation tax credit, which would produce a negative tax rate for R&D intangibles. These two provisions have currently expired, although the R&D credit has been in place since 1981. These provisions may be extended again. Effects of Capital Cost Recovery Provisions This section examines the effects of base broadening achieved by slowing the deductions for investments. The capital cost recovery provisions have differential effects for different assets and thus are also shown for all 32 assets. Table 8 shows the effective tax rates for these assets from moving to the alternative depreciation system, which has longer periods over which deductions must be taken and uses a slower depreciation method. (This system uses a straight line method that allows deductions in equal amounts in each year rather than an accelerated method.) It affects both equipment and structures, but not intangibles. The table also shows the effects of recovering investments in research and development and in advertising over a 10-year period using the straight line method. Focusing on assets affected by the alternative depreciation system, a number of assets (equipment, including public utility structures, and farm structures) that currently have tax rates about a third below the statutory rate are now much closer or even above the statutory tax rate. Nonresidential structures, excluding public utilities and farm structures, are not affected, although residential structures are. The tax rates on intangible assets are increased significantly, to slightly above the statutory rate for intangibles created by research and significantly above for advertising, where estimated depreciation rates are large (suggesting that the return on advertising is generally short lived). H.R. 1 (113 th Congress), which proposed the amortization of intangibles, also proposed making the R&D credit permanent. If both were included, the effective tax rate would be estimated at 4.4%. Table 9 provides aggregated effective tax rates after base broadening through changes in capital cost recovery provisions. The estimates indicate that equipment overall would have a tax rate close to the statutory rate but slightly below it, since the rate is lower by about a percentage point due to the production activities deduction. Rates on various structures are slightly lower, although, as shown in Table 8 , buildings have rates slightly higher than equipment (with the aggregated rate for other nonresidential structures reduced by the lower tax rates on mining and farm structures). Overall Effect of Base-Broadening Options The other tax changes (the production activities deduction, disallowing interest deductions that reflect inflation, and changing individual effective tax rates through restricting itemized deductions) do not result in effective tax rates that vary substantially across assets. They are presented, along with the capital cost recovery provisions, for the overall tax system. In addition to firm-level taxes on equity investment that can be compared to the statutory rate, these numbers also provide an overall tax rate that includes the effects of other elements in the tax system: shareholder-level taxes (dividends and capital gains) on corporate equity investments, as well as the tax benefits of borrowing and deducting nominal interest at the firm's rate while only part of this interest is taxed to the creditor. Because of this effect, debt-financed investment tends to be taxed at negative rates or very low rates for many assets and the overall tax rate is lower than the firm-level rate on equity. Table 10 shows current effective tax rates and the effects of various base-broadening provisions. Accounting for taxes paid by stockholders, the deductibility of interest by the firm, and the taxation of interest by the creditors reduces the current effective tax rate from 22.3% to 12.8% for the corporate sector and from 20.8% to 11.9% for the noncorporate sector. This is a reduction in the tax rate of 43%. The relatively low total tax rate under current law is due to two factors: the rapid cost recovery allowed for many types of investments, and the benefit of deducting nominal interest at the firm's tax rate, while most of that interest (80%) is not taxed to the creditors. This effect is more pronounced because the nominal interest rate includes inflation. It may also be of interest to compare the effective tax rates in Table 10 with the rates that would exist without the benefits that lower effective rates. These rates are calculated by adjusting the formulas in Appendix B . The rates are calculated assuming economic depreciation and no production activities deduction (which makes effective firm-level taxes equal to the statutory rate). They also assume all passive income (interest, capital gains, and dividends) are taxed, but retain the lower tax rates on capital gains and dividends. With these changes, the overall tax rate for the corporate sector would be 39.7%. This number reflects a share of income taxed at the creditor's rate of 22.0%, the rate on equity of 35.0% at the corporate level, and additional taxes on capital gains and dividends that result in a combined 44.5% tax rate for corporate equity. For the noncorporate sector, the rate would be 25.6%, between the creditor's rate of 22.0% and the firm's rate of 27.0%. These rates are reduced to 30.0% and 21.6% if the exclusions of most interest, capital gains, and dividends are taken into account. The remaining effects that lower effective tax rates arise from the provisions addressed by the base-broadening provisions considered below: accelerated cost recovery, deducting the inflation portion of interest, and the production activities deduction. Each provision is discussed in turn. Production Activities Deduction As noted earlier, this provision reduces the effective statutory rate by approximately one percentage point (0.9) for corporate equity but has a 0.2 percentage point effect on noncorporate equity. Eliminating the production activities deduction increases the tax on equity investment but reduces it on debt-financed investment by increasing the rate at which interest is deducted. Overall, the deduction reduces the total tax rate by 0.3 percentage points. Accelerated Depreciation The most significant base-broadening provision overall, and in the case of any measure of the effect on the effective tax rate, is the move to the alternative depreciation system (third row of Table 10 ), increasing the overall tax rate by 4.6 percentage points. The effects are somewhat smaller for the noncorporate sector because its share of affected assets is smaller. Like other capital assets, research and development and advertising create a stream of income in the future. For example, patented innovations allow the firm to be the sole producer for many years. Advertising creates brand identification which affects consumer choice into the future. Both of these create intangible assets that have longevity, and deducting the costs over time is consistent with measuring income. Depreciating research expenses over 10 years has the third-largest effect of any of the provisions considered, increasing effective tax rates by 2.8 percentage points. Although this asset is not a large part of the capital stock, its tax rate is changed significantly. Depreciating advertising expenses over 10 years results in a one-percentage-point increase in the effective tax rate; it is a relatively small part of the capital stock, although its tax rate increased substantially. These changes affect the tax rates of both debt-financed and equity-financed capital. Indexing Interest for Inflation The second-largest provision in terms of the effect on effective tax rates is indexation of interest for inflation (i.e., disallowing the portion of the nominal interest rate that reflects inflation as a deduction and not taxing it to the recipient). It increases the overall tax rate by three percentage points. Given the values used in the calculations (see Appendix B ), a nominal interest rate of 7.5% and an inflation rate of 2%, 27% (2/7.5) of interest deductions would be disallowed. It affects only debt-financed capital. Limiting Itemized Deductions Disallowing the state and local tax deduction or disallowing itemized deductions has the largest effect on noncorporate equity investment for any provision other than adopting the alternative depreciation system. These two changes increase the overall tax rate by 0.6 to 0.7 percentage points, respectively. These effects are smaller than most of the other provisions, but larger than the production activities deduction. It may be useful to compare these effects of itemized deduction limits to the effect of lowering the statutory corporate tax rate, which is one of the objectives of tax reform. Lowering the statutory corporate rate by five percentage points decreases the effective corporate equity rate to 18.6% and the overall corporate effective rate to 10.7%, while reducing the overall effective rate to 11.2% for a 1.2-percentage-point difference. Thus the effects of itemized deductions are the equivalent of 2.5-to-2.9-percentage-point changes in the corporate rate, suggesting the importance of considering these provisions in measuring the effects of tax reform on the rate of return on investment. Effects of Base-Broadening Changes on the Capital Stock How these alternative policies affect the capital stock depends on the user cost of capital, or the rental price of capital, the sum of the required pre-tax return, and the economic depreciation rate. The user cost of capital is the price of using capital as an input into production. It might be thought of as the amount to be paid to a third party for the lease of an asset. An increase in the effective marginal tax rate through base broadening will increase, holding the after-tax rate of return fixed, the required pretax return to capital and thus the user cost. The user cost of capital is R/(1-t)+d where the tax rate, t, is shown in the last column of Table 10 . The depreciation rate, d, is estimated to be 9.2% overall, and the after-tax return, R, is 6.2% (see Appendix B ). Again, this measure holds the after-tax return constant, although changes in that return will be allowed in measures of the long-run effect on the capital stock. Table 11 shows the increases in the cost of capital for each of the provisions considered (without accounting for feedback effects from the economy if investment changes). Table 12 estimates the effects in the long run for the capital stock. These effects depend on two measures of behavioral response: the ease with which capital and labor can be substituted in the production function (the factor substitution elasticity, S) and the responsiveness of the savings rate to the after-tax rate of return (the savings elasticity, E). Table 12 reports results with two-factor substitution elasticities: a value of one, which is commonly used, and a value that appears more consistent with recent empirical studies. Estimates are done with values of E ranging from 0.2 to 0.4, which reflects the range of estimates used by the Congressional Budget Office, the Joint Committee on Taxation, and the Treasury Department. The table also shows the effects for an infinitely elastic savings function that contracts the capital stock until the after-tax return is restored to its original value. The effects on changing tax variables on the capital stock are limited by the small part the tax plays in the cost of capital. Even repealing the most important provision, alternative depreciation, only reduces the capital stock by around 1%. The effects of limiting itemized deductions that are generally not taken into account, nevertheless, have effects (outside of infinite elasticities) up to 0.25%. By comparison, the five-percentage-point decrease in the corporate rate (discussed earlier to compare with the effects of itemized deduction restrictions) would be estimated to increase the capital stock under the unitary factor substitution elasticity by 0.28% under the 0.2 savings elasticity and by 0.43% under the 0.4 elasticity. For a factor substitution elasticity of 0.5, the effects of a five percentage point decrease are 0.21% and 0.29%. (For infinite elasticities they are 0.89% and 0.45%.) The effects of limiting itemized deductions offset half or more of this effect. These findings indicate that tax reform that affects savings and investment is unlikely to have significant effects on growth in capital. Under reasonable assumptions about elasticities, for example, a five-percentage-point reduction in the corporate rate would increase the capital stock by 0.2% to 0.4%. A 10 percentage point corporate rate reduction, the tax rate reduction proposed in The Tax Reform Act of 2014 and a common target for proposed tax reforms, would increase the capital stock by 0.4% to 0.8%. Even the larger rate cut would be more than offset by a move to the alternative depreciation system, a contraction in the capital stock from 0.8% to 1.7%. Moreover, changes in the individual tax rates through disallowing itemized deductions for state and local taxes or eliminating itemized deductions altogether, which have not been taken into account in prior macroeconomic studies, offset 20% to 30% of the 10-percentage-point rate reduction. Conclusion The analysis in this report shows that provisions that broaden the base can offset in part or more than offset effects of changing tax rates. Some of the effects analyzed, primarily those increasing the marginal effective tax rate on capital income, are commonly considered in macroeconomic analyses of tax reform. Others, such as the itemized deduction restrictions, may not be incorporated but can significantly offset the effects of lower statutory rates on both labor and capital income. The analysis also suggests that the goal of increasing economic growth as part of a revenue and distributionally neutral tax reform may not be easily attainable, a view consistent with the findings of economists considering growth effects of the Tax Reform Act of 1986. This finding does not mean that tax reform cannot achieve other goals. For example, an important goal of tax reform is to reduce the distortions differential tax treatment causes (such as favoring investment in equipment compared to structures, or encouraging too much spending on housing). These distortions cause the economy to use its resources in a less than optimal way. This efficiency gain is different from growth and unlikely to have more than a negligible effect on measured output. Another potential goal of revenue-neutral tax reform is to simplify the tax system, which may reduce the costs of taxpayer compliance as well as direct costs of tax administration. Data and Methods for Calculating Individual Marginal Effective Tax Rates The data used in the analysis to estimate individual tax rates and changes due to changes in itemized deductions are the 2008 Internal Revenue Service (IRS) Statistics of Income (SOI) Public Use File. The Public Use File is a nationally representative sample of tax returns for the 2008 tax year. To protect the identity of individual taxpayers while preserving the character of the data, the IRS made changes to the data. Consequently, while reliable aggregate information can be obtained, individual taxpayer records in the data may or may not contain information from just one tax return. The unit of analysis is the tax return for a taxpayer, and IRS-provided sample weights are used throughout the analysis. The analysis sample contains information for 139,651 taxpayers (representing 142.6 million taxpayers). The measure of taxable income used in this analysis departs from that used in the 2014 tax code. Specifically, above-the-line deductions (that have the effect of lowering taxable income) are not included in this analysis. Thus the measure of taxable income is total income minus personal exemptions and the value of itemized deductions. Current law tax parameters were adjusted to 2008 levels using the Consumer Price Index for All Urban Consumers (CPI-U) and are reported for married filing jointly in Table A-1 . (Parameters were different for other filing statuses.) Tax liabilities were calculated using a tax module prepared by the authors based upon the 2014 IRS form 1040 as well as other forms and schedules of the regular income tax. The resulting tax liabilities generated do not take into account the Alternative Minimum Tax, phase in/outs, or any tax credits. As the focus of the analysis is on limitations on itemized deductions, all non-itemizers are dropped from the analysis, although non-itemizers are subsequently added back to compute the overall effects. Effective marginal tax rates for taxpayers that choose to itemize deductions are calculated by first calculating an initial tax liability. Second, an additional $1,000 in ordinary income is allocated to each taxpayer. In addition to increasing taxable income, this additional income can increase the value of itemized deductions for state and local taxes and charitable giving (based on observed shares of income). A second tax liability is calculated using these figures. These calculations reflect the rate structure and other tax aspects depending on filing status. The difference between the second and first tax liabilities is then divided by $1,000 to arrive at the effective marginal tax rate. This effective marginal tax rate is then weighted by the shares of income realized by itemizers (versus non-itemizers) and the distribution of income within itemizers. These individual marginal tax rates are then averaged across modified taxable income deciles. Break points for the deciles are listed in Table A-2 . Using these deciles, average effective marginal tax rates are calculated for a base case and for each option to limit itemized deductions examined. These rates are displayed in Table A-3 . A composite marginal effective tax rate is created to simplify the analysis. In this composite, the share of income earned by each decile is used to allocate each decile's effective marginal tax rate to the composite number according to the amount of ownership. The income shares for wage, capital gains, dividend, interest, and business income are presented in Table A-4 . Combining the information in Table A-3 and Table A-4 results in a single estimate of the effective marginal tax rate weighted by source of income. The resulting estimates are presented in Table 1 . Differencing the current law effective marginal tax rate from the effective marginal tax rate for each policy option yields the difference in effective marginal tax rates faced by taxpayers that itemize. This, however, overstates the effective change for all taxpayers, as only taxpayers who chose to itemize can have limits placed on their itemized deductions. To account for this effect, the interim estimates are multiplied by the share of each income source earned by taxpayers who itemize. The resulting differences in effective marginal tax rates are presented in Table 2 . Data and Methods for Measuring Tax Rates on Capital Income This appendix provides the methodology and data for calculating the changes in effective tax rates arising from the various base-broadening provisions affecting savings and investment. How to Calculate Effective Tax Rates The basic formula for calculating the effective firm-level tax rate is (r-R)/r, where r is the pre-tax return, or internal discount rate for an investment with no taxes, and R is the after-tax discount rate that discounts all flows to the cost of the investment with taxes. For a corporate depreciable investment, the relationship between r and R, with R the firm's real discount rate, derived from an investment with geometric depreciation and continuous time, is from the standard user cost formula: (1) r = (R+d)(1-uz)/(1-u)-d where u is the corporate tax rate, d is the economic depreciation rate, and z is the present discounted value of tax depreciation deductions (discounted at the nominal rate, that is, the real rate plus the inflation rate). For a noncorporate business taxed at an effective statutory tax rate t, the pre-tax return is: (2) r = (R(1-v) +d)(1-tz)/(1-t)-d In this formula, v is the effective tax rate on capital gains and dividends in the corporate sector. The discount rates differ between corporate and noncorporate firms given the assumption that the noncorporate investor's opportunity cost is investment in the corporate sector, net of shareholder taxes. Thus the R for the noncorporate sector is the corporate discount rate reduced by the taxes on capital gains and dividends. These shares are subject to special tax rates and are adjusted for the extent of earnings that are not subject to tax in an overall economy-wide portfolio because some capital gains are not realized and some earnings on corporate stock are exempt because they are held in pension funds and retirement accounts. The effective tax rate is determined in part by the effective statutory rate and in part by how quickly costs are recovered (the value of z) and any credits. Without the production activities deduction, the tax rate is equal to the statutory rate when z equals the present value of economic depreciation (d/(R+d)). More rapid depreciation decreases the effective tax rate. The formula in (1) is applied to obtain firm-level tax rates in Table 6 through Table 9 . To calculate the total sectoral tax rate, which would account for the deductibility of interest by the firm and the taxation of interest, dividends, and capital gains to creditors and stockholders, the firm's discount rate used in equation (1) is adjusted to include debt finance. For the corporate sector: (3) R d = f(i(1-u)-p)+(1-f)R with R d a weighted average of the after-tax real interest rate (i(1-u)-p) where f is the share of investment financed by debt, i is the nominal interest rate, p is the inflation rate, and R is the required real return on equity before individual tax. For the noncorporate sector, (4) R d = f(i(1-t)-p)+(1-f)R(1-v) The pretax return on total investment is estimated by substituting R d for R in equations (1) and (2). The tax rate is calculated using that r as (r-R i )/r, where R i is the final after-tax return to investors: (5) R i = f(i(1-ati)-p)+(1-f)R (1-v) where t i is the tax rate of creditors, a is the share subject to tax, and v is the effective tax rate on corporate equity. Data on Assets and Depreciation To provide overall effective tax rates that cover a broad category of investments, the pre-tax returns estimated for each of 32 different types of assets are weighted by asset share to provide an overall pre-tax return. The estimates reflect equipment, structures, and intangible assets used in business. They exclude land (which is relatively fixed in quantity and where taxes tend to be capitalized in prices) and inventories, which are small and relatively unresponsive to taxes on the cost of interest. Assets are assigned to the corporate or the noncorporate sector. Table B-1 lists the asset values and economic depreciation rates for the assets, including 22 types of equipment assets, 7 types of structures, and 3 types of intangibles. The value of z depends on how quickly costs are recovered for tax purposes, which is a function of the tax life and whether the recovery is straight-line (equal amounts in each year) or accelerated (larger amounts in earlier years). For tax lives, depreciation methods, and depreciation formulas, see [author name scrubbed], The Economic Effects of Taxing Capital Income , Cambridge, MA, MIT Press, 1994. The alternative lives simulated in the report are available on request. For mining structures, largely oil and gas, based on data from the Independent Petroleum Association of America, 57.7% of costs are expensed either through intangible drilling costs of dry holes, 16.7% recovered through depletion, 1.9% over seven years, and the remainder over five years. Table B-2 provides data on the share of assets held in the corporate and noncorporate sectors, combining the equipment assets and nonresidential structures outside of sets; summarizes this data; and provides a distribution by share of the capital stock that combines the equipment assets and the structures assets outside of public utilities in summary estimates. Values Used In addition to the data used above, data are needed for the rates of return (R and i), the inflation rate, the share of debt finance, and the tax rates. Note that the effective tax rates are not very sensitive to real rates of return but are quite sensitive to the inflation rate. The equity rate of return based on historical trends after corporate tax but before individual tax is set at 7%, allowing a 4% dividend rate and a 3% real growth rate. (The rate of growth in real GDP from 1965 to the last year before the recession, 2007, was 3.2%.) The nominal interest rate is set at 7.5%, and the inflation rate at 2%, reflecting recent experience with the Baa corporate bond rate and the GDP deflator before the recession (for a real interest rate of 5.5%). Debt is weighted at 36% and equity at 64% based on data from the Flow of Funds Accounts. The statutory corporate tax rate is 35%, but it is reduced slightly by the production activities deduction. Based on claims as a percent of taxable income by manufacturing and non-manufacturing on corporate income tax returns and the distribution of equipment, structures, and intangible assets between those categories in the National Income and Product Accounts, the estimated rate for the three categories of assets (equipment, structures, and intangible assets) , respectively, is 34.12%, 34.29%, and 33.83%, with an overall rate of 34.14%, or approximately one percentage point lower that the corporate statutory rate. The estimated statutory tax rate for unincorporated business income, using the public use file data, is 27%. Using the aggregate for individual returns and distributing it in the same proportions, the estimated tax rates for the three categories (equipment, structures, and intangible assets), including the production activities deduction, are 26.74%, 26.87%, and 26.56%, for an overall rate of 26.83%, a reduction of less than 0.2 percentage points. Disallowing itemized deductions for state and local taxes increased the rate by 1.69 percentage points, and disallowing all itemized deductions increased the rate by 2.5 percentage points. The marginal rates for interest, dividends, and capital gains, respectively, are 22%, 14.6%, and 15.4%. These values were increased by 1.22, 1.68, and 1.7 percentage points if disallowing itemized deductions for state and local income taxes and by 1.93, 2.45, and 2.44 percentage points if disallowing all itemized deductions. A large fraction of interest and dividends paid do not appear on individual income tax returns, according to Tables 7.1 and 7.2 of the National Income and Product Accounts and IRS Statistics of Income. In previous years a direct reconciliation had been prepared, and the current amounts included, 19% and 25%, are slightly lower than in the past, but similar. This same share for dividends is used for capital gains. The small share reported is largely due to the large share of assets in pension, retirement, and insurance plans. In addition, half of capital gains held privately is assumed to be untaxed because it is held until death. For the calculation that incorporates the research tax credit, firms may choose between two credits. One is a credit of 20% in excess of a rolling base that is unrelated to prior spending and thus has a marginal effective rate of 20%. The other is a credit of 14% in excess of 50% of the past three years of research expenditures. Because each dollar of research today increases the base in each of three future years (by 50 cents divided by 3) it reduces future credits, this offset must be taken into account. The credit is 14% times (1 minus 0.5 times the sum of 1/(1+R+p), 1/(1+r+P) 2 and 1/((1+R+p) 3 divided by 3). Given the weighted real discount rate of around 0.05, the result is an effective marginal rate of slightly more than half, or 7.9%. According to data on the research credit in the IRS Statistics of Income, the share claiming the 20% credit was 28%, leading to an average rate of 11.3%. General Equilibrium Effects of Tax Changes on Labor and the Capital Stock This model uses a constant elasticity of substitution (CES) production function and, with the first-order conditions, obtains the following differentials, where dx/x is a percentage change for a small change: (6) dQ/Q = a(dK/K) +(1-a)(dL/L) where Q is output, K is the capital stock, L is labor, and a is the income share of capital and, thus, (1-a) is the share of labor income. The value of a is set at 1/3. Every model has a "numeraire" or a fixed value since economic effects depend on relative, rather than absolute, values. The numeraire for this model is the overall price level, P. (7) dP/P = a(dC/C) + (1-a)(dW/W) = 0 where P is the product price, C is the user cost of capital (the price of using capital inputs), and W is the wage rate. This equation allows the relationship between the change in the wage rate and the change in the cost of capital when price is fixed. The cost of capital is R/(1-t c ) +d, where R is the after-tax real return, t c is the tax rate, and d is the rate of economic depreciation. The final wage links the relative demand for labor and capital to their relative prices (8) dL/L-dK/K= -S(dW/W-dC/C) where S is the factor substitution elasticity. Short-Run Labor Supply Effects In the short run, the capital stock is fixed, so dK/K = 0. The labor supply function is (9) dL/L = (E LS -E LI ) (dW/W) – E LS dt/(1-t)) where E LS is the substitution elasticity, E LI is the income elasticity, and t is the tax rate on labor. To measure the effect on W, the labor demand from (8) is equated to labor supply from (9) (using the price relationships in (7) to eliminate C) to solve for wages and then labor. The result is: (10) dL/L = ((E LS -E LI ) E LS /(E LS -E LI +S/a) dt/(1-t) – E LS dt/(1-t)) Note that if the income and substitution elasticities are equal, the first term (which is the feedback effect on labor from wage increases) disappears. Using a typical income elasticity with an absolute value of 0.1, there would be no effect in the case of a substitution elasticity of 0.1 (the lower limit used in this study), and the effect would offset only about 6% of the effect using a 0.3 substitution elasticity, a value of S equal to 1, and a value of a equal to 0.33. Long-Run Effects on Capital and Labor For the long run, we specify a supply function for capital in the form of a savings rate, s (11) ds/s = E (dR/R) where R is the after tax return and E is the savings elasticity Finally, in the steady state, savings equals investment, (12) gK = sQ where g is a constant exogenous growth rate of population and technology. Thus, (13) dK/K = ds/s + dQ/Q Combining these equations, the model can be solved for the change in capital and labor due to changes in the tax rate on labor income (t) and the tax rate on capital income (t c ). (14) dL/L = ((E LS -E LI ) (a/(1-a))((R/(1-tc))/c)(E/(E+S(R/(1-t))/c)( dt c /(1-t c )) – E LS dt/(1-t)) and (15) dK/K = -[(S/(1-a) +((E LS -E LI ) (a/(1-a)][(R/1-tc)/c][E//(E+S(R/(1-t))/c) ) dt c /(1-t c ) - E LS dt/(1-t)) In the calculations of the effect on the capital stock, E LS -E LI is assumed to be equal (labor does not respond to the wage rates). With no change in labor supply, in this case (16) dK/K = -[S/(1-a) ][(R/1-tc)/c][E//(E+S(R/(1-t))/c) )( dt c /(1-t c ), and its effect depends on the factor substitution elasticity. Note that without a change in the tax rate on capital, no feedback effect changes wages in (14). That occurs because without a change in the savings rate, capital and labor, and therefore prices, continue in their same relative shares. As labor declines, the savings its income generates also declines to keep relative pretax prices of inputs the same.

One source of interest in a tax reform that broadens the base and lowers the rate is the potential increase in growth, as labor supply and investment respond to lower marginal tax rates. Yet, studies of a signature reform in the past, the Tax Reform Act of 1986, found little effect on growth. The act was revenue and distributionally neutral, which is a goal of some recent tax reform proposals. One reason advanced for the limited effects on growth is that the effects of provisions that broaden the base to finance lower statutory rates increase effective marginal tax rates for some taxpayers. This report shows how options to broaden the tax base by placing limitations on itemized deductions can potentially work counter to the growth effects of reducing marginal tax rates, primarily through reducing labor supply. It also shows how these effects—along with other base-broadening provisions, such as slowing depreciation—limit the effects on investment and savings and can eventually reduce the size of the capital stock in the economy. The effects on labor supply and the capital stock are considered in turn. To examine the potential effects of base broadening on effective tax rates facing labor, the analysis examines provisions to eliminate itemized deductions for state and local taxes, for charitable contributions, and for both. It also examines provisions to eliminate itemized deductions altogether or to impose dollar caps ($17,000 and $25,000). Eliminating itemized deductions would raise effective marginal tax rates by almost two percentage points on average and is estimated, using common behavioral responses, to reduce labor supply by 0.2% to 0.6%. These effects are significant compared to projected effects in the Tax Reform Act of 2014 (H.R. 1, 113th Congress), where labor supply was projected to increase by 0.4% to 0.8%. More limited restrictions to itemized deductions result in smaller reductions in labor supply. Similar to the analysis for labor supply, the potential effects of base broadening on effective tax rates for capital investment are examined. The analysis includes two itemized deduction restrictions: disallowing the deduction for state and local taxes and disallowing all itemized deductions. Eliminating these provisions increases the effective marginal tax rate on business income, interest income, dividends, and capital gains. It also included the effects of three provisions that affect how quickly an investment is recovered. One is to move to the alternative depreciation system that forms the baseline for measuring the benefits of accelerated depreciation. The other two provisions are to depreciate two types of intangible investments, research and development and advertising, over a 10-year period. The analysis also considered repeal of the production activities deduction (which allows a 9% deduction from taxable income for certain domestic production, such as manufacturing) and indexation of interest deductions and payments for inflation. Moving to the alternative depreciation system had the greatest effect, reducing the long-run capital stock (using a range of behavioral responses) by 0.8% to 1.6%. It more than offset the effect of a 10 percentage point corporate rate reduction. Indexing interest deductions and payments for inflation had the next largest effect, 0.5% to 1.1%. Repealing itemized deductions for state and local taxes reduced the capital stock by 0.1% to 0.2%, and repealing all itemized deductions reduced it by 0.1% to 0.3%. Repealing all itemized deductions offset about a third of the effect of reducing the statutory corporate tax rate by 10 percentage points. An inevitable characteristic of a revenue-neutral tax reform is a tendency to balance out positive and negative effects on labor supply and growth. Revenue-neutral tax reform may have other virtues, but given the inevitable trade-off of such an approach, a major impact on growth may not be one of them.

Introduction Congress continues to focus attention upon both medical innovation and the growing cost of health care. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, addresses each of these concerns. Through amendments to both the patent law and the food and drug law, the Hatch-Waxman Act established several practices intended to facilitate the marketing of generic pharmaceuticals while providing brand-name firms with incentives to i nnovate. Although Congress has since modified the basic framework of the Hatch-Waxman Act, both through direct amendments and the enactment of related legislation, potential legislative issues remain for congressional consideration. This report provides an overview of the Hatch-Waxman Act and identifies potential legislative issues. It begins by explaining the fundamentals of the patent acquisition process at the U.S. Patent and Trademark Office (USPTO) and patent litigation in the federal courts. The drug approval process at the Food and Drug Administration (FDA) is described next. The report then describes the 1984 judicial ruling in Roche Products, Inc. v. Bolar Pharmaceutical Co ., a case that called attention to the relationship between pharmaceutical innovation and competition. The report then describes the principal features of the Hatch-Waxman Act. These features include an expedited generic regulatory approval procedure; a patent term extension to compensate for regulatory approval delays; and a statutory exemption from patent infringement for firms seeking regulatory approval. The Hatch-Waxman Act also established specialized infringement litigation procedures with respect to certain pharmaceutical patents. The statute further created periods of "regulatory exclusivity" that protect an approved drug from competing applications for marketing approval under specified conditions. The report then reviews significant legislative amendments impacting the Hatch-Waxman Act. It closes with an identification of proposed amendments and other issues that may potentially be of legislative interest. Patent Law Fundamentals Under the nation's patent laws, inventors may obtain patents on processes, machines, manufactures, and compositions of matter that are useful, novel, and nonobvious. An invention is judged as useful if it is minimally operable toward some practical purpose. To be considered novel within the patent law, an invention must differ from existing references that disclose the state of the art, such as publications and other patents. The nonobviousness requirement is met if the invention is beyond the ordinary abilities of a skilled artisan knowledgeable in the appropriate field. In order to be awarded a patent, an inventor must file a patent application with the USPTO. A patent application must include a specification that so completely describes the invention that skilled artisans are enabled to practice it without undue experimentation. The patent application must also contain distinct, definite claims that set out the proprietary interest asserted by the inventor. Trained personnel at the USPTO, known as "examiners," review all applications to ensure that the invention satisfies the pertinent requirements of the patent law. If the USPTO believes that the application meets the statutory standards, it will allow the application to issue as a granted patent. At that time, the USPTO will assemble and publish the corresponding patent instrument, which includes the complete specification, claims, and prior art references considered during prosecution. Each patent ordinarily enjoys a term of 20 years commencing from the date the patent application was filed. Granted patents give the patentee the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Parties who engage in those acts without the permission of the patentee during the term of the patent can be held liable for infringement. The patentee may file a civil suit in federal court in order to enjoin infringers and obtain monetary remedies. Although issued patents enjoy a presumption of validity, accused infringers may assert that the patent is invalid or unenforceable on a number of grounds. Patents have the attributes of personal property and may be assigned or licensed to others. Introduction to the FDA Drug Approval Process Since the 1962 Kefauver-Harris Drug Amendments, the Federal Food, Drug, and Cosmetic Act has prohibited the marketing of a "new drug" unless that drug meets certain safety and efficacy standards. A showing that a new drug is sufficiently safe and effective to allow it to be marketed ordinarily requires manufacturers to conduct clinical investigations of drugs. Such investigations generally occur over several stages, commencing with preclinical evaluation. The testing process begins in the company's laboratory, where scientists perform preliminary tests to determine whether the drug has any effect on a disease or its symptoms. For those compounds that merit further consideration following preclinical evaluation, the next step is the filing of an Investigational New Drug application (IND), at the FDA. The FDA evaluates the pre-clinical data and the proposed clinical trial design to determine whether to allow the IND and testing in humans. Clinical trials are ordinarily carried out in three phases that gather further evidence of the drug's safety and effectiveness. Once a new drug's clinical testing is complete, the sponsor prepares a New Drug Application (NDA) and submits it to the FDA for evaluation. An NDA includes the clinical trial results along with a description of the drug's manufacturing process and facilities. The agency considers three broad questions when reviewing an NDA: Whether the drug is safe and effective in its proposed use(s), and whether the benefits of the drug outweigh the risks. Whether the drug's proposed labeling (package insert) is appropriate, and what it should contain. Whether the methods used in manufacturing the drug and the controls used to maintain the drug's quality are adequate to preserve the drug's identity, strength, quality, and purity. As the agency has explained, an NDA "is supposed to tell the drug's whole story, including what happened during the clinical tests, what the ingredients of the drug are, the results of the animal studies, how the drug behaves in the body, and how it is manufactured, processed and packaged." FDA approval of an NDA allows the drug to be marketed to the public. The Hatch-Waxman Act: An Overview The Roche v. Bolar Litigation The award of marketing approval by the FDA and the grant of a patent by the USPTO are formally distinct events that depend upon different criteria. For example, the USPTO could issue a patent on a drug that the FDA ultimately decides not to approve for marketing due to deleterious side effects. As well, the FDA could grant marketing approval to a safe and effective drug that was already described in the published literature and therefore not patentable. However, because brand-name firms ordinarily seek both marketing approval and patent protection, the practical relationship between these procedures was the subject of policy debate for many years. Many observers believe that the 1984 judicial decision in Roche Products, Inc. v. Bolar Pharmaceutical Co . hastened the pace of discussion in Congress. As noted previously, patent proprietors possess the right to exclude others from practicing the patented invention. Accused infringers may offer several defenses to avoid liability for patent infringement. One potential patent infringement defense consists of the so-called experimental use privilege. One nineteenth century court explained that it was "well-settled that an experiment with a patented article for the sole purpose of gratifying a philosophical taste, or curiosity, or for mere amusement is not an infringement of the rights of the patentee." Most patent attorneys observe that few infringers have successfully pled an experimental use defense, however. As a practical matter, infringement charges are only rarely brought against philosophers or amusement seekers. The venerable experimental use defense suggested an interesting possibility with the advent of marketing approval procedures before the FDA. When a competitor grew interested in marketing the generic equivalent of a drug patented by another, it might have wished to commence clinical trials and other procedures needed to obtain commercial marketing approval during the term of the other's patent. This procedure would allow the generic firm to market the drug as soon as possible—and ideally upon the date the patent expired. Whether the regulatory compliance activities of a generic drug manufacturer amounted to patent infringement or were exempted by the experimental use defense was an open legal question for many years. The 1984 decision of the Court of Appeals for the Federal Circuit in Roche v. Bolar resolved this question conclusively in favor of a finding of patent infringement. In that case, Roche Products, Inc. (Roche) marketed a prescription sleeping pill and owned a patent covering its active ingredient. During the term of Roche's patent, Bolar Pharmaceutical Co. (Bolar) began using the active ingredient to obtain data needed to file an NDA with the FDA. When Roche brought a patent infringement suit, the federal courts agreed that Bolar should be enjoined from using the active ingredient until Roche's patent expired. The courts explained that: Bolar's intended "experimental" use is solely for business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry. Bolar's intended use ... to derive FDA required test data is thus an infringement of the [Roche] patent. Bolar may intend to perform "experiments," but unlicensed experiments conducted with a view to the adaptation of the patented invention to the experimentor's business is a violation of the rights of the patentee to exclude others from using his patented invention. It is obvious here that it is a misnomer to call the intended use de minimis . It is no trifle in its economic effect on the parties even if the quantity used is small. It is no dilettante affair.... We cannot construe the experimental use rule so broadly as to allow a violation of the patent laws in the guise of "scientific inquiry," when that inquiry has definite, cognizable, and not insubstantial commercial purposes. The ruling in Roche v. Bolar , in combination with the requirement of marketing approval for new drugs under the Food, Drug, and Cosmetic Act, was perceived as leading to two distortions of the statutory patent term. First, patent term would continue to run whether or not the FDA had approved the claimed pharmaceutical for marketing. As a result, the period of time that the proprietor of a patent claiming a regulated drug actually could enjoy exclusivity could be quite significantly reduced. In effect, each day of delay associated with the FDA approval process amounted to a lost day of patent term. Second, under Roche v. Bolar , competitors that commenced activities necessary for regulatory approval before a patent had expired could be enjoined as patent infringers. This possibility was seen as a de facto period of exclusivity that the patent proprietor enjoyed beyond the actual term of the patent. Enactment of the Hatch-Waxman Act The Roche v. Bolar decision was widely seen as the impetus for congressional enactment of the Drug Price Competition and Patent Term Restoration Act of 1984. Signed into law on September 24, 1984, that law has come to be known as the Hatch-Waxman Act. The new law was subsequently codified in Titles 15, 21, 28, and 35 of the U.S. Code. The Hatch-Waxman Act includes elaborate provisions governing the mechanisms through which a potential generic manufacturer may obtain marketing approval on a drug that has been patented by another. Although the Hatch-Waxman Act is a complex statute, observers have frequently noted that it presents a fundamental trade-off: In exchange for permitting manufacturers of generic drugs to gain FDA marketing approval by relying on safety and efficacy data from the brand-name firm's NDA, the brand-name firms receive a period of regulatory exclusivity and patent term extension. A review of the legislation's significant provisions follows. The Statutory Experimental Use Exception The Hatch-Waxman Act created a statutory exemption from certain claims of patent infringement. As codified in 35 U.S.C. §271(e)(1), this provision mandates: "It shall not be an infringement to make, use, offer to sell, or sell within the United States a patented invention ... solely for uses reasonably related to the development and submission of information under a Federal Law which regulates the manufacture, use or sale of drugs or veterinary biological products." This provision effectively overturned the Roche v. Bolar decision. As a result, generic manufacturers may commence work on a generic version of an approved drug any time during the life of the patent, so long as that work furthers compliance with FDA regulations. Abbreviated New Drug Applications Prior to the introduction of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing generic versions of drugs that had previously been approved. The result was that a would-be generic drug manufacturer had to file its own NDA in order to market its drug. Some generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug. Because these sorts of studies were not available for all drugs, however, not all generic firms could file these so-called paper NDAs. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result is that some generic manufacturers were forced to prove independently that the drugs were safe and effective, even though their products were chemically identical to previously approved drugs. Some commentators believed that the approval of a generic drug was a needlessly costly, duplicative, and time-consuming process prior to the Hatch-Waxman Act. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. As the introduction of generic equivalents often causes prices to decrease, the interest of consumers was arguably not being served through these observed costs and delays. The Hatch-Waxman Act created a new type of application for market approval of a pharmaceutical. This application, termed an "Abbreviated New Drug Application" (ANDA), may be filed at the FDA. An ANDA may be filed if the active ingredient of the generic drug is the bioequivalent of the approved drug. An ANDA allows a generic drug manufacturer to rely upon the safety and efficacy data developed by the original manufacturer. The Hatch-Waxman Act also continued the FDA's earlier "paper NDA" practice by establishing what has come to be known as a Section 505(b)(2) application. Such an application relies, at least in part, upon safety and efficacy data that the applicant did not itself develop, but rather is available in the published literature. ANDAs and Section 505(b)(2) applications may allow a generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. These two expedited marketing approval pathways also allow a generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. Certifications for Orange Book-Listed Patents All approved drug products, both brand name and generic, are listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations . This publication is commonly known as the "Orange Book" due to the color of its cover, although today most individuals likely view its contents through use of the Internet or the smartphone "Orange Book Express" app. The Orange Book uses a coded lettering system to identify those approved drugs the FDA considers therapeutically equivalent. The FDA considers those drugs with an "A" code to be therapeutically equivalent, while those with a "B" code have a documented bioequivalence problem. The Orange Book provides physicians, pharmacists, and patients with information to help them decide when therapeutically equivalent generic drugs can be substituted for brand-name products. The Orange Book also plays a role in the resolution of patent disputes. The Hatch-Waxman Act requires each holder of an approved NDA to list pertinent patents it believes would be infringed if a generic drug were marketed before the expiration of these patents. Would-be manufacturers of generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. In particular, the generic applicant must either file a so-called section viii statement or a patent certification. Section viii statements are appropriate when the applicant is seeking approval for a method-of-use that is not claimed in a patent listed in the Orange Book. Alternatively, the generic applicant must provide one of four certifications: 1. the brand-name firm has not filed any patent information with respect to that drug; 2. the patent has already expired; 3. the date on which the patent will expire; or 4. the patent is invalid or will not be infringed by the manufacture, use, or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. A generic firm that files an ANDA including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires. A paragraph IV certification leads to additional possibilities, as described next. Patent Infringement Proceedings Under 35 U.S.C. §271(e)(2), the filing of an ANDA with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement. The Hatch-Waxman Act requires the ANDA applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against the ANDA applicant in federal district court. This charge of infringement under 35 U.S.C. §271(e)(2) is technical in nature. At this stage the generic manufacturer has done nothing more than request FDA approval to market a drug. If the patentee's charge of infringement is successful, however, it may prevent the marketing of that generic equivalent until the date the patent expires. If the patent owner brings a patent infringement charge against the ANDA applicant within 45 days of receiving notice from the ANDA applicant, then the Hatch-Waxman Act provides the patentee with a significant benefit. Under these circumstances the FDA must suspend approval of the ANDA until one of the following times: the date of the court's decision that the listed drug's patent is either invalid or not infringed; the date the listed drug's patent expires, if the court finds the listed drug's patent infringed; or subject to modification by the court, the date that is 30 months from the date the owner of the listed drug's patent received notice of the filing of a Paragraph IV certification. Congress intended that this latter, 30-month period would give the parties sufficient time to resolve their patent dispute before the ANDA applicant introduced its generic product to the market. This period of time, commonly called the "30-month stay," is effectively the equivalent of a preliminary injunction that is awarded against the generic drug company for the stipulated period of time. The 30-month stay is awarded automatically by statute, however, provided that the brand-name drug company has timely followed the appropriate procedures. In particular, the brand-name drug company need not make any of the usual showings required for a preliminary injunction. Patent Term Extension The Hatch-Waxman Act also provides for the extension of patent term. Ordinarily, patents may last as long as 20 years from the date the patent application is filed. The Hatch-Waxman Act provides that for pharmaceutical patents, the term of one patent may be extended for a portion of the time lost during clinical testing. If, as is often the case, the patent proprietor owns more than one patent covering a drug, it must choose one to be eligible for term extension. In particular, the patent holder is entitled to have restored to the patent term one-half of the time between the IND application and the submission of an NDA, plus the entire period spent by the FDA approving the NDA. The statute sets some caps on the length of the term restoration. The entire patent term restored may not exceed five years. Further, the remaining term of the restored patent following FDA approval of the NDA may not exceed 14 years. The Hatch-Waxman Act also provides that the patentee must exercise due diligence to seek patent term restoration from the USPTO, or the period of lack of diligence will be offset from the augmented patent term. As a simplified example, suppose that four years passed between the filing of the IND and NDA, and another two years passed between the filing of the NDA and its approval. The period of extension would be (4÷2) + 2 = 4 years. Patent term extension under the Hatch-Waxman Act does not occur automatically. The patent owner must file an application with the USPTO requesting term extension within 60 days of obtaining FDA marketing approval. Regulatory Exclusivities The Hatch-Waxman Act includes provisions that create regulatory exclusivity for certain FDA-approved drugs. The FDA administers these provisions by issuing approval to market a pharmaceutical to only a single entity. Stated differently, during the statutorily stipulated period of time, the FDA protects an approved drug from competing applications. A grant of regulatory exclusivity does not depend on the existence of patent protection. Indeed, it is possible that two completely different entities may own USPTO-granted patent rights, on one hand, and FDA-issued regulatory exclusivity, on the other. The Hatch-Waxman Act was not the first legislation to provide for a regulatory exclusivity. Two years earlier, Congress had approved the Orphan Drug Act in order to encourage firms to develop pharmaceuticals to treat rare medical conditions. Such drugs are called "orphan" drugs because firms may lack the financial incentives to "adopt," or sponsor, products to treat small patient populations. The Orphan Drug Act established a seven-year term of market exclusivity for drugs determined to treat rare disease and conditions. Orphan drug exclusivity prevents the FDA from approving another marketing approval application for the same drug and same orphan indication. Expanding upon this concept, the Hatch-Waxman Act established a five-year exclusivity that is available to drugs that qualify as a new chemical entity (NCE). A drug is judged to be an NCE if the FDA has not previously approved that drug's active ingredient. During that five-year period of NCE exclusivity, the FDA may accept neither a Section 505(b)(2) application nor an ANDA for a drug product containing the same active moiety protected under the NCE exclusivity. The term of NCE exclusivity may be reduced to as little as four years if a generic firm files a paragraph IV ANDA. The Hatch-Waxman Act also provided for a three-year new clinical study exclusivity period. New clinical study exclusivity may be awarded with respect to either an NDA or a supplemental NDA that contains reports of new clinical studies conducted by the sponsor that are essential to FDA approval of that application. In contrast to NCE exclusivity, new clinical study exclusivity applies only to the use of the product that was supported by the new clinical study. The Hatch-Waxman Act further provided prospective manufacturers of generic pharmaceuticals with a reward for challenging the patent associated with an approved pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the first generic applicant to file a paragraph IV certification. Congress hoped that this entitlement would encourage generic applicants to challenge a listed patent for an approved drug product. Subsequent Legislation The Generic Animal Drug and Patent Term Restoration Act As originally enacted, the term extension provisions of the Hatch-Waxman Act did not apply to patents claiming new animal drugs and veterinary biological products. The result was that although these products were subject to FDA marketing approval delays, patents claiming these products did not receive the benefit of term extension. Through the Generic Animal Drug and Patent Term Restoration Act, which became effective on November 16, 1988, Congress decided to open the term-restoration provisions of the Hatch-Waxman Act to veterinary drugs and biological products as well. Animal drug products primarily derived from recombinant DNA technology are expressly denied the benefit of patent term restoration, however. The FDA Modernization Act Section 111 of the Food and Drug Administration Modernization Act of 1997, titled the Better Pharmaceuticals for Children Act, aimed to increase the number of pharmaceuticals available for children. This statute provided for a six-month "pediatric exclusivity" to encourage drug manufacturers to conduct research concerning the effectiveness of their drugs in children. Pediatric exclusivity attaches to any children's drug products with the same "active moiety"—that portion of the drug that causes its physiological or pharmacological reaction—as the previously approved drug. The effect of the pediatric exclusivity is, in essence, to add six months to the term of any patent or regulatory exclusivity that exists at the time the pediatric exclusivity is obtained. For example, the term of an NCE exclusivity would be extended to five years, six months. However, if the pediatric exclusivity is awarded later than nine months prior to the expiration of a particular intellectual right, its term is not extended. Although initially subject to a sunset provision, Congress made the pediatric exclusivity permanent in 2012 with the FDA Safety and Innovation Act. The product must be one for which studies on a pediatric population are submitted at the request of the Secretary of Health and Human Services. Note that the law does not require that a study be successful in demonstrating safety and effectiveness in a pediatric population in order to trigger the added six-month exclusivity period. The statute instead creates incentives for drug companies to conduct research and submit their results. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Title XI of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), titled "Access to Affordable Pharmaceuticals," introduced several changes to the original Hatch-Waxman Act. This law was designed to further decrease the time needed to bring generic pharmaceuticals to the marketplace. Congress principally crafted many of the new provisions for the purpose of discouraging perceived strategic behavior upon the part of both brand-name and generic drug companies said to delay the availability of generic drugs in the U.S. market. In particular, the MMA generally permits no more than one 30-month stay on FDA approval of drugs for which patents are listed in the Orange Book at the time of a paragraph IV ANDA or 505(b)(2) filing. Second, the MMA stipulates that in a situation where a patent holder does not file an infringement action within 45 days of notification of a paragraph IV ANDA, the ANDA applicant may request that a district court issue a declaratory judgment regarding the validity of the patent. Further, if the brand-name drug company launches a patent infringement suit against an ANDA applicant, the generic firm may file a counterclaim requesting that the patent holder modify or delete patent information listed in the Orange Book. The usual ground for such suits is that the listed patents do not claim the drug for which the NDA was approved. The MMA stipulates that no monetary damages are to be awarded in such suits. The MMA also provides that the 180-day generic exclusivity commences with the first commercial marketing of the generic drug. This exclusivity can be forfeited under specified circumstances, including the failure to market under specific time constraints, withdrawal of the ANDA, amendment of the ANDA's patent certification, the failure to obtain marketing approval from the FDA, the expiration of all patents, or the determination by the Federal Trade Commission (FTC) or the Assistant Attorney General that an agreement between the brand-name and generic firms violates antitrust laws. Multiple generic firms may qualify for the 180-day market exclusivity if they file a substantially complete ANDA on the same day. Finally, the MMA requires that certain agreements reached between brand-name companies and generic firms concerning the production, sale, or marketing of a pharmaceutical or a 180-day market exclusivity must be filed with the FTC and the Department of Justice within 10 days of the agreement. This measure was intended to allow these agencies to track "reverse payment" or "pay-for-delay" settlements, a subject that this report discusses below. The Food and Drug Administration Amendments Act of 2007 The Food and Drug Administration Amendments Act (FDAAA) of 2007 incorporated provisions that allowed the FDA to grant NCE exclusivity to enantiomers of previously approved racemates. This legislation overturned the agency's previous view that a single enantiomer of a previously approved racemate contained a previously approved active moiety and was not a new chemical entity. The FDAAA only allows exclusivity to be awarded if the non-racemic drug is approved for a different use than the previously approved racemic one. In addition, approval of the non-racemic drug must be based upon different studies than the racemic one for exclusivity to be awarded. The Biologics Price Competition and Innovation Act of 2009 Following years of debate concerning the introduction of competitive biotechnology medicines, Congress approved the Biologics Price Competition and Innovation Act (BPCIA). The statute appears as Title VII of the Patient Protection and Affordable Care Act. Biologics, which are sometimes termed biopharmaceuticals or biotechnology drugs, have begun to play an increasingly important role in U.S. health care. Observers expressed concern that patent expirations on certain biologics might not be accompanied by the introduction of competing, lower-cost biologics in the marketplace. Of course, a similar analysis prompted the enactment of the Hatch-Waxman Act over a quarter-century ago. Many observers believed that the Hatch-Waxman's Act accelerated marketing approval provisions did not comfortably apply to biologics, due to those drugs' greater complexity, structural complexity, and method of manufacture. The BPCIA included three principal components. First, it created an expedited regulatory pathway for two sorts of follow-on products—"biosimilars" and "interchangeable" biologics. Second, Congress established regulatory exclusivities that are available to brand-name and follow-on firms. Third, the legislation stipulates intricate procedures for identifying and resolving patent disputes with respect to follow-on biologics. The GAIN Act of 2012 Congressional concern over the spread of antibiotic-resistant "superbugs" led to the enactment of the Generating Antibiotic Incentives Now (GAIN) Act, enacted as Title VIII of the FDA Safety and Innovation Act. That statute allows the FDA to designate a drug as a "qualified infectious disease product" (QIDP) if it consists of an antibacterial or antifungal drug intended to treat serious or life-threatening infections. The GAIN Act stipulates that QIDPs include drugs that address drug-resistant tuberculosis, gram negative bacteria, and Staphylococcus aureus. Along with other measures intended to provide pharmaceutical and biotechnology companies with incentives to develop innovative antibiotics, the GAIN Act adds five years to the term of the new chemical entity, new clinical study, and orphan exclusivities for any QIDP. The statute stipulates that the five-year QIDP extension is cumulative with the pediatric exclusivity. As a result, a QIDP that qualified as a new chemical entity, and was also awarded a pediatric exclusivity, would be entitled to a data exclusivity period of ten years and six months. Issues for Congress Since enacting the Hatch-Waxman Act, Congress has maintained a consistent interest in the role intellectual property rights play in the development of new pharmaceuticals and biologics. Congress frequently reconsiders whether the appropriate balance has been struck between providing financial incentives to innovators and encouraging the development of competition to limit economic cost to the public. This section addresses select legislation in the 114 th Congress. Similar themes are likely to be considered by future Congresses as well. Authorized Generics The 2016 announcement that a brand-name firm would produce a generic version of its EpiPen® auto-injector renewed discussion of so-called "authorized generics." An "authorized generic" is a pharmaceutical that is marketed by or on behalf of a brand-named drug company, but is sold under a generic name. The brand-name firm may distribute the drug under its own auspices or via a license to a generic drug company. The price of this "authorized copy" is ordinarily lower than that of the brand-name drug. Some sources refer to authorized generics as "branded," "flanking," or "pseudo" generics. Authorized generics may be pro-consumer in that they potentially increase competition and lower prices, particularly in the short-term. They have nonetheless proven controversial. Authorized generics ordinarily enter the market at about the time the brand-name drug company's patents are set to expire. Some observers argue that such products may decrease the value of the potential 180-day market exclusivity for the first approved generic. This in turn may discourage independent generic firms both from challenging drug patents and from selling their own generic products. Competitor Access to Medications The Hatch-Waxman Act requires generic drug companies to prove that their proposed products are bioequivalent to the brand-name drug. Bioequivalence testing therefore requires that the generic firm use the brand-name product as a basis for comparison. Some generic firms have expressed concerns, however, that certain brand-name firms have refused to sell them samples of their drugs for use in developing competing products. The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2016, S. 3056 , addresses access to reference product samples when a brand-name product is subject to limited distribution channels—either voluntarily or via FDA-imposed "Risk Evaluation and Mitigation Strategies (REMS)" procedures. The bill would allow a generic or biosimilar firm to commence litigation in federal court in order to obtain a sample of a drug or biologic that is subject to a restricted distribution scheme so that it may obtain FDA approval of its competing product. Parallel Importation At least six bills have been introduced in the 114 th Congress that would allow individuals to import lower-cost prescription drugs from foreign jurisdictions. The bills differ on the jurisdictions from which imports are permissible. H.R. 2228 and S. 122 , each titled the Safe and Affordable Drugs from Canada Act of 2015; along with H.R. 3513 and S. 2023 , each titled the Prescription Drug Affordability Act of 2015; would allow U.S.-approved drugs to be imported from approved Canadian pharmacies. H.R. 2623 , the Personal Drug Importation Fairness Act, would allow U.S.-approved drugs to be imported from Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa, a member state of the European Union, or a country in the European Economic Area, as well as any other country determined by the Commissioner of Food and Drugs to have safety and efficacy standards at least as protective as the United States. Finally, S. 1790 , the Safe and Affordable Prescription Drugs Act of 2015, would allow U.S.-approved drugs to be imported from approved pharmacies located anywhere in the world. Regulatory Exclusivities Congress continues to express interest in regulatory exclusivities. In the 114 th Congress, the Curb Opioid Misuse By Advancing Technology (COMBAT) Act of 2016, H.R. 5127 , would extend the three-year new clinical study exclusivity by 12 months if the new study was related to clinical abuse potential and the product's labeling characterized the drug's abuse-deterrent potential. The COMBAT Act would similarly extend the 180-day generic exclusivity by 60 days in such circumstances. On the other hand, the period of biologics exclusivity would be reduced from 12 to 7 years by the Price Relief, Innovation, and Competition for Essential Drugs (PRICED) Act, introduced as both H.R. 5573 and S. 3094 . Over the past 35 years, FDA-administered regulatory exclusivities have been growing in numbers, scope, complexity, and duration. The long history of congressional lawmaking has given rise to three types of patents: utility patents in 1790, design patents in 1842, and plant patents in 1930. In contrast, since 1982 Congress has established 15 sorts of regulatory exclusivity. Encouraging innovation through regulatory exclusivities, rather than through the patent system, arguably possesses certain advantages. The large number of industries affected by patents may make patent reform politically difficult. Fine tuning drug regulation rules may be more feasible. In addition, U.S. membership in the World Trade Organization requires that "patents shall be available and patent rights enjoyable without discrimination as to the ... field of technology...." This requirement of technological neutrality appears to prevent discrimination both against and in favor of drug patents. On the other hand, increasing reliance upon regulatory exclusivities may require greater legislative oversight and hold less regard for the public domain. Reverse Payment Settlements Cases litigated under the auspices of the Hatch-Waxman Act have often ended with a settlement between the parties. In some of these cases, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a "reverse" payment. For over two decades, a number of courts of appeal have been called upon to analyze the antitrust implications of patent settlements between brand-name and generic firms within the shadow of the Hatch-Waxman Act. Facing somewhat different case specifics, the courts developed varying approaches to the issue. These distinctions were laid to rest by the 2013 Supreme Court opinion in Federal Trade Commission v. Actavis, Inc . The watershed Actavis decision ushered in a new era for antitrust review of reverse payment settlements. There, the Court held that the legality of reverse payment settlements should be evaluated under the "rule of reason" approach. However, the Court declined to hold that such settlements should be presumptively illegal under a "quick look" analysis. The Actavis opinion resolves a long-standing circuit split regarding the approach that should be taken toward settlement of pharmaceutical patent cases under the antitrust laws. The lower courts have now been left with the potentially complex task of applying the rule of reason to reverse payment settlements going forward. In the 114 th Congress, a number of bills deal with reverse payment settlements. The Fair and Immediate Release of Generics Act, S. 131 , would make a number of changes to the Hatch-Waxman Act in order to discourage reverse payments settlements. In particular, S. 131 would grant any generic firm the right to share the 180-day regulatory exclusivity if it wins a patent challenge in the district court or is not sued for patent infringement by the brand company. The legislation would also oblige generic firms to abide by any deferred entry date agreed to in their settlements with brand-name firms, even if relevant patents were struck down previously. Finally, brand-name firms would be required to make a decision to enforce their patents within 45 days of being notified of a patent challenge by a generic firm under the Hatch-Waxman Act. Another bill, S. 2019 , the Preserve Access to Affordable Generics Act, would declare that certain reverse payment settlements constitute acts of unfair competition. In particular, that bill would amend the Federal Trade Commission Act to provide that an agreement "shall be presumed to have anticompetitive effects and be unlawful if—(i) an ANDA filer receives anything of value; and (ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time." Certain exceptions apply—for example, the payment of reasonable litigation expenses not exceeding $7.5 million would not be unlawful. That "quick look" presumption would not apply if the parties to the agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement. S. 2019 includes a list of factors to be weighed by the courts in such circumstances. A third bill, S. 2023 , the Prescription Drug Affordability Act of 2015, would act similarly to S. 2019 . It would also create a presumption that reverse payment settlements violate the Federal Trade Commission Act, subject to certain exceptions. However, unlike S. 2019 , the parties to the agreement would not be able to overcome this presumption by showing that its procompetitive benefits outweigh the anticompetitive harms.

Congress has for many years expressed interest in both medical innovation and the growing cost of health care. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, addressed each of these concerns. Through amendments to both the patent law and the food and drug law, the Hatch-Waxman Act established several practices intended to facilitate the marketing of generic pharmaceuticals while providing brand-name firms with incentives to innovate. The Hatch-Waxman Act established an expedited pathway for generic drug companies to obtain Food and Drug Administration (FDA) approval for their products. It also created a statutory "safe harbor" that shields generic applicants from charges of patent infringement until such time as they request approval to market their products from the FDA. The legislation also encourages brand-name firms to identify to the FDA any patents that cover their products. If they do so, the patents are listed in the "Orange Book"—a publication that identifies approved drugs and the intellectual property rights associated with them. When a generic firm seeks marketing approval from the FDA, it must account for any Orange Book-listed patents—typically by delaying marketing of its products until they expire, or by asserting that the patents are invalid or do not cover the generic's proposed product. This latter assertion exposes the generic drug company to charges of patent infringement by the brand-name firm. The Hatch-Waxman Act also created periods of "regulatory exclusivity" that protect an approved drug from competing applications for marketing approval under specified conditions. These FDA-administered regulatory exclusivities typically operate alongside patents to block generic competition for a period of time. Generic firms may sell their own versions of brand-name drugs once these intellectual property rights expire. Several issues relating to the Hatch-Waxman Act remain of interest to Congress. One of them pertains to the legitimacy of "authorized generics," pharmaceuticals that are marketed by or on behalf of a brand-named drug company, but are sold under a generic name. Although authorized generics may be pro-consumer in that they potentially increase competition and lower prices, some observers argue that such products may discourage independent generic firms both from challenging drug patents and from selling their own generic products. In addition, the Hatch-Waxman Act requires generic drug companies to prove that their proposed products are bioequivalent to the brand-name drug. Bioequivalence testing therefore requires that the generic firm use the brand-name product as a basis for comparison. Some generic firms have expressed concerns, however, that certain brand-name firms have refused to sell them samples of their drugs for use in developing competing products. Cases litigated under the auspices of the Hatch-Waxman Act have often ended with a settlement between the parties. In some of these cases, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a "reverse" payment. While some observers believe that this outcome results from the structure of the Hatch-Waxman Act, others believe that these settlements are anti-competitive and harmful to consumers.

Introduction The United States has long distinguished temporary migration from settlement migration. The Immigration and Nationality Act (INA) establishes the circumstances under which foreign nationals may be admitted temporarily or come to live permanently. Those admitted on a permanent basis are known as immigrants, or lawful permanent residents (LPRs), while those admitted on a temporary basis are known as nonimmigrants. The INA provides for the admission of nonimmigrants for designated periods of time and a variety of specific purposes. Nonimmigrants include tourists, foreign students, diplomats, temporary agricultural workers, cultural exchange visitors, internationally known entertainers, foreign media representatives, intracompany business personnel, and crew members on foreign vessels, among others. Policy discussions about nonimmigrant admissions are as varied as the visa classes under which temporary migrants enter. Tourists, business visitors, and foreign students, for example, are usually seen as a boon to the U.S. economy, while the economic costs and benefits of temporary workers are hotly debated. In addition, cultural exchange programs are a foreign policy tool, intended to foster democratic principles and spread American values across the globe, but some of these programs that include work authorization have come under scrutiny for an alleged lack of protections for both U.S. workers and program participants. Further, the entry of nonimmigrants has prompted national security concerns—particularly over those who enter under the Visa Waiver Program. Debates also continue over the implementation of a system to document the exits of foreign nationals from the United States, as nonimmigrants who remain in the country after their visas expire are accounting for a growing share of the unauthorized alien population. Achieving an optimal balance among policy priorities—ensuring national security, facilitating trade and commerce, supporting fair labor practices, protecting public health and safety, and fostering international cooperation—remains a challenge. As policymakers consider modifying nonimmigrant visa categories, they may be interested in learning more about each of the categories and their relationship to the policy priorities. This report explains the statutory and regulatory provisions that govern nonimmigrant admissions to the United States before turning to a description of the major nonimmigrant categories. It describes trends in temporary migration, including changes over time in the number of nonimmigrant visas issued and nonimmigrant admissions. Estimates of nonimmigrants who establish residence in the United States are briefly discussed, as are estimates of those who stay beyond their authorized period of admission. The report concludes with a detailed table showing key admissions requirements across all nonimmigrant visa types. Admission of Nonimmigrants The Department of State (DOS), the Department of Homeland Security (DHS), and the Department of Labor (DOL) each play key roles in administering the law and setting policies on the admission of nonimmigrants. Foreign nationals living outside the United States who wish to enter the country apply for a visa at a U.S. embassy or consulate abroad. Two agencies within DHS handle the admission procedures that occur on U.S. soil: Customs and Border Protection (CBP) determines whether to admit nonimmigrants at U.S. ports of entry (POEs), and U.S. Citizenship and Immigration Services (USCIS) handles applications for extending or changing an individual's nonimmigrant status and the adjudication of visa petitions by employers for nonimmigrant workers. For certain classes of workers, an employer must first submit an application to DOL's Office of Foreign Labor Certification. If approved, the employer petitions USCIS for the visa on behalf of the worker. Finally, DOS interviews the worker and issues a visa if conditions are met. A DOS consular officer (at the time of application for a visa) and a CBP immigration inspector (at the time of application for admission) must be satisfied that an alien is entitled to a nonimmigrant status. The burden of proof is on the applicant to establish eligibility for nonimmigrant status and the type of nonimmigrant visa for which the application is made. Periods of Admission The time period that a visa lasts has two elements: how long the foreign national is authorized to stay in the United States, and how long the visa is valid for entry into the United States. Length of Stay Section 214 of the INA and 8 C.F.R. §214 address length and extensions of stay for the various classes of nonimmigrants. For example, A-1 ambassadors are allowed to remain in the United States for the duration of their service, F-1 students for the duration of their studies, D crew members for up to 29 days, and R-1 religious workers for 30 months (with the possibility of extension for an additional 30 months). H-1B visa holders may stay in the country for three years with the option to renew once for up to six years total. Many categories of nonimmigrants are required to have a residence in their home country that they intend to return to as a stipulation of obtaining a visa. (See the Appendix for requirements for each visa type.) Nonimmigrants who remain in the United States past their lawful period of admission are known as overstays. Duration of Visa Separate from the length of stays authorized for nonimmigrant visas is their validity period, or the time during which the visa is valid for travel. These time periods are negotiated country-by-country and category-by-category. For example, a B visitor visa from Germany is valid for 10 years while a B visa from Indonesia is valid for five years. The D crew member visa is valid for five years for Egyptians, but two years for Russians. R-1 visas have a validity period of 36 months for Ugandans and 60 months for Italians. The country-specific validity periods generally reflect reciprocal authorizations of validity periods for U.S. citizens who travel to those countries. DOS publishes frequent updates to reciprocity agreements and explanations of how they affect different visa classes. Employment Authorization Permission to Work With the exception of the nonimmigrants who are temporary workers (i.e., H, O, P, R, and Q visa holders), treaty traders (i.e., E visa holders), international representatives (i.e., A and G visa holders), or the executives of multinational corporations (i.e., L visa holders), most nonimmigrants are not allowed to work in the United States. Exceptions to this policy are noted in the Appendix . Working without authorization is a violation of law and results in the termination of nonimmigrant status. Labor Market Tests Labor market tests are required for employers petitioning for workers under the H visa classes, E-3 professional worker visas for Australians, and D crewmember visas. The H-2 visas require employers to complete the labor certification process, which includes applying to DOL for certification that there are not sufficient U.S. workers who are able, willing, qualified, and available to perform the needed work, and that admitting alien workers will not adversely affect the wages and working conditions of similarly employed U.S. workers. As part of the labor certification process, employers must offer wages at or above specified levels and meet various other requirements. The labor market test required for H-1 and E-3 workers, known as labor attestation, is less stringent than labor certification. Any employer wishing to bring in an H-1B or E-3 nonimmigrant must attest in an application to DOL that the employer will pay the nonimmigrant the greater of the actual compensation paid to other employees in the same job or the prevailing compensation for that occupation; the employer will provide working conditions for the nonimmigrant that do not cause the working conditions of the other employees to be adversely affected; and there is no strike or lockout at the place of employment. The D visa is for crewmembers working on sea vessels or international airlines but typically does not allow the visa holder to perform longshore work. There are a few exemptions. If an employer is requesting authorization for a D visa holder to perform longshore work via one of these exemptions, the employer must attest that the use of alien crewmembers to perform longshore work is the prevailing practice for the activity at that port, there is no strike or lockout at the place of employment, and notice of the attestation has been given to U.S. workers or their representatives. There are no labor market tests for foreign nationals seeking to enter under the other employment-related visas. Exclusion and Removal Inadmissibility DOS consular officers (when the alien is applying abroad), CBP inspectors (when the alien is at a United States port of entry), and USCIS adjudicators (when the alien is applying for an extension or adjustment of status) must confirm that the alien is not ineligible for a visa under the "grounds for inadmissibility" found in §212(a) of the INA. These grounds fall into the following categories: health-related grounds, criminal history, security and terrorist concerns, public charge (e.g., indigence), seeking to work without proper labor certification, illegal entrants and immigration law violations, lacking proper documents, permanently ineligible for citizenship, aliens previously removed, and miscellaneous (including polygamists, child abductors, and unlawful voters). The law provides for waivers of these grounds (except for most of the security and terrorist-related grounds) for nonimmigrants on a case-by-case basis. Presumption of the Intent to Settle Permanently Section 214(b) of the INA generally presumes that all aliens seeking admission to the United States are coming to settle permanently; as a result, most foreign nationals seeking to qualify for nonimmigrant visas must demonstrate that they are not coming to reside permanently. The §214(b) presumption is the most common basis for rejecting nonimmigrant visa applications, accounting for three quarters of ineligibility findings in FY2016. There are three nonimmigrant visas for which "dual intent" is allowed, meaning that the prospective nonimmigrant visa holder may simultaneously seek LPR status. Nonimmigrants seeking H-1B visas (professional workers), L visas (intracompany transferees), or V visas (accompanying family members) are exempt from the requirement that they prove they are not coming to the United States to live permanently. Termination of Nonimmigrant Status Nonimmigrants who violate the terms of their visas—such as working without authorization—or stay beyond the period of admission are considered unauthorized aliens. As such, they are subject to removal. The legal status of a nonimmigrant in the United States may also be terminated for national security, public safety, or diplomatic reasons, or following the conviction of a crime of violence that has a sentence of more than one year (i.e., a felony). Broad Categories of Nonimmigrants Currently, there are 24 major nonimmigrant visa categories and more than 80 specific types of nonimmigrant visas. Most of the nonimmigrant visa categories are defined in §101(a)(15) of the INA. For most nonimmigrant visa categories, there are specific visas for derivatives, typically dependent spouses and minor children, of the principal visa holder. In this section, nonimmigrant visas are grouped under broad labels. For a listing of all the current visa types in alphabetical order, see Table A-1 in the Appendix . For each visa type, it provides information from current law and regulations regarding length of stay, foreign residence requirements, employment authorization, labor market test requirements, annual numerical limit, and the number of visas issued in FY2016. Diplomats and Other International Representatives Ambassadors, consuls, and other official representatives of foreign governments (and their immediate family and personal employees) enter the United States on A visas. Official representatives of international organizations (and their immediate family and personal employees) are admitted on G visas. Nonimmigrants entering under the auspices of the North Atlantic Treaty Organization (NATO) have their own visa category, called NATO (or N 1-7). Visitors as Business Travelers and Tourists B-1 nonimmigrants are visitors who travel to the United States for business-related purposes such as negotiating a contract, consulting with business associates, or attending a professional conference. To be classified as a visitor for business, an alien must receive his or her salary from abroad, must maintain a foreign residence, and must not receive any remuneration from a U.S. source other than an expense allowance or reimbursement for other expenses incidental to the temporary stay. B-2 visas are granted to temporary visitors for "pleasure," otherwise known as tourists. Examples of acceptable activities include visiting family or friends, vacationing, and seeking medical treatment. Tourists have consistently been the largest nonimmigrant class of admission to the United States. A B-2 visa holder may not engage in any employment in the country. Those who wish to travel to the United States for a combination of business and pleasure may obtain a combined B-1/B-2 visa. B visas usually allow for multiple entries and may remain valid for up to 10 years, depending on the applicable Department of State reciprocity schedule. B visa holders are typically admitted to the United States for a period of stay up to six months. Visa Waiver Program Many business travelers and tourists enter the United States without visas through the Visa Waiver Program (VWP). This provision of the INA (§217) allows the Secretary of Homeland Security to waive the visa documentary requirements for visitors from countries that meet certain statutory criteria. Currently, 38 countries are designated under the VWP, allowing their nationals to visit the United States for up to 90 days without a visa. Although not part of the Visa Waiver Program, citizens of Canada and Bermuda who wish to travel to the United States as business visitors or tourists may do so without a visa. Border Crossing Card The border crossing card (BCC), or "laser visa," allows Mexican citizens who reside in Mexico to gain short-term entry to the United States border zone for business or tourism. It may be used for multiple entries and is typically valid for 10 years. Mexican citizens can be granted a laser visa if they are found to be otherwise admissible as B-1 (business) or B-2 (pleasure) nonimmigrants. The laser visa is a combined B-1/B-2/BCC nonimmigrant visa. Current rules limit the BCC holder to visits of up to 30 days within designated border zones in Texas, California, New Mexico, and Arizona. Temporary Workers The major nonimmigrant category for temporary workers is the H visa. The current H-1 category includes workers in specialty occupations (H-1B visa holders), which, at a minimum, require the attainment of a bachelor's degree or its equivalent. Current law sets numerical restrictions on the number of visas that may be issued annually to new H-1B workers at 65,000 with an additional 20,000 for applicants holding a U.S. master's degree or higher. Most H-1B workers enter on visas that are exempt from this cap, however. Exemptions apply to workers who are renewing their visas or are petitioned for by an institution of higher education, or a nonprofit or government research institution. There are two visa categories for bringing in seasonal or temporary workers; agricultural workers enter on H-2A visas, and nonagricultural workers enter on H-2B visas. Annually, the Secretary of Homeland Security designates countries eligible to participate in the H-2 programs. There is no annual numerical limit on the admission of H-2A workers, and the annual limit for the H-2B visa is 66,000. H-3 visas are issued to nonimmigrants coming for the purpose of job-related training that is unavailable in their countries of origin and that relates to work that will be performed outside the United States. The E-3 treaty professional visa is a temporary work visa limited to citizens of Australia. It is similar to the H-1B visa in that the foreign worker in the United States on an E-3 visa must be employed in a specialty occupation. Temporary professional workers who are citizens of Canada or Mexico may enter on TN visas according to terms set by the North American Free Trade Agreement (NAFTA). TN visas are approved for those in certain professions to work in prearranged business activities for U.S. or foreign employers. Persons with extraordinary ability in the sciences, arts, education, business, or athletics, or with extraordinary recognized achievements in the motion picture and television fields are admitted on O visas. Extraordinary ability means a level of expertise indicating that the person has risen to the very top of the field of endeavor and is nationally or internationally acclaimed. Internationally recognized athletes or members of an internationally recognized entertainment group coming to the United States to compete or perform enter on P visas. An individual or team athlete, or an entertainer on a P-1 visa must have achieved significant international recognition. There are also P visas for performers in reciprocal cultural exchange programs and culturally unique performers, as well as for persons providing essential support services for these performers. Foreign nationals who work for foreign media companies enter on I visas. Nonimmigrants working in religious vocations enter on R visas. Religious work is currently defined as habitual employment in an occupation that is primarily related to a traditional religious function and is recognized as a religious occupation within the denomination. Q visas are issued to participants in employment-oriented cultural exchange programs whose stated purpose is to provide practical training and employment as well as share history, culture, and traditions. USCIS must approve the Q cultural exchange programs. Unlike the J cultural exchange program (see " Exchange Visitors "), employers must petition for nonimmigrants under the Q visa program. In 2011, a transitional worker visa category for foreign workers in the Commonwealth of the Northern Mariana Islands (CNMI), a U.S. territory, was established. Employers of nonimmigrant workers who are ineligible for other employment-based nonimmigrant visa classifications under the INA can apply for temporary permission to employ workers in the CNMI under the CW visa classification. The CW visa program is scheduled to end on December 31, 2019. Foreign workers in the CNMI under the CW visa program are expected to find a suitable alternative immigration status before the end of the program if they wish to remain in the CNMI lawfully. Multinational Corporate Executives and International Investors International intracompany transferees who work in an executive or managerial capacity or have specialized knowledge are admitted to the United States on L visas. The L visa enables multinational firms to transfer top-level personnel to their locations in the United States for five to seven years. To be eligible for an L-1 visa, the foreign national must have worked for the multinational firm abroad for one year prior to transferring to a U.S. location. Treaty traders and investors (and their spouses and children) may enter the United States on E-1 or E-2 visas. To qualify, a foreign national must be a citizen or national of a country with which the United States maintains a treaty of commerce and navigation. The foreign national also must demonstrate that the purpose of coming to the United States is one of the following: "to carry on substantial trade, including trade in services or technology, principally between the United States and the treaty country; or to develop and direct the operations of an enterprise in which the national has invested, or is in the process of investing, a substantial amount of capital." Unlike most nonimmigrant visas, the E visa may be renewed indefinitely. The E-2C visa is for treaty traders (and their spouses and children) working in the CNMI only. Exchange Visitors The J visa, also known as the Fulbright program, is used by professors and research scholars, students, foreign medical graduates, teachers, resort workers, camp counselors, au pairs, and others who are participating in an approved exchange visitor program. DOS's Bureau of Educational and Cultural Affairs is responsible for approving the cultural exchange programs, which must be designed to promote the interchange of persons, knowledge, and skills in the fields of education, arts, and science. J visa holders are admitted for the duration of the cultural exchange program and may be required to return to their home country for two years after completion of the program. Many foreign nationals on J-1 visas are permitted to work as part of their cultural exchange program participation. Foreign Students While some foreign students enter the U.S. on J-1 visas, the most common visa for foreign students is the F-1 visa. It is tailored to international students pursuing full-time academic education or language training. To obtain an F-1 visa, a prospective student must be accepted by a school that has been approved by the U.S. government to enroll foreign students. Prospective students must also document that they have sufficient funds or have made other arrangements to cover all their expenses for the entire course of study. Finally, they must demonstrate that they have the scholastic preparation to pursue a full course of study at the appropriate academic level and a sufficient knowledge of English (or have made arrangements with the school for special tutoring or to study in a language they know). Students on F visas are permitted to work in practical training that relates to their degree program, such as paid research and teaching assistantships. They are also permitted to engage in Optional Practical Training (OPT), which is temporary employment that is directly related to the student's major area of study. Students who wish to pursue a non-academic (e.g., vocational) course of study apply for M visas. Much like F visa applicants, those seeking an M visa must show that they have been accepted by an approved school, have the financial means to pay for tuition and expenses and otherwise support themselves during the course of study, and have the requisite scholastic preparation and language skills. Canadian and Mexican nationals who commute to school in the United States enter on F-3 (academic) or M-3 (vocational) visas; they are permitted to work only in practical training that relates to their degree program. Family-Related Visas Fiancé(e)s of U.S. citizens may obtain K-1 visas. The intending bride and groom must demonstrate that they are both legally free to marry, meaning any previous marriages must have been legally terminated by divorce, death, or annulment; that they plan to marry within 90 days of the date the K-1 visa holder is admitted to the United States; and that they have met in person during the two years immediately prior to filing the petition. Following the marriage, the K-1 visa holder may apply to adjust to LPR status. Eligible children of K-1 visa applicants can immigrate to the United States under a K-2 visa. To shorten the time that families are separated, spouses who are already married to U.S. citizens, as well as the spouse's children, may obtain K-3 and K-4 visas, respectively. The K-3 and K-4 visas allow the spouse and children to enter the United States and become authorized for employment while waiting for USCIS to process their immigrant petitions. Once admitted to the United States, K-3 nonimmigrants may apply to adjust to LPR status at any time, and K-4 nonimmigrants may do so concurrently or any time after their parent has done so. V visas are similar to K-3 and K-4 visas except that the sponsoring relative is an LPR rather than a U.S. citizen. No new V visas have been issued since 2007, but individuals are still admitted to the United States on V visas. Law Enforcement-Related Visas The law enforcement-related visas are among the most recently created. The S visa is issued to informants in criminal and terrorist investigations. Victims of human trafficking who participate in the prosecution of those responsible may receive a T visa. The U visa protects crime victims who assist law enforcement agencies' efforts to investigate and prosecute domestic violence, sexual assault, and other qualifying crimes. Aliens in Transit and Crew Members The C visa is for a foreign national traveling through the United States en route to another destination (including the United Nations Headquarters District in New York). The D visa is for an alien crew member on a vessel or aircraft. A combination C-1/D visa is issued to a foreign national traveling to the United States as a passenger to join a ship or aircraft as a worker. Statistical Trends DOS and CBP collect data on nonimmigrant visa issuances and nonimmigrant admissions to the United States, respectively. Both sets of data have strengths and shortcomings for analyzing trends related to nonimmigrants. Data from DOS on the number of visas issued shows the potential number of foreign nationals who may gain admission to the United States because not all visa recipients end up traveling to the country, and some who do are denied admission. Most CBP admissions data come from I-94 forms, which are used to document entries of foreign nationals into the United States. These data enumerate arrivals, thus counting frequent travelers multiple times. Notably, Mexican nationals with border crossing cards and Canadian nationals traveling for business or tourist purposes are not required to fill out I-94 forms and are thus not reflected in CBP data tables. Because Canadian and Mexican visitors make up the vast majority of nonimmigrant admissions, less than half of nonimmigrant admissions to the United States each year are included in the I-94 totals. Data on nonimmigrant departures are much less complete because the United States does not have a comprehensive exit system in place. Nonimmigrants may overstay their visas, depart the country without submitting a departure form, gain the right to live in the United States permanently, or receive an extension of their nonimmigrant stay, making a direct count of nonimmigrants in the country impossible. Nevertheless, recent improvements in data sharing have allowed DHS to produce estimates of nonimmigrants residing in the United States and overstay rates for nonimmigrants who entered at air or sea ports. The following sections present both visa issuance and admissions data for nonimmigrants by category and geographic region. Estimates of the number of nonimmigrants who have overstayed their visas are also presented, as are estimates of those who have (legally or otherwise) established a residence in the United States. Analysis of Nonimmigrants by Visa Category Temporary Visas Issued45 In FY2016, DOS consular officers issued 10.4 million nonimmigrant visas, down from a peak of 10.9 million in FY2015. Combined, visitor visas issued in FY2016 for tourism and business comprised by far the largest category of nonimmigrant visas: about 8 million, or 78% of the total (see Figure 1 ). Temporary workers (including H visa holders, treaty traders and investors, intracompany transferees, and representatives of foreign media) received 8.5% of all nonimmigrant visas issued in FY2016, followed by students and exchange visitors with 4.9% and 3.7%, respectively (see Figure 1 ). From FY2007 to FY2016, the number of nonimmigrant visas issued grew by 61%, from 6.4 million in FY2007 to 10.4 million in FY2016 (see Figure 2 ). During this time, nonimmigrant visa issuances were at their lowest level in FY2009, due, in part, to the impact of the economic downturn beginning in 2007 (Great Recession) on international travel. After FY2009, there was a steady increase in the number of visas issued until FY2015; from FY2015 to FY2016, issuances declined by half a million, or 5%. The number of tourist and business visitor visas (B visas) issued increased by 78% over the entire decade, but like nonimmigrant visas overall, they saw a drop of 5% from FY2015 to FY2016. Because tourist and business visitor visas (B visas) dominate the nonimmigrant flow, it is useful to examine trends in other nonimmigrant categories separately. Figure 3 reveals that the number of visas issued for temporary workers saw a sharp drop from FY2008 to FY2009. This timing coincides with the start of the Great Recession. While most other visa categories also experienced some fluctuation, visas issued to diplomats and other representatives held steady across the decade. Since FY2009, visas issued to temporary workers and students have seen large and steady increases resulting in growth rates of 38% and 55%, respectively, over the decade. From FY2015 to FY2016, however, the number of student visas experienced a 25% drop. This sharp decline was largely driven by a 46% decrease in the number of F-1 visas issued to applicants from mainland China, the most frequent recipient of F-1 visas. Saudi Arabia, Mexico, Brazil, and India also experienced steep drops in the number of F-1 visas issued from FY2015 to FY2016. Temporary Admissions46 During FY2015, CBP inspectors granted 181.3 million nonimmigrant admissions to the United States, according to DHS workload estimates. Mexican nationals with border crossing cards, Canadian nationals traveling for business or pleasure, and others not required to complete a form I-94 accounted for over half (58%) of these admissions, with approximately 104.7 million entries (see " Statistical Trends "). The remaining categories and countries of the world contributed the remaining 76.6 million I-94 admissions in FY2015. The following analysis of admissions data is limited to I-94 admissions. Total I-94 admissions more than doubled between FY2006 and FY2015, from 33.7 million to 76.6 million. The trend in admissions of temporary visitors (for business and pleasure) mirrored that for visa issuances: a decline from FY2008 to FY2009 followed by a steady increase. Because DHS has not yet released FY2016 data, it is unknown whether the FY2015 to FY2016 drop in nonimmigrant visas issued will also appear in the admissions data. As with the visa issuance data, tourists and business visitors dominate the admissions data (see Figure 4 ) . Over three-quarters of all I-94 admissions in FY2015 were tourists, and another 10.4% were business visitors. Similar to visa issuances, other nonimmigrant categories with measurable percentages of admissions were temporary workers (including intracompany transferees, treaty traders/investors, and representatives of foreign media), at almost 5%, students (2.6%), cultural exchange visitors (0.8%), and diplomats (0.6%). Included in the admissions data are tourists and business visitors who entered without a visa under the Visa Waiver Program (VWP). While the number of VWP admissions has climbed steadily since FY2009, the share of visitor (B visa) admissions accounted for by VWP admissions dropped from more than half (53.2%) in FY2006 to less than one-third (32.5%) in FY2015 (see Figure 5 ). This corresponds with an increase in the share of admissions coming from Asia (see Figure 8 ), as European countries dominate the VWP. Figure 6 shows FY2006-FY2015 admission trends for all visa types except for B visa holders. As was also shown in Figure 4 , temporary workers are the largest category of "other than B-Visa" nonimmigrant admissions. Overall, the temporary workers category saw a 118% increase in the number of admissions from FY2006 to FY2015, second only to student admissions, which grew by 169%. Admissions of diplomats and exchange visitors grew 50% and 35%, respectively. Analysis of Nonimmigrants by Region Temporary Visas Issued47 Visas issued to foreign nationals from Asia made up 45.3%, or 4.7 million, of the 10.4 million nonimmigrant visas issued in FY2016 (see Figure 7 ). North American nonimmigrants (i.e., those from Canada, Mexico, Central America, and the Caribbean) accounted for the next largest group of FY2016 nonimmigrant visa issuances, with 2.1 million individuals. South America accounted for 1.8 million of the nonimmigrant visa issuances. Europe's 1.2 million visas comprised 11.4% of all nonimmigrant visas issued, down from 16.1% in FY2007. Half a million nonimmigrant visas were issued to Africans, and less than 70,000 went to those from Oceania. Over the past decade, nonimmigrant visas issued to nationals from Asia increased 78% from 2.6 million visas issued in FY2007 to 4.7 million in FY2016 (see Figure 8 ). Although Asian nationals experienced the largest numerical increase during that time, the number of nonimmigrant visas issued to South American nationals also increased by 78%, and visas issued to African nationals doubled over the same time period, surpassing 500,000 in FY2016 for the first time. Reflecting the decrease in total visa issuances from FY2015 to FY2016, visa issuances to nationals from Asia and South America also decreased during this time. The drop in visas issued to nationals from Asia is due almost equally to decreases in business and tourist visitors (B) and student (F-1) visas. Chinese nationals, for example, received about 237,103 fewer B visas and 126,444 fewer F-1 visas in FY2016 than in FY2015. Foreign nationals from Brazil—South America's largest economy and a country suffering from a deep recession—accounted for most of the decrease in business and tourist visitor visas for South America. Temporary Admissions49 Citizens of North American countries accounted for almost half (47.4%) of I-94 nonimmigrant admissions in FY2015 (see Figure 9 ). In addition to sharing a border with the United States, Canadian and Mexican nationals have expedited entry in many cases. Admissions of European nationals made up almost one quarter (22.6%) of FY2015 nonimmigrant admissions, followed by Asian nationals (18.3%). Citizens of South America, Oceania, and Africa each accounted for less than 10% of nonimmigrant admissions. It is worth noting that 30 of the 38 Visa Waiver Program countries are European, which, coupled with the continent's proximity to the United States, helps explain how European nationals can make up almost a quarter of admissions but 9.8% of visas issued in FY2015. Although foreign nationals from Asia held 45.9% of visas issued in FY2015, they comprised 18.3%, or 14 million, of I-94 admissions . This could be due in part to the fact that only five Asian countries are designated in the VWP, along with the lower likelihood of repeat entries from Asia given its distance from the United States. Citizens from Africa, Oceania, and South America also accounted for a higher share of visas issued than admissions. Figure 10 depicts the region of citizenship for I-94 admissions into the United States from FY2006 to FY2015. The dramatic increase in admissions from North America is due largely to significant changes in the way CBP records I-94 admissions. Before the changes in procedure, North American admissions trends mirrored those from Asia. Aside from the large increase in North American admissions that was due to improvements in data collection, admissions from South America and Africa had the fastest growth rates from FY2006 to FY2015: 157.3% and 100.9%, respectively. Admissions of European nationals grew the slowest, increasing 35.6% over the decade. Asian admissions increased 67.5%, and those from Oceania grew by 78.8%. Analysis of Nonimmigrants by Destination Foreign nationals coming to the United States as nonimmigrants go to destinations around the country. Eleven states and Guam were identified as the destination for 1 million or more nonimmigrant admissions each in FY2015. California and Florida were the top two destination states, with over 10 million admissions each (see Figure 11 ); over 90% of these admissions were tourists and business travelers (B visa holders). New York and Texas were also top destinations for all types of nonimmigrants. Certain states and one territory stood out as primarily tourist destinations in FY2015: in Hawaii, Nevada, and Guam, more than 98% of admissions were on B visas. Other states stood out as those that attract a disproportionate share of students: in Massachusetts, students and exchange visitors accounted for 12% of admissions; California and New York had higher numbers of student/exchange visitor admissions than Massachusetts (though they made up about 4% of nonimmigrant admissions in each of these states). Michigan (19%) and New Jersey (10%) received a disproportionate share of temporary workers compared to the overall share of 5% nationwide. In addition, the District of Columbia had the highest share of nonimmigrant admissions classified as diplomats (14%). Estimates of the Resident Nonimmigrant Population Not all nonimmigrant visas are issued for brief visits, and some lengths of stay are sufficiently long for a person to establish residence in the United States. As noted, A-1 ambassadors are allowed to remain in the United States for the duration of their service, F-1 students are allowed to complete their studies, and H-1B professionals are allowed to remain for three years or more. The term "resident nonimmigrant" refers to foreign nationals admitted on nonimmigrant visas whose classes of admission are associated with stays long enough to establish a residence. The most recent DHS estimates of the resident nonimmigrant population in the United States are for FY2014. That year, DHS estimated the average population of resident nonimmigrants to be 1.7 million on any given day. Of these, 45.6% (790,000) were temporary workers and their families, 38.7% (670,000) were students and their families, 11.6% (200,000) were cultural exchange visitors and their families, and 4.0% (70,000) were diplomats, other representatives, and their families. DHS estimated that 30% were ages 18 to 24, and 50% were ages 25 to 44. More than half (57%) of resident nonimmigrants in FY2014 were male. Foreign nationals from Asia made up more than half (56%) of resident nonimmigrants in the United States in FY2014, with India and China making up 24% and 14% of the total, respectively. Europe and North America comprised another 14% and 13% of the total, respectively. The top 10 sending countries accounted for 71% of the total, as depicted in Figure 12 . Pathways to Permanent Residence Although the U.S. immigration system is generally bifurcated into temporary and permanent admissions of foreign nationals, there are significant connections between the two. Overall, about half of those receiving lawful permanent residence each year are adjusting to LPR status from another status within the United States, and the other half are new arrivals. The adjusters may have entered the country in various capacities, including as refugees, asylees, parolees, nonimmigrants, or illegal entrants. As discussed earlier, most foreign nationals seeking to qualify for a nonimmigrant visa must demonstrate that they are not coming to the United States to reside permanently. By statute, three nonimmigrant visas permit the visa holder to simultaneously seek LPR status, also known as "dual intent": H-1 professional workers, L intracompany transfers, and V accompanying family members. The connections between the temporary and permanent immigration systems affect both employment- and family-based immigration, the two main mechanisms for permanent immigration. While about half (51.6%) of all individuals receiving LPR status in FY2015 adjusted from another status (versus new arrivals), a larger share (84.7%) of those receiving employment-based LPR status were adjusting from another status. Presumably, many of these individuals were previously H-1B and L visa holders, both of which allow for immigrant intent. The H-1B visa provides a link for foreign students to become employment-based LPRs. U.S. firms that want to hire foreign students can obtain H-1B visas for recent graduates—a process which is usually faster than sponsoring them for permanent residence—and if the employees meet expectations, the employers may also petition for them to become LPRs through one of the employment-based immigration categories. Some policymakers consider this a natural and positive chain of events, arguing that it would be foolish to educate nonimmigrants only to make them leave the country to work for foreign competitors. To that end, there have been legislative proposals to allow aliens who have earned a Ph.D. in a STEM field from a U.S. university to be exempt from numerical limits on H-1Bs and employment-based green cards. Others consider this "F-1 to H-1B to LPR" pathway an abuse of the temporary element of nonimmigrant status and a way to circumvent the laws and procedures that protect U.S. workers from being displaced by immigrants. To that end, other proposals would prevent foreign students from gaining U.S. employment through the Optional Practical Training (OPT) program. OPT has become a common mechanism for temporary employment (ranging from 12 to 36 months) that is directly related to an F-1 student's major area of study. In FY2014, USCIS reported that there were 136,617 F-1 foreign students approved for OPT, up from 90,896 in FY2009. In addition to the 12 to 36 months of OPT work authorization, F-1 students with pending H-1B petitions can extend their F-1 status and employment authorization unti l their H-1B employment begins. Nonimmigrant Visa Overstays It is estimated that each year, hundreds of thousands of foreign nationals overstay their nonimmigrant visas and, as a consequence, become unauthorized aliens. The absence of a comprehensive system to track the exit of foreign nationals from the United States has made direct, complete measurement of overstays impossible. However, DHS has reportedly made progress in identifying and quantifying overstays and issued a report in each of 2016 and 2017 on this topic. According to the 2017 report, which accounted for 50.4 million nonimmigrants who entered the United States through an air or sea port and were expected to depart in FY2016, an estimated 1.47% (or 739,478 individuals) were overstays. This number includes individuals who left the country after their visa expired and those who were suspected to still be in the United States. Given the historical lack of nonimmigrant departure data, immigration scholars have used estimation techniques to study the number and characteristics of the overstay population (and the population of unauthorized aliens writ large). Recent reports from the Center for Migration Studies found that, in each year from 2007 to 2014, the number of aliens becoming unauthorized by overstaying a nonimmigrant visa was higher than the number who did so by entering the country without inspection (EWI). This is mainly a result of the sharp decline in the number of EWIs since the early 2000s. Of the 11 million unauthorized aliens estimated to be living in the United States in 2014, 42% (4.5 million) were estimated to have arrived in the country legally and overstayed a visa. Appendix. Delineating Current Law for Nonimmigrant Visas

U.S. law provides for the temporary admission of foreign nationals, who are known as nonimmigrants. Nonimmigrants are admitted for a designated period of time and a specific purpose. There are 24 major nonimmigrant visa categories, which are commonly referred to by the letter and numeral that denote their subsection in the Immigration and Nationality Act (INA); for example, B-2 tourists, E-2 treaty investors, F-1 foreign students, H-1B temporary professional workers, J-1 cultural exchange participants, or S-5 law enforcement witnesses and informants. A U.S. Department of State (DOS) consular officer (at the time of application for a visa) and a Department of Homeland Security (DHS) inspector (at the time of application for admission) must be satisfied that an alien is entitled to nonimmigrant status. The burden of proof is on the applicant to establish eligibility for nonimmigrant status and the type of nonimmigrant visa for which the application is made. Both DOS consular officers (when the alien is applying for nonimmigrant status abroad) and DHS inspectors (when the alien is entering the United States) must also determine that the alien is not ineligible for a visa under the INA's "grounds for inadmissibility," which include criminal, terrorist, and public health grounds for exclusion. In FY2016, DOS consular officers issued 10.4 million nonimmigrant visas, down from a peak of 10.9 million in FY2015. There were approximately 8 million tourism and business visas, which comprised more than three-quarters of all nonimmigrant visas issued in FY2016. Other notable groups were temporary workers (883,000, or 8.5%), students (513,000, or 4.9%), and cultural exchange visitors (380,000, or 3.7%). Visas issued to foreign nationals from Asia made up 45% of nonimmigrant visas issued in FY2016, followed by North America (20%), South America (17%), Europe (11%), and Africa (5%). U.S. Customs and Border Protection (CBP) inspectors approved 181.3 million temporary admissions of foreign nationals to the United States during FY2016. CBP data enumerate arrivals, thus counting frequent travelers multiple times. Mexican nationals with border crossing cards and Canadian nationals traveling for business or tourist purposes accounted for the vast majority of admissions, representing approximately 104.7 million entries in FY2016. In FY2015, California and Florida were the top two destination states for nonimmigrant visa holders, with each state being listed as the destination for more than 10 million nonimmigrant admissions. In addition, 10 other states and the territory of Guam were listed as the destination for more than 1 million nonimmigrant admissions each in that year. Current law and regulations set terms for nonimmigrant lengths of stay in the United States, typically include foreign residency requirements, and often limit what aliens are permitted to do while in the country (e.g., engage in employment or enroll in school). Some observers assert that the law and regulations are not uniformly or rigorously enforced. Achieving an optimal balance among policy priorities, such as ensuring national security, facilitating trade and commerce, protecting public health and safety, and fostering international cooperation, remains a challenge.

Setting the Context In 2000, 189 U.N. member states, including the United States, adopted the U.N. Millennium Declaration. In the Declaration, countries made commitments to achieve a series of measurable development targets worldwide by 2015 known as the "Millennium Development Goals" (MDGs or Goals). In all, there are eight MDGs comprised of 21 quantifiable targets measured by 60 indicators. Table 1 lists the Goals, and Table A-1 in the Appendix provides the corresponding targets. From September 20 to 22, 2010, world leaders gathered at U.N. Headquarters for a High-level Plenary Meeting (the Meeting) to review progress toward achieving the MDGs over the past decade. During the Meeting, participants discussed best practices and challenges to implementing the Goals, and governments adopted a General Assembly resolution outlining a "global action plan" to achieve the MDGs in the next five years. The resolution did not include any financial commitments; rather, it called on governments to fulfill existing aid commitments made at other international meetings and conferences. A key area of discussion among Meeting participants was governments' lack of success in meeting the MDGs in the past 10 years. There is general consensus in the international community that while there has been some progress in achieving the MDGs, the majority of Goals will not be met by 2015. Many also acknowledge that MDG progress is unevenly distributed across countries and regions. Moreover, no progress at all has been made toward some of the Goals, and in a few cases the indicators show regression. The Barack Obama Administration has generally supported the MDGs. President Obama addressed meeting participants on September 22, emphasizing the need for greater sustainability, accountability, and focus on economic growth in development assistance programs. His speech was consistent with the U.S. Strategy for Meeting the MDGs , released by the Administration in July 2010, which highlights four imperatives for achieving the Goals: (1) leveraging innovation, (2) investing in sustainability, (3) tracking development outcomes (not just dollars), and (4) ensuring mutual accountability among aid donors and recipients. In general, the Obama Administration appears to invoke the MDGs as a construct for U.S. development policy more frequently than do members of Congress. Since the Millennium Declaration was adopted in 2000, little legislation has been introduced that, either in whole or in part, addresses the MDGs. Nevertheless, members of the 112 th Congress may be interested in the Goals and the September High-level Meeting from several perspectives: D evelopment assistance in a tight fiscal environment —Members of Congress authorize and appropriate U.S. official development assistance. In light of growing concerns over the federal budget deficit, members may wish to reassess foreign assistance priorities and strategies; New international commitments —Congress may consider commitments made on behalf of the United States in the Meeting's outcome document, Keeping the Promise: United to Achieve the Millennium Development Goals (General Assembly resolution 65/1); and O versight —Members may wish to conduct oversight on the overall effectiveness of the MDGs and the previous and future role of the United States in helping to fulfill the Goals. More broadly, Congress may consider how, if at all, the MDGs should shape existing and future U.S. and international development activities. Selected questions that policymakers may consider follow: In what areas , if any, have the MDGs been successful? Many agree that some MDGs have been met or are on track to be met by 2015. Some are hopeful that the "lessons learned" from these experiences could be transferred to other Goals. Are the MDGs practical? Some experts contend that the Goals provide unrealistic expectations for countries or regions, particularly those starting out at a lower economic threshold than others. Moreover, some argue that the scope and breadth of the MDGs, and a lack of prioritization among them, have affected their progress. What is the role of foreign aid in the MDGs? Some maintain that in order for the MDGs to be fulfilled by 2015, donor countries must fulfill existing aid commitments and make new ones. Others, however, argue that higher aid levels do not necessarily lead to greater development impacts. Who or what is held accountable for MDG progress? Governments are primarily responsible for fulfilling the MDGs. At the same time, it is unclear to whom, if anyone, governments are accountable if they fail to achieve the Goals. This report discusses overarching trends in MDG progress and lessons learned from previous and ongoing efforts to achieve them. It examines U.S. policy toward the MDGs and how, if at all, the Goals fit into U.S. development and foreign assistance policy. It also examines different schools of thought regarding the effectiveness of the Goals, their role in international development, and their long-term sustainability. This report addresses the MDGs as a whole; it does not assess or analyze issues pertaining to the individual Goals. The 2010 High-level Meeting: Overview and Outcomes On September 22, the High-level Meeting concluded with the adoption of General Assembly resolution 65/1, a "global action plan" to achieve the MDGs by 2015. In the resolution, entitled Keeping the Promise: United to Achieve the Millennium Development Goals , governments reaffirmed the MDGs and welcomed progress made toward their achievement—recognizing that they can be met with "renewed commitments, effective implementation and intensified collective action by all Member States." At the same time, governments recognized that progress toward the Goals is uneven among regions and between and within countries, and expressed "deep concern" that progress toward the Goals "falls short of what is needed." No new financial commitments were made by governments in the resolution. Instead, governments called for the "expeditious delivery of [aid] commitments already made by developed countries" in the context of the Monterrey Consensus and the Doha Declaration. In the resolution, governments also committed to specific measures related to each of the eight Goals in the next five years, and requested the General Assembly to review progress made toward the Goals, and the implementation of the resolution, on an annual basis. To follow up on these efforts, member states agreed to hold a General Assembly special event on the MDGs in 2013. Countries also requested that the Secretary-General continue to report annually to the General Assembly on progress toward the Goals, and to recommended steps for advancing the U.N. development agenda beyond 2015. During the Meeting, the United Nations, governments, non-governmental organizations (NGOs), and private sector entities also announced individual development commitments. Several organizations and governments, for example, pledged a combined $40 billion over the next five years to accelerate progress on women's and children's health through the Secretary-General's Global Strategy for Women's and Children's Health . Other examples of such commitments follow: South Korea pledged $100 million to support food security and agriculture in developing countries (MDG 1); Dell committed $10 million toward education technology initiatives in 2010 (MDG 2); the World Bank announced it would increase the scope of its results-based health programs by more than $600 million until 2015 (MDG 6); the United States committed $50.82 million for the Global Alliance for Clean Cookstoves, a public-private partnership led by the U.N. Foundation to install clean-burning stoves in kitchens around the world (MDG 7); and the European Union offered €1 billion to the most committed and needy countries to make progress on the Goals they are furthest from achieving (MDG 8). Some of these commitments seem to be specifically created to accelerate progress on the MDGs. Others, however, appear to be part of broader development efforts and initiatives already being undertaken by governments, international organizations, NGOs, and the private sector. Trends in MDG Progress and Lessons Learned In advance of the September 2010 High-level Meeting on the MDGs, governments, NGOs, and others scrutinized MDG indicators to determine progress made toward the Goals. Generally, experts monitoring the MDG indicators have identified two overarching trends. First, while some MDGs are on track to be achieved, others have made no progress at all or, in some cases, have deteriorated. Second, progress toward the Goals is unevenly distributed among regions and countries. The following sections discuss and provide examples of these trends in further detail. Uneven Progress Among Goals While significant progress has been made toward a few MDGs, there is general agreement in the international community that many of the Goals will likely be missed both on a global level and by most countries. No progress at all has been made toward some Goals, and indicators show regression on others. For example, many predict that MDG 1, target 3, halving the number of people who suffer from hunger, will not be achieved. Throughout the 1990s and early 2000s there was some progress in combating hunger worldwide, but any advancements have recently stalled due in part to global food crises and the global economic crisis. In the period from 2005 through 2007, for instance, 830 million people were undernourished, an increase of 13 million from the 1990 level of 817 million. In addition, many observers agree that MDG 2, which aims to ensure that all children complete a full course of primary schooling, will likely remain unfulfilled at the global level. The United Nations and other organizations maintain that there has been progress in this area—for example, enrollment in primary education recently reached 89% in the developing world—but that the pace of this progress is insufficient. For the Goal to be achieved, all children at the official age for primary school in their respective countries would have to have been attending classes by 2009. In over half of Sub-Saharan Africa, however, at least 25% of school-aged children were not enrolled in 2008. Moreover, MDG 4, which addresses child mortality, sets a target of reducing the under-five mortality rate by two-thirds by 2015 that will likely not be met. According to the United Nations, child deaths are falling, but they are not doing so quickly enough to achieve MDG 4. Of the 67 countries with high child mortality rates (described as 40 or more deaths per 1,000 live births), only 10 countries are on track to meet the two-thirds reduction target. Additionally, MDG 5, which seeks to reduce the maternal mortality ratio by 75% by 2015, will likely remain unfulfilled. According to the U.N. Secretary-General, of the health-related MDGs the least progress has been made toward attaining this Goal. In many developing countries, access to safe reproductive health services remains poor, with preventable conditions such as hemorrhage and hypertension accounting for half of all deaths in expectant or new mothers. Uneven Progress Across Developing Regions and Countries A wide range of data and research indicates that global progress toward the MDGs is uneven across developing regions and countries. For MDG 1, for example, the percentage of people living in poverty on the global level has decreased; however, most of this decline has been driven by robust economic growth in countries such as China and India. Meanwhile, progress in reducing poverty and hunger in other regions—particularly Sub-Saharan Africa—has stalled or even regressed. For example, the United Nations reports that the world is on track to meet target 1 of MDG 1, halving the proportion of people whose income is less than $1 a day. Many emphasize, however, that progress is driven primarily by the economic success of certain countries. Specifically, strong economic growth in China appears to account for most of the decrease in the number of people living on less than $1.25 a day, while poverty and hunger in other parts of Asia and in Sub-Saharan Africa remain high. Excluding data from China, the United Nations estimates that the absolute number of people living in extreme poverty rose by 36 million between 1990 and 2005. Regional disparities are also apparent in progress toward MDG 3, which seeks to promote gender equality and empower women by eliminating gender disparity in primary and secondary education by 2015. Research indicates that developing regions as a whole are approaching gender parity in educational enrollment. In 2008, for example, there were 96 girls for every 100 boys in primary school and 95 girls for every 100 boys in secondary school. This is an improvement from 1999, when the ratios were 91 to 100 and 88 to 100 in primary and secondary schools, respectively. At the same time, however, gender parity in education remains "out of reach" for many developing countries and regions and in some cases has decreased. In Sub-Saharan Africa, for instance, the percentage of primary school enrollment for girls as compared to boys fell from 82% in 1999 to 79% in 2007. Similarly, in Oceania, progress toward achieving girls' enrollment in primary school has deteriorated or not progressed. Moreover, the United Nations reports that while the world is on track to meet target 3 of MDG 7, halving the proportion of the population without safe drinking water or sanitation, progress is uneven across regions and countries. Four regions have already met the safe drinking water target: Northern Africa, Latin America and the Caribbean, Eastern Asia, and Southeastern Asia. Nevertheless, safe water supply remains a challenge in many developing countries, particularly in rural areas, and across Oceania and Sub-Saharan Africa. (For additional examples of MDG progress by region, see Figure A-1 .) Lessons Learned In an effort to determine the most effective ways to achieve the goals in the next five years, participants at the September Meeting discussed common factors or lessons learned that contributed to MDG progress, as well as correlating obstacles that have impeded progress. While many experts assert that there is no "one size fits all" approach to advancing development, and that the most effective policies and interventions will differ by country and by Goal, in the past decade, governments, NGOs, and others have identified certain factors that contribute to the fulfillment of the MDGs. When examining U.S. development policy and efforts to address the MDGs, members of Congress may take these issues into account. They include the need for effective government leadership and ownership of development strategies; effective policies to support implementation , including laws, regulations, standards, and guidelines, general or specific to the MDGs, that impact private behavior, the conduct of service providers and others with whom governments must interact; improved quality, quantity, and focus of investments from both domestic resources and international development assistance based on a holistic approach, including health, education, infrastructure, and business development; appropriate institutional capacity to deliver quality services equally on a national scale, including adequate facilities, competent staff, supplies and equipment, and tools for monitoring; involvement of civil society and communities in achieving the Goals; effective global partnerships involving all relevant stakeholders such as donor and recipient governments, communities, NGOs, and the private sector; and good governance by donors and recipients , including the timely and predictable delivery of aid. At the same time, the existence of these factors in a country or region does not ensure that the MDGs will be achieved. External, and often unpredictable, events can be a significant impediment to MDG progress. For example, many contend that the global financial crisis negatively impacted progress toward the MDGs. There is also broad consensus that armed conflict and violence remain significant threats to any gains made toward the Goals. The United States and the MDGs The United States voted in favor of the U.N. Millennium Declaration in 2000, and some recent U.S. development policy statements allude to the MDGs as a U.S. development policy consideration, if not a guiding framework. In speeches before the United Nations and other international fora over the years, both President George W. Bush and President Barack Obama have emphasized the U.S. commitment to the Millennium Development Goals. However, the two Administrations have used different rhetoric in regard to the MDGs, and many observers believed that this shift anticipated a significant policy change between Administrations. Nevertheless, a review of U.S. development activities and policy statements since the establishment of the MDGs illustrates some of the challenges in drawing conclusions about the role of the MDGs in U.S. foreign assistance policy. Role and Impact of the MDGs in the Bush Administration While the Millennium Declaration was agreed to during the Clinton Administration, the MDGs themselves were published in a report by the U.N. Secretary-General on September 6, 2001—about nine months after President Bush took office and only days before the September 11 th terrorist attacks dramatically altered U.S. foreign policy priorities. The U.S. commitment to the MDGs during the Bush Administration was nuanced. As explained by a 2005 State Department cable to all U.S. embassies and USAID missions, the United States agreed to the development goals included in the Millennium Declaration adopted at the 2000 U.N. Millennium Summit. It did not, however, commit to the goals, targets, and indicators issued by the U.N. Secretariat in 2001. These are the eight goals and related indicators that are generally referred to today as the MDGs, but were described by the State Department as "solely a Secretariat product, never having been formally adopted by member states." The Bush Administration did not fully accept the Secretariat's formulation of the MDGs for two primary reasons. First, it argued that the Secretariat took the MDGs out of the context of the Millennium Declaration, which included commitments to good governance, democracy, human rights, and other U.S. foreign policy priorities. Second, one of the indicators established by the Secretariat for MDG 8 (developing global partnerships for development) is efforts by developed countries to provide 0.7% of their gross national income (GNI) as official development assistance (ODA). The United States, which is the leading bilateral ODA donor in dollar terms, but not when ODA is measured as a percent of GNI, has generally opposed numeric aid targets, arguing that they do not reflect developing country needs or capacity to absorb aid. These elements together, U.S. diplomats assert, turned the "development discussion into an ODA discussion." As a result of this ambiguity, many Bush Administration documents and texts negotiated at international fora replaced blanket endorsements of Millennium Development Goals with phrases such as "internationally agreed to development goals, including those in the Millennium Declaration," to connote agreement with the idea of the MDGs, but also to reserve room for debate on how they were to be achieved. Administration officials also emphasized that while the Millennium Declaration established important goals, the Monterrey Consensus (the product of the U.N.-sponsored International Conference on Finance for Development in 2002) provided the strategy to meet global development priorities. The Monterrey Consensus, unlike the MDGs, focused on economic growth as the foundation for sustainable development, and emphasized good governance, country ownership of development strategies, trade, and private investment. It was in the context of the Monterrey Consensus, not the MDGs, that the Bush Administration pledged significant increases in U.S. ODA. The Monterrey Conference was also the backdrop for President Bush's announcement of a new U.S. global development funding mechanism, the Millennium Challenge Corporation (MCC), which seeks to fund the development needs of countries that have demonstrated relatively good governance, a commitment to economic freedom, and investment in their citizens. A 2008 policy statement on the U.S. commitment to the MDGs highlighting the Bush Administration's strategy focused on (1) country ownership and good governance, (2) pro-growth economic policy, (3) investing in people, and (4) addressing failing and fragile states. It did not specifically mention any of the MDGs, and identified the Monterrey Consensus as the basis of the U.S. strategy. Given that the MDGs closely relate to long-standing U.S. development assistance priorities such as improving access to healthcare, education, and economic opportunity, it is hard to identify any specific impact the Millennium Declaration had on U.S. policy during the Bush Administration. On the other hand, U.S. ODA trends in these years were largely consistent with MDG commitments, with total U.S. ODA almost tripling between 2000 and 2008, from $9.95 billion to $26.84 billion. The President's Emergency Plan for AIDS Relief (PEPFAR) accounts for a large part of the funding growth and has unquestionably advanced MDG 6, combating HIV/AIDS, malaria, and tuberculosis. At the same time, a good portion of the growth in foreign assistance during the same period was directed toward the Middle East and South and Central Asia, likely reflecting strategic interests related to the wars in Iraq and Afghanistan more than commitment to the MDGs. Obama Administration and the 2010 High-level Meeting President Obama, who stated during the 2008 presidential campaign that under his leadership the MDGs would be America's goals, appears to have elevated the significance of the MDGs relative to his predecessor. Administration officials no longer carefully distinguish the goals of the Millennium Declaration from the MDGs. President Obama's National Security Strategy states that "the United States has embraced the United Nations Millennium Development Goals," and Congressional Budget Justifications for Foreign Operations submitted under the Obama Administration frequently discuss attainment of MDGs in conjunction with U.S. development policy goals. The Obama Administration's four major foreign assistance initiatives appear to reflect consideration of the MDGs. The Obama Administration's Feed the Future Initiative is aimed at ending hunger (MDG 1). The Global Health Initiative (GHI) focuses not only on HIV/AIDS, malaria, and other diseases (MDG 6), but also on child mortality (MDG 4) and maternal health (MDG 5). The Global Climate Change Initiative targets environmental sustainability (MDG 7) and the Global Engagement Initiative, designed to create economic opportunities and security in Muslim communities abroad, is intended to support entrepreneurship and create jobs through collaborative partnerships (MDG 8) and involve women in the social and economic development of their communities (MDG 3). The Obama Administration's published strategy for meeting the MDGs, like the Bush Administration strategy, does not focus on specific MDGs, explaining that "we do not treat the MDGs as if they were separate baskets" and "the purpose is to emphasize that the MDGs are all connected." Rather, it identifies four "imperatives"—(1) innovation, (2) sustainability, (3) measuring outcomes rather than inputs, and (4) mutual accountability among donor and recipient countries—and discusses ways that U.S. agencies apply them. The strategy appears intended to demonstrate to the international community a greater U.S. interest in the MDG discussion, while maintaining the U.S. position that the MDGs can best be achieved by focusing on cross-cutting aid effectiveness issues rather than funding targets. Like his predecessor, President Obama has not embraced the target associated with Goal 8, which calls for donor nations to reserve 0.7% of their GNI for development aid. At the September High-level Meeting, President Obama announced a new U.S. global development strategy, which the Administration is referring to as the Presidential Policy Directive on Global development (PPD). The pillars of the PPD reflect the imperatives detailed in the U.S. Strategy fo r Meeting the Millennium Development Goal s . They emphasize the need for development assistance to be judged by its impact rather than volume, and to promote sustainable improvement rather than dependency. The President highlighted the role of diplomacy, trade, and investment in development, arguing that aid alone is not effective. Like his predecessor, he also emphasized the importance of broad-based economic growth and mutual accountability. In regard to the latter, he reassured developing countries that the United States would meet its commitments and encouraged other donors to do the same, but stated that ultimately developing countries must take the lead in their own development. The PPD, like the U.S. Strategy for Meeting the Millennium Development Goals , does not appear to be a significant departure from the Bush Administration approach. Experts noted, however, that the decision to announce the new policy in the context of the MDG High-level Meeting indicates a desire to improve the working relationship between with United States and the U.N. on development issues. The President made no new financial commitments in his speech. Over the course of the Meeting, however, Secretary of State Hillary Clinton announced a $50.82 million U.S. commitment for the Global Alliance for Clean Cookstoves, and a partnership with the United Kingdom, Australia, and the Bill & Melinda Gates Foundation to improve access to family planning services in South Asia and Sub-Saharan Africa. Both announcements were made in the context of promoting the U.N. Secretary-General's Global Strategy for Women's and Children's Health , but are consistent with U.S. efforts already underway as part of the Administration's Global Health Initiative. By signing the outcome document, the Administration also renewed the U.S. commitment to supporting dozens of broadly stated "best practices" related to each MDG. Of particular interest to Congress in the wake of the Meeting may be the President's statement on the need for greater selectivity and division of labor among aid donors, and his pledge to work with Congress to ensure that U.S development assistance more closely reflects recipient country priorities. Congressional Activities The legislative record indicates little congressional action on the MDGs since 2000. The MDGs have scarcely been mentioned in appropriations legislation and accompanying reports over the last decade, which have largely shaped foreign assistance policy in the absence of regular foreign assistance re-authorization legislation. Two pieces of legislation have been introduced that address the MDGs as a whole. Introduced in the 109 th Congress, the International Cooperation to Meet the Millennium Development Goals Act of 2005 ( S. 1315 ) called for U.S. leadership on the MDGs, and required the Department of State to submit a report to Congress detailing global progress toward the MDGs and how U.S. policy and actions had contributed to such progress. The bill passed the Senate by unanimous consent, but was held at the desk. On September 16, 2010, Representative Barbara Lee introduced H.Con.Res. 318 , expressing support of the "ideals and objectives" of the MDGs and urging the President to "ensure the United States contributes meaningfully to the achievement of the Millennium Development Goals by the year 2015." Introduced just days before the September High-level Meeting, the resolution never received committee or floor consideration. However, a hearing on "Achieving the United Nations' Millennium Development Goals: Progress Through Partnership," held by the House Subcommittee on International Organizations, Human Rights and Oversight on July 27, 2010, indicated congressional interest in the MDGs in the lead-up to the High-level Meeting. Furthermore, a handful of bills have been introduced that refer to specific Goals. The Global Poverty Act, for example, introduced in the House and Senate in both the 110 th and 111 th Congresses, calls for a strategy to meet MDG 1. Then-Senator Obama was the Senate sponsor of that legislation in the 110 th Congress. In the 111 th Congress, the House Foreign Affairs Committee (HFAC) and the Senate Foreign Relations Committee (SFRC) focused on reforming U.S. foreign assistance and re-writing the Foreign Assistance Act of 1961 (FAA), which is the legislative basis for most foreign aid programs. These efforts did not reflect any specific MDG influence, though many of the stated goals could have been interpreted to align with MDGs. Neither of the major reform bills in the 111 th Congress, H.R. 2139 and S. 1524 , specifically mentioned the MDGs, nor did any of the discussion papers made public by HFAC as part of the effort to re-write the FAA. Policy Issues Ten years after the Millennium Declaration, government officials and development advocates are reviewing a decade of implementation efforts to determine how lessons from the past can help shape policies that promote more effective development in the future, whether through achievement of the MDGs or revision of the MDG approach. As President Obama said at the High-level Meeting, "if the international community just keeps doing the same things the same way, we may make some modest progress here and there, but we will miss many development goals." These efforts raise issues that are central to Congress's role in funding and overseeing U.S foreign assistance. Key policy issues include the practicality of the Goals, the role of foreign assistance in achieving the Goals, selectivity in the provision of aid, and accountability. Are the MDGs Practical? Given the uneven progress in achieving the MDGs to date, some in the policy community have questioned the role of the Goals in global development efforts and their overall effectiveness. One of the primary issues raised in this context is the practicality of the Goals. Many argue that the MDGs provide unrealistic expectations for regions or countries, particularly those starting out at a lower economic threshold than others (such as Sub-Saharan Africa). For example, many contend that MDG 2, which calls for all countries to achieve universal primary education by 2015, is unrealistic for many poor countries because it asks them to achieve in 15 years what other countries have taken over a century to attain. Such unrealistic expectations, critics argue, set countries up for failure. In the same vein, some are concerned that the idealistic or utopian aspects of the MDGs may detract from actual development successes. For example, a country may achieve historic (but not universal) increases in primary school enrollment or access to reproductive health, but technically "fail" to achieve MDGs 2 and 5. Critics argue that rather than being branded as failures for not achieving the MDGs, countries should be applauded for their achievements. Aid Effectiveness As expected, debate over appropriate aid levels was at the heart of the discussions held at the High-level Meeting in September. Many aid advocates, particularly representatives of aid-recipient countries, assert that lack of progress on the MDGs can, in many instances, be attributed to insufficient levels of aid and they encouraged donor countries at the Meeting to commit to higher aid levels. Others contend that there is little evidence indicating that higher aid levels lead to greater development impacts, and that many developing countries have demonstrated an inability to use aid effectively. Some even argue that aid can be counterproductive to development, as it can distort economic incentives, flood capacity, and create dependency. The lack of consistent and reliable monitoring and evaluation of development assistance programs results in inconclusive data, leaving the debate unresolved. This issue of aid volume versus aid effectiveness is central not only to discussions related to the MDGs but also to U.S. foreign aid policy. The U.S. delegation at the High-level Meeting downplayed calls for more aid, focusing instead on aid effectiveness and on the role of non-aid tools of development, such as trade and investment. The MDG global action plan from the High-level Meeting called on governments to fulfill their aid commitments, but did not include new commitments. Nevertheless, stakeholders may pressure Congress to increase foreign aid appropriations to reflect the needs highlighted in the action plan produced by the summit. Selective Use of Aid A common criticism of the MDGs is that they try to accomplish everything at once, and are therefore so impractical as to be useless. Given the lingering effects of the global financial crisis, and accompanying fiscal constraints, members of Congress may feel a greater need than ever to prioritize U.S. development assistance. Efforts have been made by NGOs at the international level, most notably through the Copenhagen Consensus project, to help policymakers prioritize various development challenges based on estimated costs and benefits. The Obama Administration has stated that selectivity and division of labor among donors are an important emphasis of the new development strategy it announced at the High-level Meeting. Prioritizing programs, however, can be challenging in many respects. Virtually all development activities have strong supporters both in the United States and globally who can make selectivity politically difficult. Furthermore, as the U.S. MDG strategy statement emphasizes, many development activities are interrelated. For example, the Bush Administration focused foreign assistance resources heavily on HIV/AIDS prevention and treatment, making tremendous gains in the number of people who had access to antiretroviral drugs and in preventing the transmission of HIV/AIDS to many newborns. Many global health experts contend, however, that this progress on HIV/AIDS has come at the expense of basic healthcare, education, and nutrition, all of which are essential to ongoing efforts to stop the spread of HIV/AIDS and extend the survival of those infected with HIV. Accountability Some experts attribute limited advancement toward the MDGs to the absence of accountability stipulations. If a government or aid program does not deliver on its promises, whether due to poor design, corruption, or other factors, the intended recipients generally have no recourse. Attempts have been made at the international level to address this problem. The Paris Declaration on Aid Effectiveness, for example, has goals and indicators against which individual donor and recipient country progress is monitored and reported on a regular basis. The MDGs, however, are silent on the issue of donor and recipient country responsibilities in achieving the Goals. Congress has repeatedly emphasized accountability and the need for greater monitoring and evaluation as part of foreign aid reform, and the Bush and Obama Administrations have been consistent in asserting that mutual accountability and evidence of impact are central to U.S. development policy. The global action plan on the MDGs agreed to at the September High-level Meeting addresses accountability in broad terms, but breaks no new ground on the issue. Conclusions While evidence of MDG effectiveness in advancing global development is uneven a decade after the adoption of the Millennium Declaration, the international community, including the United States, continues to use the Goals as a paradigm for development assistance. The September High-level Meeting, and the negotiations that preceded it, were an opportunity for the United States to both demonstrate commitment to the Goals and lead the global development assistance discussion toward a greater emphasis on accountability, good governance, sustainability of development programs and other priorities consistent with both U.S. foreign policy and lessons learned over the first 10 years of efforts to achieve the MDGs. Appendix. The Millennium Development Goals

From September 20 to 22, 2010, heads of state and government convened at United Nations (U.N.) Headquarters for a High-level Plenary Meeting to review progress toward the U.N. Millennium Development Goals (MDGs). The MDGs are a group of measurable development targets agreed to by 189 U.N. member states—including the United States—as part of the 2000 Millennium Declaration. The Goals, which governments aim to achieve by 2015, include (1) eradicating extreme hunger and poverty; (2) achieving universal primary education; (3) promoting gender equality and women's empowerment; (4) reducing the under-five child mortality rate; (5) reducing the maternal mortality rate; (6) combating HIV/AIDS and other diseases; (7) ensuring environmental sustainability; and (8) developing a Global Partnership for Development. Since 2000, governments have worked to achieve the MDGs with mixed results. Experts generally agree that while some MDGs are on track to be met, the majority of Goals are unlikely to be achieved by 2015. Many have also found that progress toward the Goals is unevenly distributed across regions and countries. India and China, for example, have made considerable progress in achieving the MDGs, while many countries in Africa have failed to meet almost all of the Goals. President Barack Obama supports the MDGs and attended the September High-level meeting. In July 2010, the Administration published The United States' Strategy for Meeting the Millennium Development Goals, which identifies four "imperatives" for achieving the Goals—innovation, sustainability, measuring outcomes, and mutual accountability. Members of the 112th Congress may be interested in the MDGs and the September High-level meeting from three primary perspectives. First, Congress may wish to consider the MDGs in the context of authorizing and funding broader U.S. development assistance efforts. Second, members may wish to be aware of the commitments made by the United States at the High-level meeting. Additionally, Congress may consider conducting oversight of international progress toward the MDGs, including U.S. efforts and the future of the Goals. While evidence of MDG effectiveness in advancing global development is uneven a decade after the Millennium Declaration, the international community—and many policymakers in the United States—continue to use the Goals as a paradigm for development assistance. This raises a number of overarching questions for Congress about the role and future of the MDGs, including In what areas, if any, have the MDGs been successful? Are the MDGs practical? What is the role of U.S. foreign aid in the MDGs? Who is accountable for MDG progress? This report will be not be updated further.

Background In FY2006, the federal government spent approximately $17.7 billion for 1.1 quads of site-delivered energy for buildings and fuel for vehicles. Buildings consumed roughly 40% of energy end-use, while vehicles consumed the remaining and most significant portion—63%. Overall, energy costs represented less than 1% of the total federal (discretionary and mandatory) spending for that year, roughly $2,655 billion (1.7 % if compared to discretionary spending only, some $1,017 billion). In the larger picture, federal energy consumption represented only 1.1% of the total United States energy use in 2006—99.61 quads. The federal government is the largest single purchaser of energy in the United States. Advocates for improving energy efficiency, achieving energy independence, and reducing greenhouse gas (GHG) emissions believe the federal government can show leadership by reducing its federal energy use. Federal government initiatives to reduce energy consumption originated with the Federal Energy Management Program (FEMP) in 1973. The 1978 National Energy Conservation Policy Act (NECPA— P.L. 95-619 ) instituted the program of retrofitting federal buildings to improve energy efficiency. The 1985 Deficit Reduction Act ( P.L. 99-272 ) amended NECPA by authorizing energy savings contracts of up to 25 years. NECPA also required that federal agencies report the energy consumed annually by their buildings, operations, and vehicles. FEMP compiles the consumption data and estimates related carbon emissions (excluding certain exempt facilities) in an annual report to Congress. In 1988, the Federal Energy Management Improvement Act ( P.L. 100-615 ) amended NECPA by requiring federal agencies to achieve a 10% reduction in energy consumption in federal buildings by FY1995 when measured against an FY1985 baseline in terms of British thermal units per gross square-foot (Btu/gsf) of building floor-space. The 1992 Energy Policy Act ( P.L. 102-486 ) further amended NECPA by adopting direct and indirect incentives to promote energy efficiency in federal buildings. It authorized and encouraged agencies to participate in utility-offered programs to increase energy efficiency, water conservation, and electricity demand. The act authorized agencies to accept any financial incentive, goods, or services that utilities offered to increase energy efficiency, conserve water, or manage electricity demand, and encouraged agencies to enter into negotiations addressing the unique needs of their facilities. A financial bonus program, established by the act, provided direct financial incentives to reward outstanding federal facility energy managers. Energy Savings Performance Contracts (ESPCs) authorized under the act, offered federal agencies indirect incentives to make energy efficiency improvements through private funding that agencies pay back with energy savings. The Energy Policy Act of 2005 (EPAct 2005) included various provisions for reducing energy and water use in federal buildings. The Energy Independence and Security Act of 2007 (EISA) mandated further energy savings measures throughout government operations and facilities, and permanently reauthorized "energy savings performance contracts." Executive Order 13423 (Strengthening Federal Environmental Energy, and Transportation Management) directed federal agencies to reduce GHG emissions by reducing energy intensity. Executive Order 13514 (Federal leadership in Environmental, Energy, and Economic Performance) followed with GHG reduction goals for federal agencies. The relevant provisions in the two recent laws affecting federal energy use are available in the Appendix to this report along with summaries of the executive orders. Federal Energy Management Program Incentives The Federal Energy Management Program (FEMP) provides federal agencies with assistance in implementing energy management and investment practices. FEMP supports federal agencies in identifying, obtaining, and implementing alternative financing to fund energy projects. The following paragraphs describe several alternative financing mechanisms. Energy Savings Performance Contracts Through Energy Savings Performance Contracts (ESPC), federal agencies may use an energy service company (ESCO) to accomplish energy-efficiency improvement projects without incurring up-front capital cost or requiring special appropriations. An ESCO may provide a comprehensive energy audit of the federal facility, identify improvements to save energy, recommend and install the improvements, and arrange financing. The ESCO guarantees that the improvements will generate energy cost savings sufficient to pay for the project over the term of the contract (terms up to 25 years are allowed). After the contract ends, all additional cost savings accrue to the agency. FEMP-streamlined "Super ESPCs" allow agencies to undertake multiple energy projects under the same contract in order to bypass cumbersome procurement procedures. The Congressional Budget Office (CBO) scores ESPCs as future financial obligations on the federal government. CBO began scoring ESPCs as mandatory spending when the 1990 Budget Enforcement Act ( P.L. 101-508 ) pay-as-you-go (PAYGO) rules expired. The CBO scoring reflects how ESPCs create future commitments to appropriations, consistent with how appropriations-funded energy conservation improvement would be scored throughout the budget. The Government Accountability Office (GAO) determined that federal agencies could achieve the benefits of ESPCs with lower financing costs by using upfront funds (that is, full funding in advance). As federal agencies generally did not receive sufficient funds upfront to make energy efficiency improvements, they had to rely on ESPCs in meeting their energy conservation goals. Agencies had previously indentified energy conservation improvements in their annual budget requests until the National Energy Policy Act 1992 allowed federal agencies to treat energy conservations measures as "energy costs to be incurred in operating and maintaining (O&M) agency facilities." EISA 2007 now permits federal agencies to use a combination of appropriated funds and private financing for ESPCs. DOE interprets this provision as explicitly authorizing the payments from one-time avoided costs that originate from authorized sources, including appropriations specifically for energy improvements. However, how agencies practicably apply appropriated O&M funds to ESPCs is unclear, as DOE has not yet promulgated rules on the new authority. The Office of Management and Budget (OMB) indicates in Circular No. A-11 (2009) that consistent with 42 U.S.C. 8255 agencies should identify funds requested for energy conservations measures in their budget justification. Utility Energy Services Contracts Through Utility Energy Service Contracts (UESCs), a utility arranges financing to cover the capital costs of energy improvement projects, which an agency then repays the utility over the contract term from cost savings generated by the energy efficiency measures. This arrangement allows an agency to implement energy improvements with no initial capital investment. The net cost to the agency is minimal, and the agency saves time and resources by using the one-stop shopping provided by the utility. Power Purchase Agreements Power Purchase Agreements (PPAs) allow agencies to finance on-site renewable energy projects without incurring up-front capital costs. A private developer installs, operates, maintains, and owns the renewable equipment on an agency's property. The agency, in turn, agrees to purchase the power generated by the system and pay for the system over the life of the contract. A PPA offers the developer eligibility for tax incentives and accelerated depreciation. The agency benefits by avoiding the need for up-front capital. Incentives for Achieving Energy Efficiency and GHG Reduction Goals Executive Order (EO) 13423 mandated energy reduction and increased renewable energy goals, and EO 13514 places sustainability and GHG emission-reduction at the core of federal agency missions with a senior executive responsible for meeting the reduction goals. Earlier legislation provided incentives for meeting the goals. Provisions in the American Recovery and Reinvestment Act of 2009 (ARRA— P.L. 111-5 ) provide funds for facility energy improvements, energy efficient vehicles, and miscellaneous energy projects. The Energy Independence and Security Act of 2007 (EISA— P.L. 110-140 ) expanded energy improvement financing, and authorized further retention of energy savings. The following paragraphs summarize the key provisions affecting federal agencies. Energy Independence and Security Act of 2007 Subtitle B, Energy Savings Performance Contracting Energy Savings Performance Contracts (ESPCs), first authorized in 1992 amendments to the National Energy Conservation Policy Act, offer federal agencies a novel means of making energy-efficiency improvements to aging buildings and facilities without direct appropriation. A contractor privately finances and installs the energy conservation measures, and in return receives a specified share of the resulting energy cost savings. Agencies pay for the improvements through their annually appropriated operating funds. EISA included seven provisions that provided flexibility in funding ESPCS, increased their contract life and scope, and made their authorization permanent. Section 512 (Financing Flexibility) increased ESPC funding flexibility by allowing a combination of appropriated funds and private financing. Section 513 (Promoting Long-Term Energy Savings Performance Contracts and Verifying Savings) restricted federal agencies from limiting the duration of ESPCs to less than 25 years or limiting the total amount of obligations. Further, this section permits the criteria for savings verification to satisfy the requirement for energy audits. The section also directed federal agencies to modify existing ESPCs to conform to the requirements of this subtitle. Section 514 (Permanent Reauthorization) permanently authorized ESPCs. Section 515 (Definition of Energy Savings) extended the definition of energy savings reduction to include increased use of an existing energy source by cogeneration or heat recovery, use of excess electrical or thermal energy generated from onsite renewable sources or cogeneration, and increased energy-efficient use of water resources. Section 516 (Retention of Savings) permitted agencies to retain the full amount of energy and water cost savings obtained from utility incentive programs. Section 517 (Training Federal Contracts Officer to Negotiate Energy Efficiency Contracts) authorized $750,000 per year over five years for a program to train contract officers in negotiating ESPCs. Section 518 (Study of Energy and Cost Savings in Nonbuilding Applications) directed the Department of Defense (DOD) and DOE to study the potential use of ESPCs in nonbuilding applications, defining them to include vehicles and federally owned equipment to generate electricity or transport water. Subtitle C, Energy Efficiency in Federal Agencies Section 521 (Installation of Photovoltaic System at Department of Energy Headquarters Building) directed the General Services Administration (GSA) to use up to $30 million—subject to appropriation—from FY2007 and prior years' unobligated balances of the Federal Buildings Fund to support the installation of a solar photovoltaic system for the DOE headquarters building in the District of Columbia. American Recovery and Reinvestment Act of 2009 ARRA emphasized jobs, economic recovery, and assistance to those most impacted by the recession. It provided nearly $5 billion for "leadership by example" efforts to improve energy efficiency in federal buildings and facilities. The law puts the GSA at the forefront of this effort, with $4.5 billion for "high performance" federal facilities. For Department of Defense facilities, ARRA provided up to $3.7 billion for improvements that have a focus on energy efficiency. The Department of Transportation received $100 million for "reducing energy consumption or greenhouse gases." The Department of the Interior ($1 billion) and Department of Veterans Affairs ($1 billion) received multi-purpose funds that they can apply to "energy efficiency" or "energy projects." Title III—Department of Defense (DOD), Facility Infrastructure Investments DOD accounts for approximately 63% of the energy consumed by federal buildings and other facilities. The department's activities occupy more than 316,000 buildings and an additional 182,000 structures on 536 military installations worldwide. DOD's annual spending on facility energy use was more than $3.4 billion in FY2007. This makes DOD the single largest energy consumer in the nation, even though the agency consumption comprises only 1% of the national total for site-delivered energy. Of the $4.24 billion that ARRA provides for DOD's Facilities Sustainment, Restoration, and Modernization (FSRM) account, ARRA directs that $3.69 billion be used "to invest in energy efficiency projects and to repair and modernize" DOD facilities. The FSRM account covers expenses associated with maintaining the physical plant at DOD posts, camps, and stations. The conference report directs that FSRM funding is available only for facilities in the United States and its territories. Title III—Department of Defense (DOD), Near Term Energy Efficiency Technology Demonstrations and Research Program ARRA provides $300 million for this program, encompassing $75 million each for Army, Air Force, Navy, and Defense-wide funding of research, development, test and evaluation projects, including pilot projects, demonstrations and energy-efficient manufacturing enhancements. Title V—General Services Administration (GSA), High-Performance Green Buildings EISA established the structure for an Office of Federal High-Performance Green Buildings in the General Services Administration (GSA). The office is responsible for developing a program to reduce total energy use in federal buildings 30% by 2015 relative to the 2005 level. Further, agencies must reduce fossil energy use in new federal buildings and major renovations by 55% by 2010 relative to the 2003 level and eliminate fossil energy use by 2030. EISA required GSA to establish an Office of Federal High-Performance Green Buildings to coordinate green building information and activities within GSA and with other federal agencies. The office must also develop standards for federal facilities, establish green practices, review budget and life-cycle costing issues, and promote demonstration of innovative technologies. ARRA provided $5.5 billion for the Federal Buildings Fund, and designated that at least $4.5 billion apply to converting GSA facilities to high-performance green buildings. ARRA also provided $4 million to support the operations of GSA's Office of Green Buildings. Title V—General Services Administration (GSA), High Fuel Economy Vehicles Under the Energy Policy Act of 1992 ( P.L. 102-486 ), 75% of the vehicles federal agencies purchase in a given fiscal year must be capable of running on alternative fuel, which may include hybrid and electric drive. ARRA appropriated $300 million for GSA to procure energy-efficient motor vehicles. Eligible vehicles include hybrids, plug-in hybrids, and pure electric vehicles. Title X—Department of Veterans Affairs ARRA provided $1 billion to the Department of Veterans Affairs for non-recurring maintenance of medical facilities that include energy projects. The funds remain available for obligation through the end of FY2010, however. ARRA also provided an additional $50 million to the National Cemetery Administration for monument and memorial repairs "including energy projects." Policy Considerations—Barriers to Achieving Energy Efficiency and GHG Reduction Goals The GHG emission reduction goals of EO 13514 represent new initiatives that the federal government may only realize in the near term through incremental improvements in energy efficiency or reduced energy use. The new goals come at a time when the federal government may have already accomplished the easiest and most cost effective improvements. EO 13123 had set goals for reducing GHG emissions associated with building energy-use. EO 13423, however, revoked the previous order and redefined GHG reduction in the context of reducing energy intensity but without quantitative GHG reduction goals. EO 13415 now directs federal agencies to set GHG reduction targets. FEMP developed a method for estimating emissions of carbon dioxide, methane, and nitrous oxide from agency energy use based on the energy data provided by federal agencies. The largest component of GHG emissions from energy use is carbon dioxide. FEMP's 2008 report to Congress states that in FY2006, federal buildings reduced carbon dioxide by 7.4% compared to FY2003 (from 46.3 million metric tons to 42.8 million metric tons). EISA set targets and dates to reduce energy use in existing federal buildings 30% by 2015 and for new federal buildings 100% by 2030. In its recent report on federal energy management, GAO concluded that agencies would likely face challenges meeting EISA energy-reduction goals. GAO views long-term funding and capital budgeting issues, specifically the requirements for recognizing capital costs up front in the federal budget, as key challenges to agencies' ability to meet all of EISA's high-performance federal building requirements. In citing draft DOE data on federal energy intensity reduction for 2008, GAO notes that federal agencies rely on, and will continue to rely on, renewable energy credits (RECs), rather than site-generated renewable energy to meet EISA goals. Generators usually sell RECs in one megawatt-hour units, and may sell them separately from the physical electricity with which they are associated. This provides customers the flexibility to offset a percentage of their annual energy use with RECs generated elsewhere (but not necessarily transmitted through the grid to them). Wind-generated electricity currently accounts for most renewable energy purchased by the federal government, but offers agencies limited potential for site-generated energy. Consequently, agencies purchase wind RECs to take advantage of the source. Solar photovoltaic electricity does offer agencies the opportunity for site-generated renewable energy, primarily throughout the Southwestern regions of the United States and Hawaii. In cases where DOD installations may offer property to developers of photovoltaic farms (through enhanced use lease authority under 10 U.S.C. 2667), DOD may still have to purchase the generated electricity through the grid (i.e., as RECs). It is not clear whether an agency will be able to take advantage of the double-credit for site-generated renewable energy under EO 13423. The Alliance to Save Energy concluded over a decade ago that dispersed decision-making among federal agency staff, and each agency's unique legal requirements and stakeholder demands, create barriers to increased energy efficiency. The Alliance identified several specific barriers that remain relevant to varying degrees: Energy efficiency is not a core-mission of agency. Agencies lack personnel skilled in energy matters. Capital budgeting for energy improvements up front is difficult. Budget shortfalls. Too many decision makers. Lack of carrots and sticks to change institutional behavior. Since the Alliance's report, agencies have taken advantage of energy manager training and incentives such as ESPCs. Capital budgeting still offers challenges, as discussed further below. Finally, electricity represented only 1.06 quads or 17.6% of total federal energy-use in 2006. Buildings consumed the power almost exclusively. The federal government spent roughly $3.7 billion at an average cost of $78/megawatt-hour. Spending on electricity represented the equivalent of one-third of 1% of the federal discretionary budget. At that time, electricity rates ranged from 8.2¢/kilowatt-hour for industrial users to 12.0¢/kilowatt-hour for commercial users (or $82 to $120/megawatt-hours). EISA's 30% energy reduction goal for federal buildings could represent a $1.1 billion in savings if the reduction comes from reduced electricity use, assuming rates stayed constant. This would equate to roughly one-tenth of 1% of the 2006 discretionary budget. In the case of ESPCs, agencies "locked-in" the pre-improvement budget for energy in order to pay for the energy improvement, which also allows the agencies to retain the balance of their energy savings. Under EISA, agencies may now combine appropriated funds with the contractor-financed portion of the improvement. DOE has not yet promulgated final rules on agencies' use of appropriated funds for this purpose. In the case of the Department of Defense, capital construction and operating budgets are separate appropriations. Under the EISA/ESPC provision, a DOD facility could feasibly benefit from improvements under both funding mechanisms. This may not be a clear-cut case for agencies with combined capital and operating budgets. The federal government's prospect of seeing energy reduction translated into a budget reduction may be low. However, policy makers may want to weigh the direct monetary savings against the clean energy benefits of renewable energy in terms of avoided emissions of regulated pollutants and greenhouse gases to the environment. When the federal government embarked on its energy efficiency mission (following NECPA), the highest payback came from low cost, easily achieved improvements; for example, replacing incandescent lights with fluorescent lights, adding insulation, and upgrading window glazing. Further energy reduction came from, and most likely will continue to depend on, improved technology; examples include ENERGY STAR products, and more-efficient heating-ventilation-and-cooling (HVAC) equipment. Policy makers may wish to question whether further improvements may come in smaller increments at increasingly higher costs. Appendix. Recent Laws and Executive Orders Two recent laws have provisions aimed at improving energy efficiency in federal facilities: the Energy Policy Act of 2005 (EPAct 2005) and the Energy Independence and Security Act of 2007 (EISA). Two recent executive orders (EOs) complement the laws and provide federal agencies further guidance: EO 13423, Strengthening Federal Environmental, Energy and Transportation Management , and the more recent EO 13514, Sustainability and Greenhouse Gas Emissions Reduction . Summaries of the applicable law provisions and discussion of the executive orders follow below. Energy Policy Act of 2005 ( P.L. 109-58 ) EPAct 2005 included three provisions to reduce energy consumption and improve energy efficiency in federal agencies: smart meters to monitor electricity use, efficiency standards to reduce energy consumption in new buildings, and increased renewable energy use. Section 103 ( Energy use measurement and accountability) amended Section 543 of the NECPA by directing federal agencies to install advanced meters to monitor and thus reduce electricity use in federal buildings. Agencies have until October 1, 2012, to complete their installation. Section 109 ( Federal building performance standards) amended the Energy Conservation and Production Act by adopting the 2004 International Energy Conservation Code. It also revised energy efficiency standards and mandated a 30% reduction in energy consumption of new federal buildings compared to previous standards. Section 203 ( Federal purchase requirement) required the federal government to offset its electric energy consumption with an increasing percentage of "renewable energy" starting at 3% in 2005 to not less than 7.5% by 2013 and each fiscal year thereafter. EPAct 2005 defines renewable energy as electrical energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project. Energy Independence and Security Act of 2007 ( P.L. 110-140 ) Title IV, Subtitle C (High-Performance Federal Buildings) included six provisions to reduce energy consumption and improve energy efficiency in federal agencies: building energy reduction, agency energy managers, fossil energy elimination in new buildings, building equipment efficiency, leasing energy efficient buildings, and "green" building standards. Section 431 ( Energy reduction goals for federal buildings ) amended the National Energy Conservation Policy Act (NECPA) mandating a 30% reduction of energy use in federal buildings by 2015 relative to a 2005 baseline. Section 432 ( Management of energy and water efficiency in federal buildings ) amended NECPA (42 U.S.C. 8253) by adding a new subsection titled "(f) Use of Energy and Water Efficiency Measures in Federal Buildings." It defines "commissioning, energy manager, facility, life cycle cost-effective, payback period, re-commissioning, and retro-commissioning." It requires that each federal agency designate an energy manager responsible for completing annual energy and water evaluations, implementing energy and water efficiency measures, and following up on implemented measures. Section 433 ( Federal building energy efficiency performance standards ) amended the Energy Conservation and Production Act (42 U.S.C. 68349(a)(3)) requiring a 55% reduction of fossil energy use in new federal buildings and major renovations by 2010 relative to a 2003 baseline, and a 100% reduction by 2030. Section 434 ( Management of federal building efficiency ) amended NECPA Section 543 (42 U.S.C. 8253) requiring that any large capital energy investment in an existing building to replace equipment (such as heating and cooling systems) or renovate, rehabilitate, expand, or remodel existing space, employ the most energy efficient designs, systems, equipment, and controls that are life-cycle cost effective. Section 435 ( Leasing ) prohibited federal agencies from leasing buildings that have not earned an EPA ENERGY STAR label. Section 436 ( High performance green federal buildings ) directed the establishment of federal high-performance green building standards for all types of federal facilities, and the establishment of green practices that can be used throughout the life of a federal facility. Title V, Subtitle B (Energy Savings Performance Contracts) added five provisions that enhance and promote privately funded energy efficiency improvements. Section 512 ( Financing flexibility ) authorized federal agencies to use a combination of appropriated funds and private financing for Energy Savings Performance Contracts (ESPC). Section 514 ( Permanent authorization ) enacted the permanent authorization of ESPCs, and restricted federal agencies from limiting the duration of ESPCs to less than 25 years or limiting the total amount of obligations. Section 515 ( Retention of s avings ) amended the National Energy Conservation Policy Act, striking a provision that limited agencies to retaining 50% of any realized energy and water cost savings for spending on additional energy efficiency measures or employee incentive programs. (Agencies can now retain all savings beyond the cost of the energy improvement.) Section 518 ( Study of energy and cost savings in nonbuilding applications ) directed DOD to study the potential use of ESPCs in nonbuilding applications, including vehicles and federally owned equipment that generate electricity or transport water. Section 526 ( Procurement and acquisition of alternative fuels ) prohibited federal agencies from procuring alternative or synthetic fuels, unless contract provisions stipulate that life-cycle greenhouse gas emissions do not exceed equivalent conventional fuel emissions produced from conventional petroleum sources. Executive Order 13423—Strengthening Federal Environmental, Energy and Transportation Management EO 13423 (2007) revoked five earlier executive orders affecting federal agency energy and environmental management. Section 11 consolidated and strengthened the earlier five executive orders and two related memorandums-of-understanding (MOU). Further, it established new and updated goals, practices, and reporting requirements for environmental, energy, and transportation performance, and accountability. In some cases, EO 13423 replaced energy and environmental efficiency goals for previous goals with new target dates. EO 13423 expanded EPAct 2005 provisions by providing federal agencies with further guidance on energy and environmental management. EPAct 2005 (Title I, Part A) and EO 13423 jointly define the current energy efficiency objectives for federal agencies. EO 13423 directs all federal agencies to curb greenhouse gas emissions by reducing energy intensity relative to each agency's baseline energy use in FY2003 (3% annually through the end of FY2015, and 30% by the end of FY2015). Agencies score progress in reaching building energy-efficiency goals in terms of reducing energy consumption versus gross building area (Btu/gsf). Agencies may exclude some inherently inefficient industrial buildings from this scoring. EO 13423 mandates specific energy reduction targets for new construction and renovations. Agencies must meet the objectives set in the Federal Leadership in High Performance and Sustainable Buildings Memorandum-of-Understanding. The MOU calls for new buildings to be 30% more cost efficient than industry standards. Buildings undergoing major renovations must be 20% more cost efficient than a pre-renovation, 2003 baseline. The order also encourages federal agencies to incorporate sustainable practices into projects underway, and to sell or dispose of unneeded assets. EO 13123 (revoked) had directed improvements in building energy efficiency, promoted the use of renewable energy, and set goals for reduction of greenhouse gas (GHG) emissions associated with energy use in buildings, among other energy-related requirements. The revoked order had also served as the basis of DOD's instruction to the services on energy use. In contrast, the superseding EO 13423 had no specific GHG reduction target. However, Section 2a of the EO 13423 did include the general goal of cutting GHG emissions by federal agencies through reductions in the energy intensity of agency operations, but did not specify a GHG reduction target. EPAct 2005, Section 203, required federal agencies to increase their purchase of renewable energy to a minimum of 7.5% of overall energy purchases by 2013. Agencies receive double-credit for renewable energy generated on their facility sites. EO 13423 required that at least one-half of the EPAct renewable energy requirement come from "new" (i.e., put in service after January 1, 1999) renewable energy sources, preferably sited on agency property for agency use. EO 13423 also allowed agencies to use new "non-electric" renewable energy sources to meet the requirement for new renewable energy. Examples of non-electric renewable energy include thermal energy from solar ventilation pre-heat systems, solar heating and cooling systems, solar water heating, ground source heat pumps, biomass-fueled heating and cooling, thermal uses of geothermal and ocean resources. However, these non-electric renewable energy sources cannot apply to meeting the EPAct renewable federal electricity purchase requirement (see Table A-1 ). In 2010, an agency could use non-electric renewables equal to 2.5% of its electricity to satisfy EO 13423, and then use old renewable energy sources for 5% of its use to satisfy EPAct, for a total equivalent of 7.5% of its electricity use from renewable energy. Executive Order 13514—Federal Leadership in Environmental, Energy, and Economic Performance EO 13514 (2009) establishes an integrated strategy to advance "sustainability" in the federal government and a priority to reduce greenhouse gas (GHG) emissions for federal agencies. The order also requires federal agencies to set GHG emissions reduction targets, increase energy efficiency, reduce fleet petroleum consumption 30% by 2020, conserve water, reduce waste, support sustainable communities, and use federal purchasing power to promote environmentally responsible products and technologies. EO 13514 expands on EO 13423 by establishing new goals and extending some dates for compliance. Much of EO 13514 directs agencies to examine sustainability as a driver of the agency mission regarding environmental and social impacts, personnel, and logistical operations. EO 13514 requires each federal agency to assess and measure its GHG footprint and submit reduction targets. The direction to evaluate the "economic and social benefits, and costs" of reducing emissions may require clarification as agencies may value benefits differently. New procurement practices will require environmentally sustainable products and services. Federal industrial, landscaping, and agricultural applications must reduce water use by at least 20% from 2010 levels. The order also increases the energy efficiency levels required of new building designs, and targets "zero net-energy" consumption in new federal buildings by 2030. Table A-2 provides a side-by-side comparison of the EO 13423 and EO 13514. For further analysis of EO 13514 refer to CRS Report R40974, Executive Order 13514: Sustainability and Greenhouse Gas Emissions Reduction , by [author name scrubbed] and [author name scrubbed].

This report identifies incentives for and barriers to federal agencies achieving the energy efficiency goals and greenhouse gas (GHG) reduction targets outlined in recent laws and executive orders. The federal government is the single largest consumer of energy in the United States, but consumes only 1% of the total energy used. Federal energy spending represents upwards of 1% of its total budget (discretionary and mandatory spending). Since the 1970s, Congress has enacted various laws that reduce energy consumption in the federal sector by improving energy efficiency. The Energy Policy Act of 2005 (EPAct 2005) included measures to reduce energy and water in congressional buildings, install advanced meters to reduce electricity use in federal buildings, enact performance standards to improve federal buildings, and to reduce the federal government's electric energy consumption through renewable energy offsets (P.L. 109-58). The Energy Independence and Security Act of 2007 (EISA) mandated further energy savings measures in government operations, including energy upgrades to the Capitol complex, permanent authority to use "energy savings performance contracts," and federal procurement of energy efficient products and renewable fuels (P.L. 110-140). Two recent executive orders guide federal agencies in reducing energy consumption and GHG emissions. In 2007, Executive Order 13423, Strengthening Federal Environmental Energy, and Transportation Management directed federal agencies to improve energy efficiency and reduce greenhouse gas emissions by reducing energy intensity. In 2009, Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance established GHG emissions reduction goals for federal agencies. Federal agencies can take advantage of several financing mechanisms to make energy efficiency improvements without increasing their operating budgets. These include Energy Savings Performance Contracts, Utility Energy Savings Contracts, and Power Purchase Agreements. In some cases, agencies may share in the savings gained from reduced energy costs made through the improvements. New authority to combine appropriated funds with energy savings performance contracts could further energy efficiency improvements, but the lack of federal rules delays implementation. However, federal agencies may be reluctant to participate in this financing option if it reduces their opportunity to retain savings from the improvements. The new GHG reduction goals come after three decades of effort to reduce energy consumption. GHG emissions associated with operating federal buildings result from consuming fossil fuels used in generating electricity and heating. Significant energy reduction resulted early from easily achievable, low-cost improvements that translate into GHG reductions. The opportunity for GHG reductions in the future may come through smaller, more difficult to achieve reductions in energy consumption based on high-tech solutions. The prospect of reducing the federal budget by reducing energy consumption may be low. However, policy makers may wish to weigh direct monetary savings against the benefits of clean energy in terms of avoided emissions of regulated pollutants and greenhouse gases.

Introduction In one survey, a large majority of consumers have reported that the health insurance market is very complex and that they required assistance in choosing a plan. Health insurance agents and brokers, collectively called "producers" by insurance companies, assist consumers in choosing and enrolling into insurance products, generally sold in the individual and small group markets. According to the Bureau of Labor Statistics, producers held about 434,800 jobs in 2008, with about 73% being independent, meaning that they are either self-employed or working for an independent agency or brokerage, and about 21% being "captive agents" that are direct employees of an insurance carrier. The remainder work for banks and other companies within the financial services industry that have an insurance business segment. Captive agents may also receive a salary, but all producers generally are paid sales commissions that are usually higher in the first year of a new sale, but continue to accrue each year the individual or family remains enrolled. The commission is a percentage of the premiums paid by the enrollee or policyholder. No comprehensive independent data exist on the amount of health insurance commissions, but the available evidence suggests that initial sales commissions generally range between 3%-15% of premiums for the individual and small group markets sales. Often producers receive a renewal commission if the plan member or individual policyholder stays with the insurer for plan years after the initial sale. Renewal commissions are usually less than the initial sales commission. Large group sales are often conducted by captive agents compensated with a combination of salary, commissions, and bonuses. Little is known about these costs in relation to premiums. Approximately 24 million Americans are expected to enroll in individual and small group qualified health plans (QHPs) offered through the health insurance exchanges established by the Patient Protection and Affordable Care Act ( P.L. 111-148 , PPACA) as amended. This could represent a new market for health insurance producers. However, their role in the exchanges is not guaranteed by law, and other information sources, such as the mandated consumer web portal, could provide alternatives to the traditional relationship between producers and health insurance consumers. The exchange is to standardize information on insurance options and provide independent helpers for prospective enrollees called "navigators." One could argue therefore, that the exchange itself may reduce the demand for assistance from producers by making it easier to shop for different health insurance for individuals and small employers. Moreover, the minimum medical loss ratio (MLR) requirements of PPACA will place downward pressures on administrative expenses, including the use of insurance producers. Thus, there will be an incentive for insurance companies to cut back on the use of producers or reduce their commissions in order to rein in their administrative expenses. Some observers, including associations of producers, have suggested that the regulatory and market changes resulting from PPACA could put producers out of business. This report provides a brief background on the federal and state roles in regulating insurance producers and the potential impact of the relevant PPACA provisions on the use of producers by health insurance companies. Regulation Impacting Producers State Regulation With the exception of government sponsored insurance programs (e.g., Medicare Advantage) producer activity is generally regulated by the states. States usually regulate producers by prohibiting unfair sales practices and requiring producers to meet standards to obtain licensure. Most states have adopted the National Association of Insurance Commissioners (NAIC) Model Unfair Trade Practices Act, or a similar statutory framework, which defines unfair methods of competition including misrepresentations and false statements regarding the benefits, false statements and entries about the consumer, failure to maintain marketing and performance records, failure to maintain complaint handling procedures, and misrepresentation in insurance applications for the purpose of obtaining fees or commissions. With respect to licensure, states have standardized their regulation through adoption of NAIC's Producer Licensing Model Act to create a system of reciprocity for producer licensing and uniform standards requiring that a producer be at least 18 years of age, pass a criminal background check, have pre- and post- licensure specialized training in the insurance product being sold, have a record of compliance with unfair methods of competition standards, and pass a test of knowledge regarding standards of practice for the producer. As part of their oversight of both health insurance companies and producers, states have developed complaint reporting systems that tend to be substantively similar, but may have some variation in procedure, such as the methods of submission (e.g., hardcopy paper versus online submission). Generally, once a complaint is filed it is investigated by the state insurance regulator, and if the claim has merit actions are taken against the insurance company or producer, usually beginning with an order to resolve the matter that caused the complaint. Available data suggest that producer issues rank relatively low on the list of complaints that consumers make about their insurance coverage. NAIC's summary of reported complaints indicates that marketing and sales complaints (direct producer actions and their marketing management) ranged from 4.32% to 4.66% of total insurance complaints per year between 2007 and 2010, and only two specific subcategories of producer complaints (bolded) were ranked in the top 20 (see Table 1 ). State and Federal Roles Regulating Producers in the Exchanges Sections 1311(b) and 1321(b) of PPACA require, that by 2014, each state establish a health insurance exchange to facilitate the purchase of qualified health plans (QHPs). Essentially, the exchanges will be government-regulated marketplaces that, among other things, are to provide standardized comparisons between QHPs in accordance with rules established by the Secretary of Health and Human Services (HHS, hereafter referred to as the Secretary). QHPs are health plans that are certified as meeting a specified list of requirements related to marketing, choice of providers, covered benefits, value of coverage, and other features. PPACA establishes a federal role in developing standards for producer activity in the exchanges by requiring that the Secretary promulgate procedures under which a state may allow producers to enroll individuals and employers in QHPs and assist eligible individuals in applying for premium tax credits and cost-sharing reductions for plans sold through an exchange. PPACA also requires that the Secretary promulgate regulations establishing criteria for the certification of health plans as QHP. The certification criteria must include marketing requirements. Thus, federal standards for the behavior of producers may be established by regulating how QHPs use them for marketing purposes. The states' traditional role in licensing producers is not changed by PPACA. A state may also establish additional rules for its exchange, but the state rules may not conflict with or prevent the application of regulations promulgated by the Secretary. PPACA also establishes the "navigators" program in the exchanges to assist individuals with enrollment. Specifically, navigators are to conduct public education activities concerning QHPs, distribute fair and impartial information concerning enrollment and the availability of premium tax credits and cost sharing reductions, and facilitate enrollment into QHPs. Navigators may be licensed producers, but any individual or entity serving in this role must be independent of any health insurance issuer in connection with a QHP and must comply with standards developed by the Secretary, in collaboration with states, that ensure that information made available by the navigators is fair, accurate, and impartial. Thus, if producers act as navigators they will not have their traditional role as being employed or directly compensated by health insurance companies. Potential Impact of Minimum Medical Loss Ratio Requirements While not a direct regulation of producer activity, the minimum medical loss ratio (MLR) standards established by PPACA will likely have an impact on the use of producers. The MLR refers to the percentage of premium revenues spent on medical claims. Thus, if a plan received $100 of premiums and spent $85 on medical claims its MLR would be 85%. Beginning no later than January 1, 2011, PPACA requires a health insurance issuer to provide an annual rebate to each enrollee on a pro rata basis if the ratio of the amount of premium revenue expended by the issuer on clinical claims and health quality costs, after accounting for several factors such as certain taxes and reinsurance, is less than 85% in the large group market and 80% in the small group and individual markets. States are permitted to adjust the percentage for the individual market, but only if the Secretary determines that the health insurance market would otherwise be destabilized. HHS estimates that in 2011 between 2.8 million and 9 million members or policyholders will receive rebates between $587 million and $1.5 billion in aggregate. PPACA requires that, subject to certification by the Secretary, NAIC establish uniform definitions and methodologies for calculating the MLR. NAIC held a series of meetings and took public comments as part of its development work on the MLR, which was completed on October 27, 2010. During this process, the National Association of Health Underwriters (NAHU), a professional association representing producers, argued that when commissions are paid as a percentage of premiums, insurers are merely passing the funding along and that this practice actually reduces operational costs by eliminating the need for mail and accounting for separate payments to producers. In other words, the commissions portion of the premiums are not retained by the insurer and thus should be excluded from the calculation of the MLR. The consumer representatives of NAIC countered that Congress intended commissions to be counted as administrative costs for purposes of the MLR, citing §2718(a)(3) of the Public Health Service Act (as amended by PPACA), which clearly excludes federal and state taxes and licensing or regulatory fees from the accounting of non-claims costs for MLR calculations, but does not specifically exclude commissions. NAIC ultimately concluded that the law does not provide a clear path for waiving inclusion of commissions in the calculation of the MLR, but it encouraged "HHS to recognize the essential role served by producers and accommodate producer compensation arrangements in any MLR regulation promulgated." On December 1, 2010, the Secretary promulgated an interim final regulation for the MLR provision, effective January 1, 2011. The Secretary concurred with NAIC's interpretation that the law requires that producer commissions be included in the MLR calculation. The Secretary also acknowledged NAIC's concerns about potential adverse impact of the MLR provision on producers noting that "the potential impact of the MLR standard on agents and brokers merits recognition, and in this regulation the impact of the MLR standard on agents and brokers will be a factor in considering whether a particular individual markets would be destabilized." Given that producer commissions generally rank only behind staff salaries among administrative expense categories for health insurers, it is likely that insurers at risk for issuing MLR rebates will cut back on their use and/or compensation of producers. Indeed, preliminary evidence suggests that insurers are reducing their administrative expenses by cutting the compensation of producers. The NAHU suggests that these cuts are negatively affecting access to health insurance agents and brokers, but they have not provided clear evidence of the impact on consumers. This may be a difficult exercise given that no clear consensus standard for an appropriate amount of access exists. It is also not clear how the MLR provision alone would seriously limit access when the provision merely provides an incentive to reduce administrative costs for some insurers. Many insurers will make the MLR minimum without significantly adjusting their administrative costs, and the insurers that must reduce their administrative costs could reduce expense categories other than producer commissions. Nevertheless, some industry observers have even suggested that cuts to commissions are necessary and can be absorbed by producers. For example, Carl McDonald and James Naklicki, equities analysts at Citigroup Global Markets Inc., stated in a recent investor note that: plans have cut first year commissions in half, to around 10% of premiums, so brokers are still receiving a significant amount of compensation for the duties they are performing. Put a little differently, because most broker commissions are set as a percentage of premium, and because individual premiums go up so much each year, many brokers were generating twice as much revenue on a transaction in 2010 as they did in 2005. Now that first year commissions have been largely halved, it's logical to ask why a broker that was willing to be in the business at the level of compensation available five years ago wouldn't want to be in the business at that same level of compensation today. There's no doubt that the income of brokers has been reduced because of minimum MLRs, but brokers and agents benefited for many years from rising premium rates, and that trend isn't sustainable. The recent experiences of the Medicare Advantage (MA) and Medicare Part D programs also suggest that restraining producer compensation may not significantly affect access to services. For both programs the initial compensation for a sale is limited by regulations to the compensation paid in 2006, adjusted by the average change in MA or Part D rates as published by the Centers for Medicare and Medicaid Services (CMS); or a compensation amount commensurate with the market rate for initial enrollments paid by plan sponsors offering plans in the geographic area during 2006 and 2007, adjusted by the average change in rates. The regulations further limit renewal compensation to no more than 50% of the initial compensation. Despite these relatively strict regulations, there is no evidence that Medicare beneficiaries are being systematically deprived of access to producers. Another potential source of data regarding the impact of the MLR provision on producers is from state applications for an adjustment to the MLR standard for the individual market. Section 2718(b)(1)(A)(ii) of the Public Health Service Act (PHSA), as added by PPACA, grants the Secretary the authority to adjust the MLR standard downward in the individual market if the Secretary determines that the 80% minimum MLR standard may destabilize the individual market in a state. States may request that HHS revise the MLR standard downward, but they must provide evidence of potential market destabilization by demonstrating that: Insurance issuers are reasonably likely to leave the market and that they cover a substantive number of individuals. Absent an adjustment to the MLR standard, consumers would be unable to access agents and brokers. There are few or no alternate coverage options with similar benefits at a similar price available within the state for enrollees of issuers that are reasonably likely to exit the market. There will be a negative impact on premiums charged, the benefits offered, and the cost-sharing provided to consumers by issuers remaining in the market in the event one or more issuers were to withdraw from the market. To date, only the territory of Guam and the following 10 states have applied for adjustments: Maine, New Hampshire, Nevada, Kentucky, Florida, Georgia, North Dakota, Iowa, Louisiana, and Kansas. Only Maine has fully completed the process and received authorization for an adjustment. However, the Maine application did "not discuss the impact of the 80 percent MLR individual market standard on access to agents and brokers." The other applicants generally felt that the MLR provision would negatively affect access to producers. However, no empirical evidence was provided. For example, Kansas reported anecdotally that it had "heard testimony from Kansas agents and brokers that some Kansas issuers that currently use an agent model for the marketing of their products are making significant adjustments to their compensation models." Given the lack of public data with respect to commission rates and the overall financial position of producers, it is not possible to independently assess the impact of the MLR provision nor is it possible to assess other potential sources of revenue for producers that may replace the reduced health insurance compensation (e.g., selling insurance products not subject to the MLR provision). Legislative Activity in the 112th Congress The Access to Professional Health Insurance Advisors Act of 2011 (H.R. 1206) On March 17, 2011, Representative Mike Rogers introduced in the House the Access to Professional Health Insurance Advisors Act of 2011 ( H.R. 1206 ). The bill would amend section 2718 of the PHSA to eliminate "remuneration paid for licensed independent insurance producers" from being counted as an administrative cost for the purposes of the MLR. The bill has been referred to the House Committee on Energy and Commerce.

Health insurance agents and brokers, collectively called "producers" by insurance companies, assist consumers and small employers in choosing and enrolling in health insurance products. Producers are licensed and regulated by the states. Traditionally, the federal government has had no role in regulating producer activities outside of federal programs such as Medicare Advantage. The Patient Protection and Affordable Care Act (P.L. 111-148, PPACA), as amended, creates a limited federal role in developing standards for the use of producers in the health insurance exchanges, which are competitive regulated markets effective January 1, 2014. The additional regulation of producers and alternative health insurance information (e.g., the online insurance portal) and assistance services available to consumers may limit the traditional demand for producers' services. PPACA also has a minimum medical loss ratio provision requiring plans to pay rebates to their members if a certain percentage of their premiums are not spent on medical costs. This provision may provide an incentive for health insurance companies to reduce their compensation to and/or utilization of producers as they seek to reduce their administrative costs in relation to their medical costs. This report will be updated to reflect relevant legislative and regulatory activity.

Introduction This report discusses the fiscal year (FY) 2017 defense budget request and provides a summary of congressional action on the National Defense Authorization Act (NDAA) for FY2017 ( H.R. 2943 / P.L. 114-328 ), and the Defense Appropriations Act, FY2017 (Division C of H.R. 244 / P.L. 115-31 ). The FY2017 process reflected a running debate about the size of the defense budget given the strategic environment and budgetary issues facing the United States. The debate spanned the end of the Obama Administration and the start of the Trump Administration and concluded about two-thirds of the way through the fiscal year. The Obama Administration's FY2017 budget request for national defense-related activities, and the initial versions of the FY2017 defense authorization and appropriations bills taken up in the House and Senate appear to be similar to one another and consistent with provisions of the Bipartisan Budget Act of 2015 (BBA/ P.L. 114-74 ). However, a closer look reveals a relatively substantial disagreement between the Obama Administration and the Senate, on the one hand, and the House, on the other hand. The disagreement centered on the intended purpose of as much as $18 billion within that total. On its face, the issue was the allocation of Department of Defense (DOD) funds designated for Overseas Contingency Operations (OCO). Previously labeled "Global War on Terror" funding, the OCO category was adopted by the Obama Administration in 2009 to designate the budget for activities related to operations in Afghanistan and Iraq. The remainder of DOD funding—that is, the budget for all activities not designated as OCO—is referred to as the base budget . In the Obama Administration's February 2016 budget request for FY2017, $5.1 billion of the $58.8 billion in OCO-designated funds were intended to be used for base budget purposes. The Senate-passed version of the NDAA ( S. 2943 ) and the Senate committee-reported version of the defense appropriations bill ( S. 3000 ) followed suit. On the other hand, the House-passed version of the NDAA ( H.R. 4909 ) would have increased the amount of OCO-designated funding for base budget purposes to $23 billion—$18 billion more than the Obama Administration proposed—leaving approximately $36 billion in OCO-designated funding for actual OCO operations through the end of April 2017. The House position was that a newly inaugurated president could then request a supplemental appropriation to carry OCO activities through the remaining five months of FY2017. House and Senate negotiations leading to the final NDAA resulted in an authorization of $8.3 billion in OCO-designated funds to be used for base budget purposes—$3.2 billion more than the Administration proposed. President Obama signed the FY2017 NDAA conference agreement on December 23, 2016, enacting P.L. 114-328 . The enacted FY2017 defense appropriations bill—Division C of H.R. 244 —provided $586.2 billion in funding for the Department of Defense. CRS estimates the amount appropriated include a total of $19.9 billion in funding for base budget purposes that is designated as Overseas Contingency Operations funding. That bill was the outcome of a sequence of House and Senate actions on the FY2017 defense appropriations bills that paralleled the respective chambers' actions on the NDAA. In H.R. 5293 —the version of the FY2017 defense appropriations bill passed by the House on June 16, 2016—the total amounts designated as base budget and as OCO conformed with the amounts specified by the BBA. However, the House bill would have increased the amount of OCO-designated funding to be used for base budget purposes, adding $15.1 billion to the $5.1 billion so-designated in the Obama Administration's request. On the other hand, the version of the defense appropriations bill reported by the Senate Appropriations Committee ( S. 3000 ) would not have increased (above the Obama Administration's request) the amount of OCO-designated funding to be used for base budget purposes. The Senate did not act on S. 3000 before October 1, 2016, the start of FY2017. By that date, DOD's FY2017 military construction budget had been funded in the annual appropriations bill that also funded the Department of Veterans Affairs and certain other agencies ( H.R. 5325 / P.L. 114-223 ). P.L. 114-223 also included a continuing resolution (CR) to provide temporary funding for federal agencies for which no FY2017 funds had been appropriated by the start of the fiscal year. This first CR ( H.R. 5323 / P.L. 114-223 ) provided continuing budget authority for FY2017 effective October 1, 2016, through December 9, 2016. For more information see CRS Report R44636, FY2017 Defense Spending Under an Interim Continuing Resolution (CR): In Brief , by [author name scrubbed] and [author name scrubbed]. On November 10, 2016, the Obama Administration submitted an amendment to the OCO budget request, seeking an additional $5.8 billion to maintain approximately 8,400 troops in Afghanistan, to provide additional aviation assets for the Afghan Air Force, to support additional requirements in Iraq/Syria, and to address emerging force protection issues. This brought the FY2017 OCO budget request to $64.6 billion. On December 10, 2016, the initial FY2017 continuing resolution ( H.R. 5323 / P.L. 114-223 ) was succeeded by a second continuing resolution ( H.R. 2028 / P.L. 114-254 ). This second CR provided funding through April 28, 2017. Division B of this second FY2017 CR ( P.L. 114-254 ) also appropriated a total of $5.8 billion for OCO-designated DOD funds for FY2017—including $1.5 billion in additional funding requested by the Obama Administration's November 2016 budget amendment. After the 115th Congress convened in January 2017, negotiators for the House and Senate Appropriations Committees drafted a new FY2017 defense appropriations bill— H.R. 1301 . It was based on the original February 2016 budget request for FY2017, with a deduction of $1.5 billion for OCO activities that had been funded by Division B the second FY2017 continuing resolution ( H.R. 2028 / P.L. 114-254 ). The House passed H.R. 1301 on March 8, 2017, by a vote of 371-48. However, no action followed in the Senate and a third continuing resolution ( H.J.Res. 99 / P.L. 115-30 ) was enacted April 28, 2017, to extend the provisions of the second continuing resolution ( P.L. 114-254 ) through May 5, 2017. On March 16, 2017, the Trump Administration submitted a request for "Additional Appropriations" for FY2017. The request totaled $30 billion—$24.7 billion for the DOD base budget and $5.1 billion for OCO. The Obama Administration's base budget request was at the $551 billion BCA limit on defense discretionary budget authority. However, the Trump request included a proposal to increase by $25 billion the FY2017 cap on defense spending. On May 3, 2017, a third version of the FY2017 defense appropriations bill passed the House as Division C of H.R. 244 , the Consolidated Appropriations Act, 2017. Division C generally aligned with H.R. 1301 but included a new title (Title X) which provided $14.8 billion in "Additional Appropriations" for DOD, all of which were designated as funding for Overseas Contingency Operations. H.R. 244 became P.L. 115-31 on May 5, 2017. Evolution of the FY2017 Defense Budget Request The Obama Administration submitted its original FY2017 defense budget request to Congress in February of 2016. The request totaled $551.1 billion in "base budget" discretionary appropriations for the National Defense function of the federal budget (designated function 050). While approximately 96% of this total was funding for the Department of Defense (DOD), it also included funding for defense-related activities of the Department of Energy, the Federal Bureau of Investigation, and other agencies. In addition, the Administration requested $58.8 billion in discretionary funding for OCO (see Table 1 ). The FY2017 defense budget request went through two modifications after its initial presentation—an amendment by the Obama Administration in November 2016 to increase amounts for OCO by $5.8 billion and a request for additional appropriations by the Trump Administration in March 2017 for an additional $30.0 billion in funding ($24.9 billion for base and $5.1 billion for OCO). These modifications brought the total amount (mandatory and discretionary) requested for national defense (050) in FY2017 to $655.2 billion ($585.5 base and $69.7 in OCO). See Table 2 . November 2016—Overseas Contingency Operations Budget Amendment On November 10, 2016, the Obama Administration submitted an amendment to the FY2017 defense budget seeking an additional $5.8 billion in OCO-designated funds, bringing the total OCO request to $64.6 billion. More than half the additional funds ($3.4 billion) would support operations related to Afghanistan, including funds to slow the withdrawal of U.S. troops and to expand the Afghan Air Force. The balance of the additional request would support additional requirements in the campaign against the Islamic State. See Table 3 for more detail on the request. March 2017- Request for Additional Appropriations On March 16, 2017, the Trump Administration requested an additional $24.9 billion for DOD base budget activities and an additional $5.1 billion in OCO funding in FY2017. By this date, the FY2017 NDAA had been enacted, the original FY2017 defense appropriations bill ( H.R. 5293 / S. 3000 ) had not been enacted by the end of the 114 th Congress, and a new FY2017 appropriations bill, drafted by negotiators from the House and Senate Appropriations Committees ( H.R. 1301 ), had passed the House. According to DOD, the requested $24.9 billion in base budget authority was intended to compensate for: insufficient funding for near-term and mid-term combat readiness-related expenses such as equipment maintenance, munitions stocks, and intelligence operations; and unanticipated expenses resulting from enactment of the FY2017 NDAA ( P.L. 114-328 ) such as a higher than budgeted 2017 military pay raise (2.1% vs. 1.6%). The increase included $13.5 billion—that is, 54%— for procurement including nearly $2.7 billion for missiles and other munitions. For Operation and Maintenance (O&M) accounts, the proposed increase would amount to $7.2 billion (see Table 3 ). The Strategic Context The Obama Administration presented its FY2017 defense budget request in the context of an increasingly complex and unpredictable international security environment. Some of the unforeseen events that have challenged U.S. security interests since 2014 include the continued rise of the Islamic State; Russian-backed proxy warfare in Ukraine; North Korean provocation and recent missile test launches; Chinese "island building" in the South China Sea; a series of terrorist attacks in Western Europe (Paris, Nice, Brussels, Berlin, Manchester); the Syrian refugee crisis; and the Ebola outbreak in 2014. In their essentials, none of these challenges is "new" in its own right. What makes them uniquely problematic, perhaps even "unprecedented," is the speed with which each of them has developed, the scale of their impact on U.S. interests and those of our allies, and the fact that many of these challenges have occurred—and have demanded responses—nearly simultaneously. The 2015 National Military Strategy (NMS) organized the key security challenges confronting the United States into two primary categories: revisionist states intent on disrupting the international order, such as Russia, Iran, and China, and violent extremist organizations, such as al Qaeda and the Islamic State. This NMS is the first official statement of strategy in more than two decades to assert that there is a "low but growing" possibility that the United States may find itself in a conflict with another major power. In developing the FY2017 budget to deal with the challenges to U.S. security interests, DOD said it focused on the following priorities: being able to deter the most technologically advanced potential adversaries with conventional weapons, without assuming that U.S. forces would match the size of enemy forces; increasing the combat effectiveness of U.S. forces by modernizing their equipment and changing their organization rather than by enlarging their numbers; and emphasizing innovation. Some observers have called for DOD to be more flexible and agile in order to meet a variety of expected and unexpected threats. One of DOD's more high-profile initiatives, called the "Third Offset," is an effort to develop and use advanced technologies to mitigate adversaries' numerical and technological advantages. Under this rubric, according to DOD, priority is being given to technologies relevant to guided munitions, undersea warfare, cyber and electronic warfare, and human-machine teaming, as well as wargaming and the development of new battlefield operating concepts. Shortly after taking office, President Trump directed the Secretary of Defense to conduct a "30-day Readiness Review" which included an assessment of "military training, equipment maintenance, munitions, modernization and infrastructure." This readiness review, in part, led to the Trump Administration's March 2017 request for additional appropriations for DOD. In a letter to House Speaker Paul Ryan on March 16, 2017, President Trump said the $30 billion request for additional funds in FY2017 would address "critical budget shortfalls in personnel, training, equipment, munitions, modernization and infrastructure investment. It represents a critical first step in investing in a larger, more ready, and more capable military force." The Budgetary Context Congressional deliberations on the FY2017 defense budget have been one facet of a broader budget discussion regarding the annual limits on discretionary appropriations (through FY2021) as established by the Budget Control Act of 2011(BCA/ P.L. 112-25 ). The BCA spending limits – one on defense spending (budget function 050), and one on nondefense spending (defined as all other federal programs) – apply to discretionary appropriations for the base budget and are enforced by a budgetary mechanism referred to as sequestration . Table 4 shows the statutory changes made to the national defense (function 050) discretionary limits since enactment of the BCA. Although the BCA does not establish limits on the subfunctions (051, 053 and 054), the BCA limits on function 050 have been applied proportionally to the subfunctions in practice. The BCA spending limits do not apply to funds designated for OCO and the law does not define or otherwise limit the term "Overseas Contingency Operations." Therefore, the OCO designation can be applied to any appropriation which the President and Congress agree to so-designate. That fact undergirds two questions that dominated debate over the allocation of OCO-designated funds in the FY2017 defense budget: How much in excess of the defense spending cap would be provided for DOD base budget purposes by designating such funds as OCO funds (to avoid triggering sequestration); and Would both the defense and nondefense categories of spending be allowed to exceed their respective spending caps (using OCO-designated funds) by roughly equal amounts? Since 2009, the OCO designation has been applied to a widening range of activities, including those associated with operations against the Islamic State and activities intended to reassure U.S. allies in Europe confronted by Russian assertiveness. In the Obama Administration's February 2016 budget request for FY2017, $5.1 billion of the $58.8 billion in OCO-designated funds were intended to be used for base budget purposes. The Trump Administration's request for additional appropriations distinguished between the $24.9 billion for the base budget and the $5.1 billion for OCO. It also proposed reducing non-defense spending by $18.0 billion to offset the proposed base budget defense increase and for increasing the cap on defense spending by $25 billion. The FY2017 Caps on Defense Spending The Bipartisan Budget Act of 2015 (BBA/ P.L. 114-74 ) raised the Budget Control Act limits for FY2017 by $30 billion—increasing both defense and nondefense parts of the FY2017 budget by $15 billion. In addition, the BBA identified a nonbinding target of $58.8 billion for OCO funding for DOD in FY2017. Similarly, the BBA set a $14.9 billion target for (nondefense) international affairs OCO funding. House Armed Services Committee Chairman Mac Thornberry is one of many congressional defense committee members who maintained that the negotiations from which the BBA emerged contemplated a higher FY2017 National Defense base budget. In a February 5, 2016 letter to House Budget Committee Chairman Tom Price, Thornberry contended that the appropriate benchmark for the FY2017 National Defense base budget was "approximately $574 billion,"– the amount incorporated into the House-passed version of the FY2016 congressional budget resolution ( H.Con.Res. 27 ) based on the Administration's February 2015 projection for FY2017. Instead of matching its original projection, however, the Obama Administration's FY2017 base budget request for national defense matched the BBA's $551.1 billion cap and the $58.8 billion OCO level. Of the OCO request, approximately $5 billion was identified for base budget activities. Thus, the Administration's budget request would provide a total of $556.1 billion for FY2017 base budget defense operations—$18 billion less than the previously projected request. Chairman Thornberry argued the Obama Administration had erred in treating the BBA's nonbinding OCO level as "a ceiling, not a floor" and failed to sufficiently resource the needs of the Department. To bring FY2017 base defense funding up to $574 billion—$23 billion higher than that BBA defense cap—without triggering sequestration, Thornberry called for authorizing $23 billion of OCO-designated funding for base budget purposes (about $18 billion more than the Administration's OCO for base budget request). Keeping with the $58.8 billion OCO target set by BBA, Thornberry proposed that the resulting shortfall in funding for actual OCO requirements could be made up for by a supplemental appropriations request submitted early in 2017 by the newly installed Administration. H.Con.Res. 125 , the FY2017 House Budget Resolution reported by the Budget Committee on March 23, 2016, mirrored Chairman Thornberry's proposal to allow $574 billion for national defense base budget purposes. Of that amount, $551 billion would be designated as base budget funding and the remaining $23 billion would be drawn from OCO-designated funding. The committee-reported budget resolution also contained reconciliation instructions to 12 House committees, directing them to report legislation that would reduce the deficit over the period of FY2017 to FY2026. In addition to reconciliation instructions, the resolution included a policy statement declaring that the House would consider legislation, early in the second session of the 114th Congress, to achieve mandatory spending savings of not less than $30 billion over the period of FY2017 and FY2018 and $140 billion over FY2017-FY2026. Ultimately, the resolution was not passed by the House or Senate and, therefore, had no force. It was in this environment that the House and Senate began legislative activity on the FY2017 NDAA and defense appropriations bill. Budget Request in a Historical Context The $523.9 billion requested by the Obama Administration for DOD's FY2017 base budget was approximately 0.4% higher than the corresponding FY2016 appropriation of $521.7 billion. The Trump Administration's March 2017 request for additional FY2017 appropriations brought the DOD military base budget request to $549.5 billion. Compared with the FY2016 appropriation of $522 billion, it would provide an increase of 5%. These increases followed three consecutive years (FY2013-15) in which the DOD base budget hovered between $495.0 billion and $496.1 billion after having dropped in FY2013 by approximately $35 billion (without adjusting for inflation) from the FY2012 level. A 7% reduction in DOD's budget in FY2013 reflected the government-wide spending reduction program initiated by the 2011 BCA (see Figure 1 ). Adjusted for the cost of inflation, the Obama Administration's February 2016 budget request for FY2017 was approximately 9% higher than the average (mean) annual defense budget authority since the end of the Vietnam War (1975). In further comparison, the initially requested amount was about 14% lower than the enacted amount in FY1985, the peak year of defense spending during the Cold War. The base budget was 24% higher than the last defense budget enacted before the attacks of September 11, 2001. If the $58.8 billion initial OCO request is included, the total request was 38% more than the FY2000 enacted base budget (see Figure 2 ). At the February 2016 requested level, the total FY2017 DOD budget (including OCO funds) would amount to approximately 3.1% of the Gross Domestic Product (see Figure 3 ). Spending on defense, as a percentage of total federal outlays by budget category, has declined from approximately 41.1% in 1965 to 14.3% in FY2017. Defense spending is projected to further decline to 11.6% of the budget by 2021, while mandatory spending and net interest is forecast to consume 65.1% of budgetary resources (see Figure 4 ). FY2017 National Defense Authorization Act (H.R. 4909 and S. 2943) The debate about how much to spend on defense in FY2017 played out in Congress' deliberations on the NDAA. Both the Obama Administration's original FY2017 defense budget request and H.R. 4909 as passed by the House aligned with the BCA defense cap for FY2017. Likewise, the total OCO amounts reflected the 2015 BBA agreement—the Administration request and the House-passed bill each designated $58.8 billion of the amount authorized for DOD as OCO funding. However, the House-passed bill would have allocated $23.1 billion of OCO-designated funding to DOD base budget purposes—$18.0 billion more than the Administration proposed. According to the House Armed Services Committee, the remaining OCO funds authorized by H.R. 4909 —amounting to $35.7 billion—would cover the cost of OCO through April 2017. By then, the committee said, the newly elected President could request a supplemental appropriation to cover OCO funding requirements through the remaining months of FY2017. The Senate-passed NDAA also would have complied with the BCA caps and the 2015 BBA agreement on minimum funding for OCO by authorizing $523.9 billion for base budget activities and $58.8 billion for OCO. During floor debate on the bill, Senate Armed Services Committee Chairman John McCain proposed an amendment to S. 2943 t hat would have authorized an additional $17 billion designated as OCO funding to be used for base budget purposes. Had the amendment been agreed to, the Senate bill nearly would have matched the House-passed bill, while also providing full year OCO funding. Senator Jack Reed and Senator Barbara Mikulski, senior Democrats on the Armed Services and Appropriations Committees, respectively, proposed an amendment to the McCain amendment that would have increased non-DOD spending by $18 billion to provide "parity" between defense and nondefense spending. Motions to invoke cloture (that is, to end debate and force a vote) on each amendment failed to achieve the required three-fifths majority. Accordingly, the McCain amendment was withdrawn, nullifying the Reed/Mikulski amendment as well, and the bill was passed by a vote of 84-13. The conference report on the FY2017 NDAA, enacted as P.L. 114-328 , designated $8.3 billion in OCO funds for base budget purposes, about $3.2 billion more than the Administration had requested. (See Table 6 .) President Obama signed the FY2017 NDAA conference agreement on December 23, 2016, enacting P.L. 114-328 . The Defense Appropriations Act, 2017 (H.R. 5293, S. 3000, H.R. 1301, and H.R. 244) In drafting H.R. 5293, the House Appropriations Committee generally followed the HASC and approved $510.6 billion in base discretionary budget authority and $58.6 billion for OCO-designated funding, with $17.5 billion of that designated as "base budget requirements." As noted, the Administration and many in Congress have objected to providing defense funding for base budget requirements in excess of the spending cap unless it is accompanied by a comparable increase in funding for nondefense, base budget programs. Despite these objections, H.R. 5293 passed the House without amendment to the designation of OCO funding for base requirements on June 16, 2016. The Senate version of the defense appropriations bill, S. 3000, was reported out of the Senate Appropriations Committee on May 26, 2016 and would have provided $509.5 billion in discretionary base budget authority along with $58.6 billion for OCO requirements Unlike the House, the Senate did not use OCO-designated funds to increase the base budget. However, the Senate committee noted in a press release that the committee identified "$15.1 billion from more than 450 specific budget cuts and redirect[ed] those savings to high-priority national security needs." In addition to routine reductions due to lower-than-anticipated fuel costs and unobligated balances from prior-year appropriations totaling $5.4 billion, S. 3000 proposed additional savings achieved through efforts to "improve funds management," "restore acquisition accountability," and "maintain program affordability." Many of the programmatic increases proposed by the Senate committee (and offset in large part by the $15.1 billion in savings described above) were aligned with the increases proposed by one or another of the NDAA versions ( H.R. 4909 and S. 2943 ) or by H.R. 5293 . The Senate did not act on S. 3000 before October 1, 2016, the start of FY2017. By that date, DOD's FY2017 military construction budget had been funded in the annual appropriations bill that also funded the Department of Veterans Affairs and certain other agencies ( H.R. 5325 / P.L. 114-223 ). P.L. 114-223 also included a continuing resolution (CR) to provide temporary funding for federal agencies for which no FY2017 funds had been appropriated by the start of the fiscal year. This first CR ( H.R. 5323 / P.L. 114-223 ) provided continuing budget authority for FY2017 effective October 1, 2016, through December 9, 2016. On December 10, 2016, the initial FY2017 continuing resolution ( H.R. 5323 / P.L. 114-223 ) was succeeded by a second continuing resolution ( H.R. 2028 / P.L. 114-254 ). This second CR provided funding through April 28, 2017. Division B of this second FY2017 CR ( P.L. 114-254 ) also appropriated a total of $5.8 billion for OCO-designated DOD funds for FY2017—including $1.5 billion in additional funding requested by the Obama Administration's November 2016 budget amendment. After the 115th Congress convened in January 2017, negotiators for the House and Senate Appropriations Committees drafted a new FY2017 defense appropriations bill— H.R. 1301 . It was based on the original February 2016 budget request for FY2017, with a deduction of $1.5 billion for OCO activities that had been funded by Division B the second FY2017 continuing resolution ( H.R. 2028 / P.L. 114-254 ). The House passed H.R. 1301 on March 8, 2017, by a vote of 371-48. However, no action followed in the Senate and a third continuing resolution ( H.J.Res. 99 / P.L. 115-30 ) was enacted April 28, 2017, to extend the provisions of the second continuing resolution ( P.L. 114-254 ) for an additional week, to allow negotiators to finalize the agreement. (See Table 8 .) On March 16, 2017, the Trump Administration submitted a request for "Additional Appropriations" for FY2017. The request totaled nearly $30 billion—$24.7 billion for the DOD base budget and $5.1 billion for OCO. The Obama Administration's base budget request was at the $551 billion BCA limit on defense discretionary budget authority. Congress was faced with three main options: raise the BCA limit; designate any additional appropriations as OCO; or not respond to the newly elected President's request for additional FY2017 resources for defense. On May 3, 2017, a third version of the FY2017 defense appropriations bill passed the House as Division C of H.R. 244 , the Consolidated Appropriations Act, 2017. Division C generally aligned with H.R. 1301 but included a new title (Title X) which provided $14.8 billion in "Additional Appropriations" for DOD, all of which were designated as funding for Overseas Contingency Operations. In total, H.R. 244 provided $586.2 billion in funding for the Department of Defense. H.R. 244 became P.L. 115-31 on May 5, 2017. The amounts appropriated include a total of $19.9 billion in funding for base budget purposes that is designated as Overseas Contingency Operations funding. (See Table 9 .) Table 10 provides summaries of selected highlights of the House-passed and Senate-committee passed FY2017 Defense Appropriations Act: Selected FY2017 Defense Funding and Policy Issues DOD Organization Both the House and Senate versions of the FY2017 NDAA included provisions intended to make DOD more agile and adaptable to meet emerging threats. At least in modified form, many of these initiatives were incorporated into the compromise final version of S. 2943 . Following are selected provisions of S. 2943 , as enacted, that address the organization of the DOD leadership and the National Security Council: Section 921 extends from two years to four years the terms of office of the Chairman and Vice-Chairman of the Joint Chiefs of Staff . It also requires that their terms be staggered and that the Vice-Chairman be ineligible for service as chairman or any other position in the armed forces, a limitation which the President can waive if deemed in the national interest. Similar provisions had been included in both H.R. 4909 (Section 907) and the Senate-passed version of S. 2943 (Section 921). Section 903 limits the number of persons assigned to the Joint Staff to no more than 2,069 of whom no more than 1,500 can be military personnel on active duty. The original Senate bill included the ceiling on the number of active-duty military personnel assigned to the Joint Staff, but it also included limits on the number of civilians assigned to the offices of the Secretary of Defense and the Secretaries of the Army, Navy and Air Force (Section 904). Section 1085 provides that the professional staff of the National Security Council (NSC) shall include no more than 200 persons, approximately half the number of staff of the Obama Administration NSC. The original Senate bill would have capped the size of the NSC staff at 150 persons, while H.R. 4909 would have required Senate confirmation of the President's National Security Advisor if the staff exceeded 100 persons. Section 923 elevates the U.S. Cyber Command (USCYBERCOM) to the status of a combatant command which is the same status as Strategic Command, European Command, Central Command and DOD's other major operational arms. Section 911 of H.R. 4909 was similar. Section 922 is intended to enhance the authority of the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict (SO/LIC) to provide bureaucratic advocacy and support for the U.S. Special Operations Command (USSOCOM) in the same way that the Secretaries of the Army, Navy, and Air Force support those services. Section 923 of the original Senate bill was similar. Acquisition Reform As enacted, the FY2017 NDAA includes several provisions intended to rebalance the way DOD manages risk in developing and procuring weapons systems. Despite Administration objections, the bill's Section 901 would divide the authority over the entire weapons acquisition process—from the earliest phases of research and development to production and sustainment—between two senior DOD officials. This authority is currently vested in the Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L). Pursuant to S. 2943 , the AT&L position will be replaced by an Under Secretary for Research and Engineering and an Under Secretary for Acquisition and Sustainment, a move for which House and Senate conferees on the bill expressed the following rationale: The conferees believe the technology and acquisition missions and cultures are distinct. The conferees expect that the Under Secretary of Defense for Research and Engineering would take risks, press the technology envelope, test and experiment, and have the latitude to fail, as appropriate. Whereas the conferees would expect that the Under Secretary of Defense for Acquisition and Sustainment to focus on timely, cost-effective delivery and sustainment of products and services, and thus seek to minimize any risks to that objective. The original Senate-passed version of S. 2943 had a similar provision (Section 901). As enacted, the bill provides that these organizational changes will take effect on February 1, 2018. The enacted NDAA also includes provisions intended to make DOD's weapons acquisition process more agile, among which are the following: Section 805 requires that, to the maximum extent practicable, major weapons systems will be designed following a "modular open system approach" intended to make it relatively easy to add, remove, or update major components of the system, thus facilitating competition among suppliers to provide incremental improvements. The House bill had included a similar provision (Section 1701). Section 806 would make various changes to the rules governing the development of major weapons systems including changes intended to require that programs incorporate only "mature" technologies . In other words, DOD would not gamble on unproven technologies which, if not realized, would delay or stymie procurement of the proposed new weapon. DOD Contracting Procedures The enacted version of the NDAA also includes several provisions relating to DOD contracting procedures, among which are the following: Section 829 modifies DOD's acquisition regulations to establish a preference for fixed-price contracts (rather than contracts that reimburse the contractor's costs and provide an additional fee). The enacted provision allows more flexibility for the use of other types of contracts than had the corresponding provision (Section 827) in the original, Senate-passed version of S. 2943 . Section 813 limits the circumstances under which DOD could award a contract to the bidder who submitted the lowest price, technically acceptable (LPTA) offer. Contracting by the LPTA rule bars the government from paying a higher price for a proposal it deems technically superior to (or offered by a more reliable contractor than) the lowest-price proposal. Similar provisions had been included in the House-passed bill (Section 847) and in the original Senate bill (Section 825). Section 885 requires a report to Congress on the bid protest process by which the award of a DOD contract can be challenged on grounds that the award violated relevant laws and regulations. Such protests are adjudicated by the GAO. The House-passed bill contained a similar provision (Section 831). The original Senate-passed bill (in Section 821) would have required the protestor (if it was a large contractor) to cover the cost of the process if GAO denied all elements of the protest. Security Cooperation Management The enacted version of S. 2943 includes in Subtitle E of Title XII several dozen provisions on "security cooperation," defined as programs, activities, and other interactions of the U.S. Department of Defense (DOD) with the security forces of other countries that are intended to increase partner country capabilities, provide U.S. armed forces with access, or promote relationships relevant to U.S. national security interests. Statutes governing security cooperation have been enacted piecemeal over time and are scattered through U.S. Code and public law (such annual NDAAs). In the debates over the FY2017 defense funding bills, DOD and the congressional defense committees developed various proposals to streamline the existing security cooperation authorities and facilitate congressional oversight. The agreed on provisions, consolidated into a new Chapter 16 of Title 10 of the U.S. Code, govern: Military-to-military engagements, exchanges, and contacts, including payment of personnel expenses and the extension of such authorities to nonmilitary security personnel (with the concurrence of the Secretary of State); Combined exercises and training with foreign forces; Operational support and foreign capacity building, including logistics support, supplies, and services associated with operations that the U.S. military is not directly participating in; defense institution building; and authority to train and equip foreign forces as well as sustain such support; and Educational and training activities, including foreign participation in service academies and other DOD-sponsored programs, such as the DOD State Partnership Program, the Regional Centers for Security Studies, and the Regional Defense Combating Terrorism Fellowship Program. Military Personnel Matters For active-duty and reserve component military personnel costs, the original FY2017 budget request included $135.3 billion in the base budget and $3.6 billion in OCO, for a total of $138.8 billion. The Administration also proposed reductions in military manpower and changes in military compensation—some of which were incorporated into the budget request—that would reduce the rate at which personnel cost-per-troop increased. Active Duty and Reserve Component End Strength The annual personnel budget is driven partly by the number of military personnel, measured in terms of authorized end strength. Over the past decade, authorized active duty end strengths have shifted in response to the build-up and draw-down associated with conflicts in Afghanistan and Iraq. The past five years have witnessed substantial reductions in personnel strength, with ground forces bearing the brunt of the cuts. Overall, the Administration proposed an active duty end strength for FY2017 of 1.28 million, a reduction of 2.1% from the previous fiscal year and down 8.4% from the most recent peak in 2011 (see Figure 5 ). The Army has seen the biggest end strength reductions in the past five years, dropping from a peak of nearly 570,000 in 2011 to a little under 475,000 at the end of FY2016—a reduction of nearly 17%. The Administration's budget would have continued that trajectory, reaching an Army end-strength of 460,000 by the end of FY2017, with a goal of reaching 450,000 by the end of FY2018. The Marine Corps has also seen substantial reductions in recent years, dropping from peak active-duty end strength of 202,000 in 2010 to 184,000 in FY2016 with the budget proposing an additional cut to 182,000, which would amount to a 10% reduction from the peak year. The Senate NDAA ( S. 2943 ) would have authorized end-strengths identical to the Administration's request, while the House bill ( H.R. 4909 ) would not only reject the proposed cuts but would authorize an overall increase in troop levels, adding a total of 1,700 troops to the FY2016 authorized level and 28,715 to the FY2017 total requested by the Administration. The House-proposed increase would be most noticeable for the Army, which would be authorized 5,000 more members than its 2016 end-strength and 20,000 more than the Administration proposed for FY2017. (See Table 11 .). The enacted version of the NDAA came closer to the House's provisions on endstrength, authorizing 24,000 more personnel than requested, including 16,000 Army troops. The House and Senate Appropriations Committees each followed the lead of their respective Armed Services Committee. Thus, the House-passed defense appropriations bill (H. 5293) would have added to the Administration's request $1.66 billion to cover the personnel costs of the increased end-strength that would have been authorized by H.R. 4909 , while the bill approved by the Senate Appropriations Committee included no such addition. H.R. 1301 —the version of the FY2017 defense appropriations bill passed by the House on March 8, 2017-added to the request a total of $1.3 billion to fund both the higher end-strength authorized by the NDAA and a higher military pay raise than the Obama Administration had requested. Basic Pay In addition to shrinking the force size, a major theme in recent defense budget debates has been an effort to reduce the rate of increase in military compensation costs. A number of proposals accompanying this year's budget request seek to further rein in the rate at which those costs increase. Section 1009 of Title 37, United Stated Code provides a set formula for calculating automatic annual increases in military basic pay indexed to the annual increase in the Employment Cost Index (ECI), a government measure of changes in private sector wages and salaries. However, that law also gives the President authority to specify an alternative pay adjustment that supersedes the automatic adjustment. From FY2001 through FY2010 increases in basic pay were generally above ECI. From FY2011-FY2014 pay raises were equal to ECI per the statutory formula. From FY2014 to FY2016, pay raises were less than the ECI because, in those years, the President invoked his authority to set an alternative pay adjustment, and Congress did not act to overturn that decision (see Figure 6 ). For FY2017, the Obama Administration attempted to continue that recent trend, proposing a 1.6% increase in basic pay for military personnel rather than the 2.1% increase that would result from the ECI calculation. Assuming the lower pay raise allowed the Administration to save approximately $264 million. The Senate-passed version of S. 2943 reflected the Administration's proposal. However, the enacted version of the bill included a provision from the House-passed NDAA mandating a pay raise that would match the ECI projection. The first House-passed version of the FY2017 defense appropriations bill ( H.R. 5293 ) added $340 million to the budget request. H.R. 244 , the version of the FY2017 defense appropriations bill that was enacted, added to the request a total of $1.3 billion to fund both the higher end-strength authorized by the FY2017 NDAA and a higher military pay raise than the Obama Administration had requested. Ground Vehicle Programs Of the nearly $3.5 billion originally requested in FY2017 for acquisition of armored combat vehicles, more than 80% was allocated to upgrade the Army's current fleet of Abrams tanks, Bradley infantry fighting vehicles, Stryker 8x8 armored troop carriers, and Paladin self-propelled artillery. The remainder of the request was to continue development of three new vehicles: a troop carrier for support roles (designated AMPV), a new amphibious landing vehicle for the Marine Corps (designated ACV) , and a combat vehicle with a tank-like cannon that will be light enough to be dropped by parachute with airborne troops. The original budget request also included $735.4 million for continued development and the third year of procurement funding of the Joint Light Tactical Vehicle (JLTV) intended ultimately to replace nearly 17,000 of the High-Mobility Multi-purpose Wheeled Vehicles (HMMWVs) or "Humm-vees" used by the Army and Marine Corps. See the summary of congressional action authorizing funding for selected ground vehicle programs in Table A-1. Table B-1 provides a summary of appropriations actions related to such programs. Following are selected highlights: M-1 Abrams Tank Improvements34 The original budget request included $480 million to continue upgrading the Army's fleet of M-1 Abrams tanks, the newest of which was manufactured in 1994. Subsequently, the Army asked Congress to increase that amount by $172 million to be transferred from other parts of the Army budget request. The House and Senate versions of the NDAA each authorized the increased amount with the House bill also authorizing an additional $140 million for M-1 modifications. As enacted, the NDAA authorized the revised total request ($652 million with $72 million of the increase authorized as OCO funding) but not the additional House increase. The initial House-passed FY2017 defense appropriations bill would have provided for M-1 improvements all but $4 million of the $652 million requested by the Army plus $80 million. The Senate committee version of that bill— S. 3000 —would have provided $652 million, the amount of the revised request. As enacted, the consolidated appropriations bill ( H.R. 244 / P.L. 115-31 ) provides $664 million for M-1 improvements, a net addition of $12 million to the Army's adjusted request. Paladin Self-propelled Artillery As requested, the versions of the NDAA passed by the House and Senate, as well as the enacted version, authorized $595 million to continue modernizing the Army's fleet of Paladin 155 mm. cannons and their associated ammunition carriers. In addition to modernizing the vehicles' electronic components, the Army is replacing their tracked chassis (manufactured in the 1970s and 1980s and refurbished since then) with new chassis based on the Bradley infantry fighting vehicle. The initial House-passed appropriations bill would have provided the total requested amount, while the Senate committee-approved S. 3000 would have cut $31 million. The enacted appropriations bill provides $584 million for Paladin modernization, cutting $10 million from the request on account of anticipated contract savings. Stryker Combat Vehicle The budget requested $727 million to continue developing various upgrades and installing them in the Army's fleet of Stryker wheeled armored troop carriers. Some of the funds will be used to install on some older Strykers a V-shaped underside to partially deflect the blast of a buried landmine. Other funds will be used to enhance the firepower of Strykers based in Europe by replacing their .50 caliber machine guns with a 30 mm. cannon. The Senate-passed version of the NDAA trimmed $11 million from the request and the enacted version of the bill followed suit. The initial House-passed defense appropriations bill would have cut $4 million from the Stryker request while the Senate committee-approved S. 3000 would have cut $34 million on grounds that those funds would not be needed in FY2017. The initial House-Senate defense appropriations compromise ( H.R. 1301 ) would have provided $701 million from Stryker procurement, cutting $26 million from the request on grounds that it was not justified. However, the enacted appropriations bill restored $8 million of that reduction, providing a total of $709 million. Armored Multi-Purpose Vehicle (AMPV)35 The budget requested $184 million to continue development of a new tracked vehicle designated the Armored Multi-Purpose Vehicle (AMPV) that would replace thousands of Vietnam-era M-113 vehicles as battlefield ambulances and mobile command posts, and filling other combat support roles. The new vehicle will be based on the Bradley infantry fighting vehicle. The FY2017 funds would be used to complete production of 29 prototype AMPVs slated for shakedown testing at government test sites. The enacted version of the NDAA authorized the full amount requested, as had both the House and Senate versions of that bill. Similarly, the House-passed and Senate committee versions of the initial defense appropriations bill ( H.R. 5293 and S. 3000 , respectively) would have provided the full amount requested for AMPV, as does the enacted bill. Shipbuilding Programs The planned size of the Navy, the rate of Navy ship procurement, and the prospective affordability of the Navy's shipbuilding plans have been matters of concern for the congressional defense committees for the past several years. Concerns over the current and future size and capability of the Navy have intensified with the recent shift in the international security environment to a situation featuring renewed great power competition. The Navy's original FY2017 budget requested funding for the procurement of seven new ships—two Virginia-class attack submarines, two DDG-51 class destroyers, two Littoral Combat Ships (LCSs), and one LHA-6 class amphibious assault ship. The Navy's FY2017-FY2021 five-year shipbuilding plan includes a total of 38 new ships, compared to the five-year plan sent to Congress in 2015, which projected funding of 48 new ships during this period. See the summary of congressional action authorizing funding for selected shipbuilding programs in Table A-2 . Table B-2 provides a summary of appropriations actions related to such programs. Following are selected highlights: Virginia Class Attack Submarine Program37 The original budget request included $5.1 billion to continue procuring Virginia class attack submarines at a rate of two per year under a ten-ship multiyear procurement (MYP) contract for FY2014-FY2018. The Navy's FY2017-FY2021 five-year shipbuilding plan proposes including in one of the two Virginia-class boats projected for FY2019, and in all Virginia class boats procured in FY2020 and subsequent years, the Virginia Payload Module (VPM)—an additional ship section that will increase the boat's payload of Tomahawk cruise missiles from 12 to 40. The budget request included $98 million to continue development of the VPM. The Navy's FY2016 budget submission proposed building some, but not all, Virginia class boats procured in FY2020 and subsequent years with the VPM. The Senate version of the NDAA would have authorized the amounts requested for the submarine and for VPM development, but the House version of that bill and the enacted version of S. 2943 also authorized an additional $85 million in "advance procurement" (AP) funding to buy components for boats that primarily would be funded in future budgets. The Senate committee version of the first defense appropriations bill S. 3000 would have provided the requested amounts for the submarines and the VPM, while the House-passed version ( H.R. 5293 ) would have added $85 million to the amount requested for the subs. Like the initial House-passed appropriations bill, the enacted bill added $85 million to the $5.1 billion requested for submarines. CVN-78 Class Aircraft Carrier Program38 The Navy's originally proposed FY2017 budget included a $1.29 billion increment of the estimated $12.9 billion in procurement funding for CVN-79, the second Gerald R. Ford (CVN-78) class aircraft carrier. The budget also requested $1.37 billion in AP funding for CVN-80, the third ship in the class. One issue for Congress during its consideration of the FY2017 request was whether to provide AP funding in FY2017 for the procurement of materials for CVN-81, the fourth ship in the class (which is scheduled for procurement funding in FY2023). Earlier funding for the fourth ship would permit a combined purchase of materials for CVN-80 and CVN-81 and thereby reducing the combined procurement cost of the two ships. The Navy's proposed FY2017 budget did not request any AP funding for CVN-81; the Navy's plan was to request initial AP funding for CVN-81 in FY2021. The enacted version of the NDAA, like the versions passed by the House and Senate, authorizes the full amount requested for the second and third ships, a total of $2.7 billion The House version also would have authorized an additional $263 million for AP funding for the fourth carrier in the class, but that was not included in the final version of the authorization bill. The House-passed version of the initial defense appropriations bill would have followed suit with the House-passed NDAA, providing an additional $263 million for the fourth carrier, while the Senate committee-approved S. 3000 would have trimmed $20 million from the overall $2.66 billion carrier request. The enacted appropriation bill ( H.R. 244 / P.L. 115-31 ) provides a total of $2.63 billion for the second and third carriers, trimming $36 million from the request. It did not provide AP funding for a fourth carrier. Cruiser Modernization40 Congress in recent years has pushed back against Navy proposals for operating and modernizing its force of 22 Aegis cruisers. When the Navy proposed retiring seven of the ships years before the end of their service lives, Congress rejected the proposal. When the Navy then proposed taking 11 of the 22 ships temporarily out of service for modernization, and then returning them to service years later as one-for-one replacements for the other 11 ships in the class, Congress modified the Navy's proposed schedule. In its proposed FY2017 budget, the Navy once again asked to modernize the 11 ships along the Navy's preferred schedule, rather than the modified schedule directed by Congress. The House-passed NDAA and the enacted version of the bill ( S. 2943 ) each contained a provision (Section 1024) that requires the Navy to modernize the 11 ships on the schedule directed by Congress. The Senate-passed NDAA contained a provision (Section 1011) that would have allowed the Navy to retire some of the cruisers if certain prescribed criteria were met. Both House and Senate versions of the initial defense appropriations bill rejected the Navy's proposal for the cruisers, as does the enacted appropriations bill. DDG-51 Destroyer Program41 The FY2017 request included $3.3 billion to continue procurement of DDG-51 destroyers at an average rate of two ships per year under a 10-ship MYP contract for FY2013-FY2017. As part of its markup of the Navy's FY2016 budget, Congress had provided $1.0 billion in additional procurement funding to help pay for the procurement of an additional DDG-51. The Navy's proposed FY2017 budget noted this $1.0 billion in funding but did not include an additional ship in its shipbuilding plan. The $433 million needed to complete the funding for this additional destroyer, however, was included as the second item on the Navy's FY2017 Unfunded Requirements List (URL). The House and Senate versions of the NDAA each authorized the $3.3 billion requested for the destroyers with the House bill approving an additional $433 million and the Senate bill an additional $50 million for the ship that Congress partially funded in the FY2016 budget. The enacted version of the bill authorized the request plus $50 million. In addition to providing the $3.3 billion requested for the destroyers in FY2017, the House-passed version of the initial defense appropriations bill would have added $433 million for the partially funded FY2016 ship as does the enacted bill ( H.R. 244 / P.L. 115-31 ). The Senate committee-approved version of the first bill ( S. 3000 ) would have added $404 million for the FY2016 ship. Littoral Combat Ship (LCS) Program42 In December 2015, then-Secretary of Defense Ashton Carter directed that the LCS program be reduced from a planned total of 52 ships to a planned total of 40 ships, that annual procurement quantities of LCSs be reduced during the Navy's FY2017-FY2021 five-year shipbuilding plan, and that the Navy choose one of the two current LCS builders, so that LCSs procured in FY2019 and subsequent years would be produced by only one builder. Reflecting this direction, the Navy's proposed FY2017 budget requested $1.1 billion for the procurement of two LCSs, rather than the three LCSs that had been projected for FY2017 under the FY2016 budget submission. In addition to authorizing the funding requested for two LCSs, the House version of the NDAA would have authorized an additional $384.7 million for a third ship. The enacted version of that bill did not included authorization for a third ship and followed the Senate-passed version of the bill in trimming $28.0 million from the request for two ships. The House-passed version of the initial defense appropriations bill would have cut $71 million from the total amount requested for two ships but also would have added $384 million for a third LCS. The Senate committee bill would have provided $1.1 billion as requested plus $475 million for a third ship. The enacted appropriation bill cuts $36 million from the $1.1 billion requested for two LCSs but would add $475 million for a third ship of this type. LHA-8 Amphibious Assault Ship In recent years, LHA-type amphibious assault ships—carrier-like ships designed to carry some 1,700 Marines and a mix of aviation assets—have been funded using split funding (i.e., two-year incremental funding). The Navy's FY2017 budget submission proposes using split funding—$1.6 billion requested in FY2017 and a plan to request $1.7 billion in FY2018—to procure an amphibious assault ship designated LHA-8. The enacted NDAA, like the House and Senate versions of that bill, authorized the $1.6 billion requested for the ship in FY2017. The initial House-passed appropriations bill would have reduced the funding by $64 million, while the Senate committee version would have provided the amount requested. The enacted bill ( H.R. 244 / P.L. 115-31 ) trims $5 million from the amount requested for the LHA. Selected Aviation Programs In their initial FY2017 budget requests, the Army and Air Force chose to delay their previously planned aircraft purchases, and the Navy planned to meet its aviation modernization goals by inviting Congress to add funds to its budget request to pay for so-called "unfunded requirements." Army officials emphasized that the service's FY2017 budget request gave priority to readiness over modernization. Within the Army's modernization budget, helicopter programs felt the brunt of the budget squeeze. The Army's $3.9 billion budget request for aircraft procurement in FY2017 (which includes modernization as well as the acquisition of new aircraft), amounted to less than one-third of the service's FY2016 aircraft procurement account. See the summary of congressional action authorizing funding for selected aviation programs in Table A-3 . Table B-3 provides a summary of appropriations actions related to such programs. Following are some highlights: Air Force Aviation Programs44 The budget squeeze confronting the Air Force's modernization plans has been widely recognized. The simultaneous attempt to modernize Air Force fighters with the F-35, bombers with the B-21, trainers with the T-X, and other systems has created a classic "bow wave" of acquisitions, in which systems already being procured and others moving from development into procurement exceed the available procurement budget. The Air Force original FY2017 budget submission attempted to relieve some of that budget pressure by deferring planned acquisitions. F-35A Joint Strike Fighter The FY2017 request included $4.4 billion for 43 F-35A Lightning II fighters, five fewer than projected in the FY2016 budget request. All told, the Air Force's new plan would acquire 45 fewer F-35A's during the period FY2017-FY2021 than had been planned in January 2016. The enacted NDAA, like the Senate version of that bill, authorizes the requested amount for 43 of the fighters. Besides approving that amount, the House-passed NDAA also would have authorized $691 million for 5 additional aircraft. The initial House-passed defense appropriations bill would have provided a total of $4.8 billion, adding to the requested amount $352 million for five additional F-35As. The Senate committee version of that bill ( S. 3000 ) would have cut the FY2017 procurement amount by $418 million, but would have added $100 million to the $405 million requested for advance procurement funds with the aim of supporting the higher FY2018 production rate that had been planned prior to the FY2017 budget submission. The enacted appropriation provides a net increase of $201 million to the $4.4 billion requested for 43 F-35As. The bill cuts $294 million from the amount requested on account of "efficiencies" and adds $405 million for five additional aircraft. KC-46A Pegasus Tanker The enacted NDAA, like both the House and Senate versions, authorized the $2.9 billion requested for 15 KC-46A mid-air refueling tankers. However, all three versions of the legislation cut the $262 million requested to continue development of the aircraft by more than 50%, to $122 million on grounds that the program had unspent funds from prior years' appropriations and had encountered fewer problems than the budget request had anticipated. The initial House-passed defense appropriations bill would have cut $83 million from the $2.9 billion KC-46A procurement request and $32 million from the R&D request. The Senate committee version of the appropriations bill would have provided the amounts requested both for procurement and for development of the plane. The enacted appropriation ( H.R. 244 / P.L. 115-31 ) cuts the procurement request by $167 million—double the amount that would have been cut by the initial House-passed appropriations bill—while cutting $32 million from the tanker's R&D request. Army Aviation Programs Reductions in planned aircraft procurement also were evident in the Army's original FY2017 request, which would procure 110 helicopters instead of the 144 projected in 2015. Army leaders attributed these deferrals primarily to budget concerns and force structure issues resulting from the recently issued report of the National Commission on the Future of the Army. Specifically, the FY2017 budget request included: $929 million for 74 UH-60M Black Hawk helicopters (26 fewer than projected last year); $565 million for 22 CH-47 Chinook helicopters (5 fewer than projected last year); and $1.1 billion to remanufacture 52 AH-64 Apache helicopters (5 fewer than projected last year). The enacted version of the FY2017 NDAA—like the version passed by the Senate—authorized the originally requested amounts for these programs. The House-passed version would have added a total of $703 million for 41 additional helicopters. The initial House-passed FY2017 defense appropriations bill would have added to the amount requested $1.1 billion for a total of 51 additional helicopters while the Senate committee version ( S. 3000 ) would have added $368 million for additional Black Hawks to equip National Guard units. The enacted appropriation bill adds to the amount requested $674 million for additional helicopters, including at least 5 newly built Apaches and 25 Black Hawks for the Army and National Guard. Navy and Marine Corps Aviation Programs Navy officials have been telling congressional defense committees in recent years that the service has too few strike fighters—aircraft designed for both air-to-air and air-to-ground combat. This is, in part, because of tight budgets and, in part, because of delays in fielding the F-35 Joint Strike Fighter (JSF), which is intended gradually to supplant the fleet of F/A-18s that have equipped Navy and Marine Corps squadrons since the 1980s. Over the course of the past three fiscal years (FY2014-FY2016), Congress has added to the Administration's budget requests a total of $2.9 billion for 32 aircraft of the F/A-18 type, including 27 equipped for electronic warfare, which are designated as E/F-18Gs. The original FY2017 Navy budget request included $185 million for 2 F/A-18 Super Hornet fighters of the most recent E and F models, $891 million for 4 F-35B Joint Strike Fighters (the version of the F-35 designed to operate from aircraft carriers), and $2 billion for 16 F-35Cs which is the Marine Corps' version of the JSF, designed for short take-off, vertical landing (STOVL) operations from large amphibious landing ships. However, the Navy also sent Congress an "unfunded requirements list" (URL) requesting an additional 14 Super Hornets and 6 additional F-35s. In the letter to Congress accompanying the URL, the Chief of Naval Operations stated Our legacy strike fighters (F/A-18A-D) are reaching end of life faster than planned due to use and wear. Improving the inventory of F/A-18F and F-35C aircraft will help reconcile a near term (2018-2020) strike fighter inventory capacity challenge, and longer term (2020-2035) strike fighter model balance within the carrier air wing. It will reduce our reliance on legacy-model aircraft which are becoming increasingly expensive and less reliable. The Navy linked its avowed strike fighter shortage to its proposal—as a part of the FY2017 budget—to reduce the number of carrier air wings from 10 to nine. In recent years, the number of carrier air wings has usually been one less than the number of carriers in commission, in recognition of the fact that, at any given moment, one carrier is undergoing a lengthy mid-life nuclear refueling overhaul and thus cannot deploy. The Navy's proposal to reduce the number of carrier air wings from 10 to 9 would mean that the number of air wings would be two less than the number of carriers since the Navy's carrier force is scheduled to increase from 10 to 11 next year with the commissioning of the first Gerald R. Ford-class carrier. Navy officials have testified that in light of how the Navy now operates and maintains the carrier force, it will now make sense for the number of carrier air wings to be two less than the number of carriers. The Navy might need legislative relief to implement its proposal—Section 1093 of the FY2012 NDAA requires the Navy to maintain 10 carrier air wings. The House-passed NDAA would have authorized the additional aircraft requested in the Navy's URL, but the enacted bill—like the Senate-passed version—authorized only those included in the Administration's budget request. Similarly, the initial House-passed FY2017 defense appropriations bill would have added to the Navy's aircraft request a total of $1.8 billion for the additional F/A-18s and JSFs mentioned in the Navy's URL while the Senate committee version ( S. 3000 ) would have funded only the aircraft requested in the budget. The enacted appropriation ( H.R. 244 / P.L. 115-31 ) includes—in addition to the amounts requested—$979 million for 12 F-18E/Fs and $757 million for six F-35s. The enacted version of the FY2017 NDAA includes a provision (Section 1042) that would allow the Navy to reduce the number of active-component carrier air wings from 10 to nine until such time as the navy fields enough carriers to support 10 wings or the start of FY2026, whichever comes first. Strategic Nuclear Forces The original FY2017 DOD budget request included nearly $4.7 billion in R&D and procurement funding to upgrade and replace U.S. nuclear weapons delivery systems. See the summary of congressional action authorizing funding for selected long-range strike aircraft and missile programs in Table A-3 . Table B-3 provides a summary of appropriations actions related to such programs. Following are some highlights: Ohio Replacement Ballistic Missile Submarine Program49 The Navy's proposed FY2017 budget included $1.1 billion for continued research and development funding and $773.1 million for the first increment of advance procurement (AP) funding for the Ohio replacement program, a program to build a class of 12 new ballistic missile submarines. The House and Senate versions of the NDAA approved the full amount requested for the new class of missile subs, as did the enacted version of the bill. The House bill had authorized the advance procurement funds in the National Sea-based Deterrence Fund, but the final version of the bill authorized those funds in the Navy's shipbuilding account. The House-passed and Senate committee versions of the initial defense appropriations bill also provided the full amount requested for the new class of missile subs, as does the enacted appropriation bill. See the summary of congressional action authorizing funding for this program in Table A-2 . Table B-2 provides a summary of related appropriations actions. B-21 Long-Range Strike Bomber For FY2017, the budget requested $1.36 billion to continue development of the B-21 Long Range Strike Bomber, which is almost 40% less than the FY2017 budget for the program that the Air Force had projected in 2015. The Air Force attributed the reduction to lower than expected bids for the work and, all told, reduced the projected B-21 budget over the period FY2017-FY2021 by $3.5 billion. The Senate version of the NDAA would have reduced the B-21 request by $302 million; however the enacted bill—like the House version—approved the originally requested amount. Similarly, the House-passed defense appropriations bill would have cut $302 million from the request while the Senate committee version would have provided $1.4 billion, as requested. The enacted appropriation ( H.R. 244 / P.L. 115-31 ) would provide $1.3 billion for the bomber program. Nuclear-capable Missiles For the most part, Congress has supported the original FY2017 budget request for continued development of nuclear-armed ballistic missiles and a long-range cruise missile that could carry a nuclear warhead. The Obama Administration request included: $1.1 billion for modifications and life-extension for the D-5 Trident II ballistic missile carried on Ohio-class submarines and slated to arm the replacement subs nearing construction. $109 million for research into the new ground-based strategic deterrent, which will eventually replace existing Minuteman III long-range intercontinental ballistic missiles (ICBMs); and $96 million for development of the a new long-range stand-off missile (LRSO), which will replace the existing bomber-launched cruise missile. The enacted FY2017 NDAA authorized the amounts requested for all three programs and the initial House-passed appropriations bill would have provided those amounts. The Senate committee version of the appropriations bill would have fully funded the request for the ICBM replacement missile and the LRSO, but would have trimmed $8 million from the amount requested for Trident II modernization. The enacted FY2017 appropriations bill cut $4 million from the Trident II modernization request and $5 million from the ICBM development program. Ballistic Missile Defense Programs For FY2017 the Obama Administration requested $9.1 billion to develop and deploy ballistic missile defense (BMD) capabilities, which was a decrease of about $700 million from the FY2016-enacted level of $9.8 billion. The request included $7.5 billion for the Missile Defense Agency (MDA) and the remainder primarily for the Army Patriot missile defense program. A summary of congressional action authorizing funding for selected elements of the missile defense program can be found in Table A - 4 . Table B-4 provides a summary of appropriations actions related to such programs. Following are some highlights: U.S. Homeland Missile Defense For defense of U.S. territory, the FY2017 budget request included $862.1 million to maintain the commitment to high operational readiness of the Ground-based Missile Defense (GMD) system based at Fort Greely, AK, and Vandenberg Air Force Base, CA and to increase the total number of interceptor missiles at those two sites from 30 to 44. The enacted NDAA—like the House and Senate versions—authorizes the requested amount. The initial House-passed appropriation bill would have provided $862 million for the homeland defense system, as requested, but the initial Senate committee bill ( S. 3000 ) would have added $111 million for an unspecified "program increase," as does the enacted appropriation ( H.R. 244 / P.L. 115-31 ). Congress has expressed strong interest in establishing, in the eastern United States, a third GMD site. MDA is currently evaluating three military bases for deployment of a possible third GMD site (Fort Custer, MI, Fort Drum, NY, and Camp Ravenna, OH). The enacted NDAA authorizes $15 million, not requested by the Obama Administration, for planning and design work on a third GMD site. Missile Defense of Europe The FY2017 request continued to support the European Phased Adaptive Approach (EPAA), which is the U.S. commitment to NATO's territorial BMD effort. At the end of 2015, the United States completed Phase 2 of the EPAA with the deployment of an Aegis Ashore site in Romania. The FY2017 request supports the implementation of Phase 3 of the EPAA, to include the deployment of an Aegis Ashore site in Poland during FY2018. The enacted NDAA as well as the House-passed and Senate committee-approved versions of the initial defense appropriations bill and the enacted appropriation all approved the amounts requested for European missile defense: $58 million for procurement of Aegis Ashore equipment and $43 million to continue development of the land-based version of the SM-3 interceptor missile. Israeli Missile Defenses The FY2017 request also continues U.S. contributions to production of the Israeli-designed Iron Dome system designed to defeat short-range rockets and continues support for continued development of Iron Dome as well as the Israeli Arrow and the David's Sling weapon systems. The enacted NDAA would add a total of $455 million to the $150 million requested for these three programs as would the House-passed and Senate committee-approved versions of the initial defense appropriation bill and the enacted appropriation ( H.R. 244 / P.L. 115-31 ). Space and Space-based Systems For FY2017 the Obama Administration's request includes $7.1 billion for Air Force national security space programs, an increase of about $100 million above the FY2016 enacted level. DOD has stated this budget request allows the United States to maintain supremacy in space and provides communications, navigation, missile warning, space situational awareness, and environmental monitoring. See the summary of congressional action authorizing funding for selected space-based systems and launch vehicle programs in Table A-5 . Table B-5 provides a summary of appropriations actions related to such programs. Evolved Expendable Launch Vehicle (EELV) Satellite Launcher The budget request included $738 million for the Evolved Expendable Launch Vehicle (EELV) program to procure five launches for national security space missions, three of which will be awarded competitively. It also included $297 million to continue developing the family of launch vehicles used in this program and $769 million maintain a launch infrastructure that would allow the launch of up to eight national security space missions each year. The enacted NDAA would reduce launch procurement program by $26 million and the infrastructure program by $201 million on grounds that those funds were not yet needed for the programs. On the other hand, the bill authorized $380 million—$183 million more than requested—for EELV development. The versions of the initial defense appropriations bill passed by the House and approved by the Senate Appropriations Committee each would have cut the EELV procurement requests, on grounds that two of the five planned launches would not occur during FY2017. The House bill would have cut $478 million and the Senate committee bill $425 million. The enacted FY2017 appropriations bill cut the EELV request by $253 million. DOD Overseas Contingency Operations Funding In addition to revising the caps for DOD's base budget, the BBA identified a nonbinding FY2017 budget level of $58.8 billion for OCO. President Obama's February 2016 OCO budget request matched this level, which included $5.1 billion for base budget activities that were not funded in the base budget due to the budget caps. President Obama submitted an amendment to the OCO budget request to Congress on November 10, 2016, adding $5.8 billion to the DOD FY2017 OCO budget request. The second FY2017 continuing resolution ( H.R. 2028 / P.L. 114-254 ), enacted on December 10, 2016, appropriated $5.8 billion for OCO-designated elements of the DOD budget request that were deemed to be particularly urgent. On March 16, 2017, the Trump Administration requested additional DOD funds for FY2017, including $5.1 billion designated as OCO-related. This brought DOD's total FY2017 budget request for OCO-designated spending in FY2017 to $69.7 billion—$64.6 billion for contingency operations and $5.1 billion for base requirements (see Table 12 ). In the Obama Administration's original FY2017 OCO request, roughly 70% of the funds were to support President Obama's plan to extend the continued presence of U.S. forces in Afghanistan (Operation Freedom's Sentinel). Funding associated with intensified operations in Syria and Iraq (Operation Inherent Resolve) accounted for most of remainder of the initial request. However, the request also included $3.4 billion―about 5% of the initial OCO request―for supporting continued operations of the President's European Reassurance Initiative (ERI), a sharp increase in funding over FY2016 levels for a program designed to signal the U.S. commitment to the security of NATO allies and partners through an expanded U.S. presence in Europe. President Obama's November 2016 amendment to the OCO request reflected the Administration's decision to increase U.S. troop levels in Afghanistan and Iraq (see Table 13 ). OCO Funding in the FY2017 NDAA The House and the Senate passed their respective versions of the FY2017 NDAA ( H.R. 4909 and S. 2943 ) before President Obama sent Congress his November 2016 OCO budget amendment. The final version of the bill was enacted into law after the November 2016 budget amendment, but before President Trump requested an additional FY2017 OCO funding increase. Based on the initial February 2016 OCO request, the House-passed NDAA would have provided a total of $58.8 billion designated as OCO funding, cutting less than $5.0 million from the requested amount. However, of that total, the House bill would have used $23.1 billion for base budget purposes—approximately $18.0 billion more than the $5.1 billion in FY2017 OCO funding the Obama Administration planned to use for base budget expenses. Most of the remaining OCO funds authorized by the House bill—$35.7 billion—would remain available to cover OCO activities through April 30, 2017. By that date, leaders of the House Armed Services Committee contended, the President elected in November 2016 could request supplemental appropriations to cover OCO funding requirements through the remaining months of FY2017. The Senate-passed version of the NDAA would have authorized $58.9 billion in OCO-designated funds, an increase of $93 million over the February request. No OCO-designated funds in the Senate bill were explicitly directed to base budget expenses. As enacted—after President Obama increased the total FY2017 OCO request to $64.6 billion—the final version of the FY2017 NDAA authorized $67.8 billion, $9.0 billion more than the original request and $3.2 billion more than the adjusted request. Of that increase, $3.2 billion was dedicated to base budget purposes (see Table 14 ). FY2017 Defense Appropriations OCO Funding In their treatment of OCO-designated funds, the versions of the initial FY2017 defense appropriations bill passed by the House and approved by the Senate Appropriations Committee generally tracked the House-passed and Senate-passed versions of the NDAA, respectively. H.R. 5293 , the FY2017 defense appropriations bill passed by the House on June 16, 2016, would have provided $58.6 billion for OCO, of which $15.7 billion was intended to cover base budget expenses with the balance of the OCO funds intended to meet OCO costs through the end of April 2017. As with the Senate-passed version of the NDAA, the first Senate committee-approved defense appropriations bill would provide $58.6 billion in OCO-designated funds, with no increase in the amount of OCO funds for base budget purposes. Following President Obama's November 2016 request for $5.8 billion in additional OCO funding, the second continuing resolution ( H.R. 2028 / P.L. 114-254 ) was enacted. Division B of H.R. 2028 provided $5.8 billion in OCO appropriations; however, the amounts were not directly aligned with President Obama's request. H.R. 1301 (the second FY2017 defense appropriations bill) was generally based on the Obama Administration's initial FY2017 budget request, balancing the November 2016 OCO budget amendment and the amount provided by H.R. 2028 ( P.L. 114-254 ). Title IX of Division C of the Consolidate Appropriations Act, 2017 ( H.R. 244 / P.L. 115-31 ) carried forward the OCO funding levels proposed in H.R. 1301 . However, Title X provided an additional $14.8 billion in "Additional Appropriations," all of which were designated as OCO funding but were not associated with requirements for contingency operations (see Table 15 ). FY2017 "Additional Appropriations" Title X of Division C of the Consolidated Appropriations Act, 2017 ( H.R. 244 / P.L. 115-31 ) included $14.8 billion in "Additional Appropriations" for the Department of Defense. These additional appropriations partly respond to the Trump Administration's March 2017 request for an additional $30.0 billion to be added to the Obama Administration's budget request for FY2017. The Trump Administration's request included $24.9 billion in additional funding for the base budget and $5.1 billion in funding for Overseas Contingency Operations. The current national defense discretionary limit set by the BCA is $551.0 billion for FY2017. The Trump Administration's request for additional appropriations was accompanied with a request to raise the FY2017 BCA limit on defense spending by $25.0 billion in order to accommodate the additional $24.9 billion in base budget authority. Congress did not act on the Trump Administration's request to raise the FY2017 BCA limit, instead choosing to designate the additional appropriations provided—$14.8 billion of the $24.9 billion requested—as Overseas Contingency Operations funding. This effectively precludes the additional appropriations from triggering sequestration. Table 16 provides a comparison of the Trump Administration's request and the additional appropriations provided by Title X of Division C of P.L. 115-31 . Consideration of the FY2017 defense budget request spanned two Presidents and two Congresses over 15 months, making it difficult to cogently compare the budget request with the final amounts appropriated. The NDAA, enacted in December 2016, authorized additional base appropriations by redirecting amounts that were requested for OCO. In their final actions on FY2017 funding, the appropriators responded to the Trump Administration's request for additional base budget authority by increasing the level of OCO-designated funds. Table 17 provides a comparison of authorization and appropriations of OCO funding for contingency operations. Subject to the same considerations that limit reasonable comparison of final authorization and appropriations levels, Table 18 provides the amounts designated in the NDAA ( P.L. 114-328 ) as OCO funding for base budget purposes, and the "additional appropriations" designated as OCO funding in Division C, Title X of Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). Appendix A. Authorization Action on Selected Programs Source: H.Rept. 114-840 , Conference Report to accompany S. 2943 , National Defense Authorization Act for FY2017 . Source: H.Rept. 114-840 , Conference Report to accompany S. 2943 , National Defense Authorization Act for FY2017 . Appendix B. Appropriations Action on Selected Programs

This report discusses the Obama Administration's FY2017 defense budget request and provides a summary of congressional action on the National Defense Authorization Act (NDAA) for FY2017 (S. 2943/P.L. 114-328), and the FY2017 Defense Appropriations Act (H.R. 244/P.L. 115-31). In February 2016, the Obama Administration requested $523.9 billion to cover the FY2017 discretionary base budget of the Department of Defense (DOD) and $58.8 billion in discretionary funding for Overseas Contingency Operations (OCO). The OCO budget category generally includes funding related to the incremental cost of operations such as those in Afghanistan, Iraq, Syria and certain DOD activities aimed at deterring Russian aggression in Europe. The balance of the DOD budget—that portion not designated as OCO—comprises what is often referred to as the base budget. Combined with an anticipated expenditure of $7.9 billion mandatory defense spending, the Obama Administration's total budget FY2017 request for DOD was $590.5 billion as of February 2016. On November 10, 2016, the Obama Administration submitted an amendment to the OCO budget request, seeking an additional $5.8 billion to maintain approximately 8,400 troops in Afghanistan, to provide additional aviation assets for the Afghan Air Force, to support additional requirements in Iraq/Syria, and to address emerging force protection issues. This brought the FY2017 OCO discretionary budget request to $64.6 billion. On March 16, 2017—by which date the FY2017 NDAA had been enacted, but Congress had not completed action on the FY2017 defense appropriations bill—the Trump Administration requested additional DOD funding for FY2017. The additional funds –$24.9 billion for base budget activities and $5.1 billion designated for OCO—brought the total DOD request for FY2017 to $626.3 billion. Congressional deliberations on the FY2017 defense budget occurred in the context of broader budget discussions about the binding annual caps on base budget discretionary appropriations for defense and nondefense programs. These caps were established by the Budget Control Act of 2011 (BCA/P.L. 112-25) as last amended by the Bipartisan Budget Act of 2015 (BBA/P.L. 114-74). The BCA provides that amounts appropriated for OCO or emergencies are not counted against the established discretionary spending limits. In addition to raising the FY2017 discretionary defense spending cap on the base budget to $551 billion, the 2015 BBA set a nonbinding target of $58.8 billion for OCO-designated defense spending in FY2017. The Obama Administration's FY2017 budget request matched the base budget cap and the OCO target that were set by the BBA. Of note, the request allocated $5.1 billion of the $58.8 billion in OCO-designated funds for base budget purposes. In the House-passed versions of both the NDAA (H.R. 4909) and the initial defense appropriations bill (H.R. 5293) for FY2017, the total amounts for base and OCO conformed with the amounts specified by the BBA. However, both House bills would have increased the amount of OCO-designated funding to be used for base budget purposes: the authorization bill would have added $18.0 billion and the appropriations bill would have added $15.1 billion to the $5.1 billion so-designated in the Obama Administration's request. According to the House Armed Services Committee, the remaining OCO funds authorized by H.R. 4909 – amounting to $35.7 billion – would cover the cost of OCO through April 2017. By then, the committee said, the newly elected President could request a supplemental appropriation to cover OCO costs for the balance of FY2017. Neither the Senate-passed NDAA nor the version of the defense appropriations bill reported by the Senate Appropriations Committee (S. 3000) would have increased the amount of OCO-designated funding to be used for base budget purposes above the Obama Administration's request. The enacted version of the FY2017 NDAA (S. 2943/P.L. 114-328), authorized $543.4 billion for DOD base budget activities—$2 million less than was requested—and $67.8 billion designated as OCO funding. The OCO-designated funding totaled $3.2 billion more than the Administration's OCO request as amended in November and this additional funding was directed at base budget requirements. DOD's military construction budget for FY2017 was funded in the annual appropriations bill that also funded the Department of Veterans Affairs and certain other agencies (H.R. 5325/P.L. 114-223, enacted on September 29, 2016). That bill also incorporated a continuing resolution to provide temporary funding for federal agencies for which no FY2017 funds had been appropriated by the start of the fiscal year (October 1, 2016). This first FY2017 continuing resolution (CR) was succeeded by a second continuing resolution (H.R. 202/P.L. 114-254), enacted on December 10, 2016. Division B of this second FY2017 CR also appropriated a total of $5.8 billion for OCO-designated DOD funds for FY2017, including $1.45 billion requested in the Obama Administration's November 2016 budget amendment. After the 115th Congress convened in January 2017, negotiators for the House and Senate Appropriations Committees drafted a new FY2017 defense appropriations bill—H.R. 1301. It was based on the original February 2016 budget request for FY2017 plus a portion of the OCO funding requested in November. The House passed H.R. 1301 on March 8, 2017. The Senate took no action on this bill. A third CR (H.J.Res. 99/P.L. 115-30) was enacted April 28, 2017 to provide an extra week to finalize the bills. On May 3, 2017, the House passed a third version of the FY2017 defense appropriations bill as Division C of H.R. 244, the Consolidated Appropriations Act, 2017. Division C aligned with H.R. 1301 but included a new title (Title X) which provided $14.8 billion in response to the Trump Administration's request for additional appropriations. All of the amounts in Title X are designated OCO funding. In total, H.R. 244 provided $582.4 billion in funding for the DOD. The Senate passed H.R. 244 on May 5, 2017, and the bill was signed into law (P.L. 115-31) before the third FY2017 CR expired.

U.S.-Latin America Trade Agreements Latin American countries have made noted progress in trade liberalization over the past three decades, reducing tariffs significantly and entering into multiple subregional agreements of their own. Early Latin American trade agreements (1960s), however, were inward looking, defensive in nature, exclusive of industrialized countries, and so minimally successful in leading to lasting regional integration and facilitating development. Agreements struck more recently, under the rubric of the "New Regionalism," have gone farther, cultivated by the desire to integrate more fully, and by the growing belief that trade liberalization can be a cornerstone for promoting structural reform, development, and international competitiveness. This development in thinking presented an opportunity for the United States, which has supported deeper regional integration, in part because it has been widely viewed as beneficial for both economic and foreign policy reasons. The United States has implemented comprehensive bilateral or plurilateral reciprocal trade agreements with most of its important trade partners in Latin America. These include the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru. FTAs with Panama and Colombia have been signed but not implemented, pending congressional action. For the United States, reciprocal FTAs liberalize trade in U.S. goods and services in a region with declining, but still relatively high applied tariff rates. In many cases, these same countries already had preferential access to the U.S. market under unilateral arrangements such as the Generalized System of Preferences (GSP), the Caribbean Basin Initiative (CBI), or the Andean Trade Preference Act (ATPA), so moving to a reciprocal agreement opened markets for U.S. goods as well. It has also been argued that progress made at the regional level can provide incentives to "sustain" multilateral negotiations at the World Trade Organization (WTO), although the disappointing pace of the Doha Development Round may point to the limits of this influence. FTAs with Latin America also support U.S. foreign policy, which has historically viewed much of the region as a strategic "backyard." Enhancing social stability through trade-led growth and development has been one long-term goal of FTAs, and thereby more broadly supportive of U.S. regional security goals. As for the Latin American countries, economic gains provide the overriding rationale for entering into an FTA with the United States. The United States is by far their largest export market and the primary investor in the region, particularly in Mexico and the Caribbean Basin region (Central America, Panama, and the Caribbean Islands). For these countries, moving to a reciprocal FTA provides permanent rules of trade that do not require periodic reauthorization by the U.S. Congress, as do the unilateral preferential arrangements. This feature of FTAs and its rules-based framework provides a greater incentive for foreign investors and gives the Latin American countries more control over their trade relationship with the United States. Many see FTAs as anchors to broader economic reform and providing greater opportunity for production-sharing technology transfer that can improve economic competitiveness. Lower costs of imports from the United States are another tangible benefit. U.S.-Latin American FTAs, however, have also been criticized from various perspectives. Many economists are skeptical of their benefits given the discriminatory, complicated, and at times inefficient trading network they create. Latin Americans point to other problems like asymmetrical negotiation power, where the United States has been able to unilaterally limit the scope of discussion, for example, by excluding agricultural subsidies and antidumping policies, and limiting access to key import sensitive products such as sugar and apparel. The United States has also had increasing success in forcing accommodation on issues not addressed in the multilateral arena such as labor and environment provisions. In the United States, many have criticized these agreements for not going far enough on these same issues and also risking the possibility of increasing job losses and lower wages. Trade liberalization also creates adjustment, if not distributional issues in some cases that generally lead to the call for complementary domestic policies. The FTAA encountered resistance in part because it represented an extension of the same trade model used by the United States in bilateral agreements. Many countries south of the Caribbean Basin have been reluctant to enter into such a deal because it does not meet their primary negotiation objectives. Brazil, Argentina, and Venezuela are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy than countries in the Caribbean Basin, do not rely on U.S. regional unilateral preferential arrangements (e.g., the Andean Trade Preference Act or the Caribbean Basin Initiative), and would have to redefine their subregional trade pacts. Failure to find accommodation on agricultural trade, in particular, presented one insurmountable obstacle. In short, in light of the failure to conclude an FTAA, and given increasing skepticism over the U.S. FTA model, the next step in Western Hemisphere economic integration is ripe for discussion. Trends in U.S.-Latin American Trade Latin America is far from the largest U.S. regional trade partner (see Figure 1 for U.S. direction of trade), but it has long been one of the fastest-growing ones. Between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia (driven largely by China), 51% for the European Union, 221% for Africa, and 64% for the world (individual country data appear in Appendix A and Appendix B .). Only trade with Africa has grown faster, and this represents growth from a very small base and variations in the price and volume of a single product, crude oil, which represents three-quarters of U.S. imports from the region. Within the Latin American region, trade trends reflect Mexico's historically dominant position as the largest U.S. trade partner. In 2009, U.S. trade worldwide declined sharply as it had in the second half of 2008 in response to the deep recession that followed on the heels of the 2007 global financial crisis. In 2009, U.S. exports to the world fell by 18.0% after rising by 11.8% in 2008. Among the larger U.S. trade partners, exports fell by 21.6% to Canada, 21.5% to Japan, 18.8% to the EU-27, but only 0.3% to China. U.S. exports to Latin America fell in tandem with the world, declining by 17.6%. By major Latin America trade partner, exports fell by 14.9% to Mexico, 20.6% to Brazil, 25.3% to Argentina, 30.6% to Honduras, and 22.3% to Chile. Of note, exports to Mexico fell on average less than many other countries in the region. These trends reflect collapsed demand commensurate with the worldwide recession, including major U.S. exports to the region such as machinery, computers, aircraft engines and parts, and refined petroleum products. Falling prices and selective use of protectionist policies compounded the falloff in trade in some cases. On the import side, U.S. demand for foreign goods worldwide fell by 25.9% in 2009 compared to an increase of 7.3% in 2008. Among the larger U.S. trade partners, imports fell 33.4% from Canada, 12.3% from China, 23.3% from the EU-27, 18.4% from South Korea, and 31.2% from Japan. Imports from Latin America declined 24.2% on average and by 45.3% from Venezuela, 43.6% from Costa Rica, 32.8% from Argentina, 41.1% from Ecuador, 27.6% from Peru, 13.7% from Colombia, and 39.2% from Mexico. Those countries exporting commodities such as crude petroleum, agricultural products, and precious stones experienced the largest declines. Mexico composed 11.7% of total U.S. merchandise trade (exports plus imports) in 2009 and is the largest Latin American trade partner, accounting for 58% of the region's trade with the United States. These trends point to a long history of economic integration between the two countries, in part the result of their deliberate trade liberalization efforts, including the North American Free Trade Agreement (NAFTA). By contrast, the rest of Latin America together makes up only 8.3% of U.S. trade, leaving significant room for growth. Brazil, for example, has the largest economy in Latin America and is the second-largest Latin American trade partner of the United States, but accounts for only 10.4% of U.S. trade with Latin America, or only 18% that of Mexico. In the United States, total merchandise trade (goods) has become an increasingly important component of the economy, growing from 8.0% of gross domestic product (GDP) in 1970 to 18.3% in 2009, down from 23.6% in 2008. Latin America's growing importance as a U.S. trade partner is a key aspect of this trend. Since the 1980s, many Latin American countries have adopted trade liberalization as part of broader economic reform programs. Average Latin American import tariffs declined from 45% in 1985 to 9.3% by 2002, although the rates varied among countries. Trade reform, however, has not been embraced with equal vigor by all countries, and U.S. exports are not all treated equally under various liberalization schemes. Also, trade reform has stalled or even reversed in some countries when faced with economic instability or changing political philosophy. In addition to tariff rates, which have generally fallen throughout Latin America, differences among individual countries in achieving economic integration with the United States may be seen in other trends. Two simple measures of trade openness appear in Table 1 and point to cases where trade liberalization may be more apparent than in others. For example, Mexico, Costa Rica, and Chile are considered among the early and more successful reformers of trade policy. For each in 2008, total merchandise trade exceeded 50% of GDP. By contrast, in two countries historically associated with incomplete trade reforms, total trade accounted for a much smaller 26% of GDP in Brazil, and 39% in Argentina. The trade-to-GDP ratio, however, may reflect other than trade policy factors. The ratio can be smaller for those countries with large domestic markets that are less trade dependent. This may be the case for Brazil, which has a large domestic manufacturing base. Conversely, the ratio may be larger for small economies that are relatively more trade dependent, such as the Dominican Republic, which as part of its pursuit of trade liberalization, has also developed a manufacturing export base tightly linked to the United States. Still, the lower trade-to-GDP ratio for Brazil is telling. The per capita dollar value of goods a country imports from the United States is another particular measure of trade openness ( Table 1 ). Brazil and Argentina increased their per capita dollar value of U.S. imports from 1996 to 2008, but to only a fraction of that for Mexico, Costa Rica, Chile, and the Dominican Republic. Mexico's high figure again reflects an evolving trade liberalization policy dating to the mid-1980s and its historical ties with the U.S. economy. Costa Rica's high per capita consumption of U.S. goods reflects a similar relationship that has seen enormous growth in recent years, including strong intra-industry trade in integrated circuits. Brazil and Argentina, by contrast, have a more diversified trade relationship with the world. The low number for U.S. imports also points to their higher restrictions on trade with the United States and other countries, in part reflecting both a tradition of industrial policy and a tendency toward defensive trade policy, in part the result of the regional customs union, Mercosur. Differences in income can also be an important factor explaining variations in consumption of U.S. imports, but per capita GDP data shown in Table 1 suggest that they do not stand out in this case. The trade data suggest that there may be room for growth in trade between South America and the United States. Trade policy changes could provide some of the basis for growth in U.S.-South American trade, but they may not be immediately huge given South America's historically small interest in the United States and the limited size of its markets. Still, many economists believe that lowering barriers to U.S. exports and guaranteeing market access may generate long-term trade and investment opportunities, which in turn could lead to higher growth in productivity and output, with both producer and consumer benefits. Similarly, the prospect for even greater access to the large U.S. market presents attractive opportunities for South American countries, as well. The Future of U.S.-Latin America Trade Relations The United States and Latin America have pursued trade liberalization through multilateral, regional, and bilateral negotiations, with mixed results. In part this reflects divergent priorities that have been difficult to fully reconcile. For many Latin American countries, reducing barriers to agricultural trade is top of the list for a successful agreement. This goal includes reducing market access barriers (peak tariffs and tariff rate quotas—TRQs), domestic U.S. subsidies, and nontariff barriers (administrative rules, antidumping provisions). Although there are many other issues, agriculture policy has played a big part in slowing progress in the World Trade Organization (WTO) Doha Development Round and halting the Free Trade Area of the Americas (FTAA). The United States has made clear its unwillingness to address most agricultural and antidumping issues in a regional agreement like the FTAA to preserve its bargaining leverage in the WTO against other subsidizing countries such as the European Union and Japan. Latin American counties have their own sensitive issues and a particular concern in some countries for easing its subsistence agricultural sectors slowly toward trade liberalization. In addition to market access, the United States has focused its trade negotiating goals on areas where it is most competitive such as services trade (e.g., financial, tourism, technology, professional); intellectual property rights (IPR); government procurement; and investment. Not surprisingly, these are areas where many Latin American countries are more reluctant to negotiate. Hence, there is a near reversal of priorities that has slowed the progress of comprehensive agreements at the multilateral and regional levels, reflecting inherent differences between many developed and developing countries. The result in the Western Hemisphere has been the proliferation of reciprocal bilateral and plurilateral agreements. The United States has implemented FTAs with Mexico, Central America, the Dominican Republic, Chile, and Peru, but Congress has not acted on the proposed FTAs with Panama or Colombia, despite changes agreed to even after the formal negotiations concluded. Currently, congressional reticence awaits further commitments in areas that fall outside the negotiated text of the FTAs, such as tax law in Panama and human rights improvements in Colombia, raising questions for some over the ability of the United States to consummate trade negotiations. The prospects are limited at best for exploring reciprocal FTAs with Brazil, Argentina, Ecuador, Bolivia, and Venezuela. Brazil, as the major regional economy not in a unilateral preferential arrangement with the United States, has abandoned the FTAA model and moved ahead separately by adding associate members to Mercosur, supporting Venezuela's accession to Mercosur as a full member, and leading in the formation of broader economic and political integration pacts in South America. Venezuela's President Hugo Chávez has taken a decidedly more confrontational approach in establishing the Bolivarian Alternative to the Americas (ALBA), enticing Cuba, Nicaragua, Bolivia, Dominica, and Honduras to join with subsidized oil trade. Although these are neither deep nor comprehensive trade arrangements, they do signal a political will to consolidate regional bargaining interests in juxtaposition to the U.S.-designed FTAA. Three clear challenges emerge from this picture. First, Brazil and the United States have demonstrated a prolonged reluctance to move off their respective positions, which bodes poorly for resurrecting the FTAA. The addition of Venezuela and possibly other countries with less than sympathetic attitudes toward the United States as full Mercosur members could solidify this standoff. Nationalizations of key industries and other efforts to increase the role of the state in managing the economies of Venezuela, Bolivia, and Ecuador also do not augur well for broadening support for market-based trade solutions. Second, multiple FTAs, by definition, promote an inefficient and cumbersome trading system with each FTA having its own rules of origin (to deter non-member transshipment of goods) and related customs administration and enforcement requirements that can complicate trade and investment decisions. It is not without reason, therefore, that many interest groups wish to find a way to rationalize such a convoluted system. Third, Latin America is expanding its trade to other countries in the world. China, in particular, has increased its trade and investment relationship with the region. From 2000 to 2009, total trade has grown by a factor of 10, and investment has poured into the region. In both cases, China is in search of long-term, reliable sources of basic commodities. In 2009, over 70% of Latin American exports to China were in basic ores, copper, grains, and mineral fuels. While this trade structure is currently lucrative, it does nothing to diversify Latin America's exports into more value added goods, and leaves the fortunes of these countries to the often volatile commodities markets. Reconciling the disparate trade arrangements in the Western Hemisphere will be difficult and perhaps impossible in the absence of a complementary multilateral solution. For example, conventional wisdom argues that without advancement in agricultural issues at the WTO, action on a comprehensive FTAA (or something like it) is unlikely. Further, a less comprehensive FTAA has so far been rejected and offers a far less compelling alternative to a multilateral agreement on economic grounds. Therefore, the FTAA may not emerge in the near future, despite the logical solution that a hemispheric-wide agreement presents to improving the flow of trade (and investment) over existing arrangements. Without a hemispheric-wide solution and given the limitations to further expansion of U.S. bilateral FTAs, alternatives are being debated on how to deepen hemispheric trade relations. One emerging line of thinking calls for reform of the U.S. FTA template, including reopening existing FTAs to revise and deepen labor and environment chapters, among others. The evolving nature of commitments to these disciplines continues, as evident in congressional insistence on revising bilateral agreements already negotiated, as was the case with Peru, Colombia, Panama, and South Korea. The consensus from Latin America countries, however, appears to be that such a task would be too difficult, could lead to a wholesale renegotiation of an FTA, and has little to offer those countries that have already implemented agreements with less stringent provisions. Another option is to move incrementally, where possible, toward harmonization or convergence of the vast array of trade arrangements in the Western Hemisphere, which may be more widely acceptable at some point. One train of thought suggests that progress might be made by working with administrative solutions in trade agreements, without opening them up for renegotiation. One example would be to expand rules of origin and cumulation provisions incrementally to broaden the allowable movement of goods from and through countries with reasonably similar agreements. An incremental administrative approach would allow broader integration with relative ease in trade disciplines where there is fundamental agreement. In the area of trade agreement implementation, another critical issue in the U.S. Congress, some Latin American countries have advocated increasing trade-for-aid and technical assistance. This would provide capacity building and help overcome supply-side constraints in areas such as port and customs operations modernization, infrastructure investment, technology enhancement, and development of common standards in general. These are often major constraints to the more fluid movement of goods in Latin American countries. It is uncertain if any of these alternatives will lead to a new chapter in trade relations between the United States and Latin America. For one, they may be difficult to implement and monitor, but nonetheless could provide marginal benefits in light of the apparent hiatus in moving toward a broad and comprehensive hemispheric trade agreement. In the meantime, trade remains foundational to good U.S.-Latin America relations, an important consideration in the contemplation of future U.S. trade policy. Appendix A. U.S. Merchandise Exports to Latin America and the Caribbean, 1998-2009 Appendix B. U.S. Merchandise Imports from Latin America and the Caribbean, 1998-2009

Trade is one of the more enduring issues in contemporary U.S.-Latin America relations. Latin America is far from the largest U.S. regional trade partner, but historically is the fastest-growing one. Between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia (driven largely by China), 51% for the European Union, 221% for Africa, and 64% for the world. Mexico composed 11.7% of total U.S. merchandise trade in 2009 and is the largest Latin American trade partner. It accounted for 58% of the region's trade with the United States, the result of a long history of economic integration between the two countries. By contrast, the rest of Latin America together makes up only 8.3% of U.S. trade, half of which is trade with Brazil, Colombia, and Venezuela. Latin American countries have made noted progress in trade liberalization, reducing tariffs significantly and entering into their own regional agreements. This development presented an opportunity for the United States, which has supported deeper regional integration because it has been widely viewed as beneficial for both economic and foreign policy reasons. The United States has implemented comprehensive bilateral or plurilateral reciprocal trade agreements with most of its important trade partners in Latin America. These include the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru. FTAs with Panama and Colombia have been signed but not implemented, pending congressional action. Some of the largest economies in South America, however, are not part of U.S. FTAs and have resisted a region-wide agreement, the Free Trade Areas of the Americas (FTAA), in part because it represented an extension of the same trade model used by the United States in bilateral agreements. Many countries south of the Caribbean Basin have been reluctant to enter into such a deal because it does not meet their primary negotiation objectives. Brazil, Argentina, and Venezuela are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy than countries in the Caribbean Basin, do not rely on U.S. regional unilateral preferential arrangements (e.g., the Caribbean Basin Initiative or Andean Trade Preference Act), and would have to redefine their subregional trade pacts. The result in the Western Hemisphere has been an expansive system of disparate bilateral and plurilateral agreements, which are widely understood to be a second-best solution for reaping the benefits of trade liberalization. Alternatives to a new round of currently unpopular FTAs are being debated. It has been suggested, for example, that FTAs be revised, enhancing controversial environment, labor, and other chapters. The response in Latin America, however, has been tepid. Another option is to move incrementally toward harmonization or convergence of the many trade arrangements in the Western Hemisphere by adopting administrative solutions where possible. One example is to expand rules of origin and cumulation provisions. With respect to FTA implementation, another critical issue is the provision of trade capacity building and other technical assistance to address supply-side constraints in areas such as port and customs operations modernization, infrastructure investment, technology enhancement, and development of common standards in general. These are often major constraints to the more fluid movement of goods in Latin American countries. It is uncertain what the next step in Western Hemisphere economic integration may be, and these alternatives may be difficult to implement and monitor. But at the margin, they could provide benefits in light of the apparent hiatus in moving ahead with either a multilateral or hemispheric trade accord.

Introduction The creation of post-9/11 intelligence/information fusion centers does not represent a totally new concept, but suggests an extension of pre-9/11 state and local law enforcement intelligence activities. Most state police/bureau of investigation agencies have run intelligence or analytic units for decades. Many of the fusion centers examined for this report were the outgrowth of those units, prompting some to refer to fusion centers as 'state police intelligence units on steroids." Conceptually, fusion centers differ from their predecessors in that they are intended to broaden sources of data for analysis and integration beyond criminal intelligence, to include federal intelligence as well as public and private sector data. Furthermore, fusion centers broaden the scope of state and local analysis to include homeland security and counterterrorism issues. Despite being an expansion of existing sub-federal intelligence/information activities, fusion centers represent a fundamental change in the philosophy toward homeland defense and law enforcement. The rise of fusion centers is representative of a recognition that non-traditional actors—state and local law enforcement and public safety agencies—have an important role to play in homeland defense and security. In addition, there has been a shift towards a more proactive approach to law enforcement in the United States. Numerous national strategies have assessed the primary threat to U.S. national security as terrorism, both at home and abroad. Indeed, the National Strategy on Homeland Security provides that "the American People and way of life are the primary targets of our [terrorist] enemy and our highest protection priority." The means for combating this threat are broad and encompass all elements of national power, to include non traditional sectors. From a law enforcement perspective, it has been argued that state and regional intelligence fusion centers, particularly when networked together nationally, represent a proactive tool to be used to fight a global jihadist adversary which has both centralized and decentralized elements. This network of fusion centers is envisioned as a central node in sharing terrorism, homeland security, and law enforcement information with state, local, regional, and tribal law enforcement and security officials. Today, there are over 40 intelligence fusion centers across the country (see Appendix B for a map and list of these centers). Research suggests that there is no "one-size-fits-all" model for these centers and there are significant differences between them. There are, however, some common themes, and more importantly, common questions, that arise when examining fusion centers, to include: Do fusion centers solve the pre-9/11 information sharing problems, and as such, make Americans safer? Can fusion centers work if they aren't part of an integrated philosophy of intelligence and security? Who "owns" and benefits from fusion centers? Who should staff, fund, and oversee them? What role, if any, should fusion centers play in the Intelligence Community (IC), and what role should federal agencies play in fusion centers, to include funding? Do fusion centers represent a shift in the security v. civil liberties pendulum? How active and pro-active, if at all, should fusion centers be in the collection of intelligence that is not directly tied to a specific and identifiable criminal act? There is no single model for how each center is structured or operates. Is some basic level of common standards necessary in order for fusion centers to offer a national benefit? Moreover, does the federal government have an integrated national strategy towards fusion centers? Is the current configuration of 40 plus fusion centers, with, in some cases, several operating within one state, the most efficient organizational structure? Is the current approach to creating, authorizing, funding, and supporting fusion centers sustainable? What are the risks to the fusion center concept and how have those risks been specifically weighed and balanced against the stated goals of fusion center operations? In order to provide context for the analysis of these fundamental questions, this report will highlight how the concept and development of these centers continue to evolve, as well as provide an overview of current national trends in fusion centers, the federal role in supporting such centers, and the role of the private sector. Finally, the report will provide Congress with a number of legislative options for consideration. Prior to examining these topics, it is necessary to consider the value proposition these centers pose, as well as potential risks to fusion center development. Fusion Center Value Proposition Conceptually, the argument that fusion centers represent a vital part of our nation's homeland security relies on at least four presumptions: Intelligence, and the intelligence process, plays a vital role in preventing terrorist attacks. It is essential to fuse a broader range of data, including non-traditional source data, to create a more comprehensive threat picture. State, local, and tribal law enforcement and public sector agencies are in a unique position to make observations and collect information that may be central to the type of threat assessment referenced above. Having fusion activities take place at the sub-federal level can benefit state and local communities, and possibly have national benefits as well. DHS's Value Proposition The Department of Homeland Security (DHS) has stated that the value of fusion centers to both DHS and state and local authorities includes a number of common and distinct functions. The following four areas were assessed by DHS as being common benefits fusion centers would yield to DHS and state and local authorities: Clearly defined information gathering requirements. Improved intelligence analysis and production capabilities. Improved information/intelligence sharing and dissemination. Improved prevention, protection, response, and recovery capabilities. DHS also outlined areas of how it and state and local authorities would benefit uniquely from participation in the fusion centers. Unique benefits to DHS include: Improved information flow from state and local entities to DHS. Improved situational awareness. Improved access to local officials. Consultation on state and local issues. Access to non-traditional information sources. According to DHS, the unique benefit of fusion centers to state and local authorities includes: Improved information flow from DHS to states and localities. Increased on-site intelligence and DHS law enforcement expertise and capabilities. Clearly defined DHS entry point. Insight into federal priorities. Participation in dialogue concerning threats. The extent to which DHS's vision of the fusion center value proposition has developed will be addressed throughout this report. Given that the tenure of DHS Office of Intelligence and Analysis (OIA) personnel detailed to fusion centers is less than one year, it could be argued that it may be premature to assess the extent to which DHS's vision for fusion center payoffs is being realized. However, as will be further explained below, research indicates that DHS personnel are being used currently more as a "clearly defined DHS entry point," than as tools to improve "...intelligence analysis and production capabilities." Moreover, the development of a process for gathering information according to clearly defined information requirements in fusion centers remains nascent. Importance of Intelligence and Intelligence Sharing To briefly expand upon the four presumptions which are often cited in arguments that fusion centers are valuable to homeland security, it is important to first focus on the role of intelligence in homeland security, especially with regard to prevention efforts. At the First Annual National Fusion Center Conference, Secretary Chertoff reiterated to the hundreds of state and local conference participants that he views intelligence as an early warning system that allows public safety officials to get a jump on the adversary. The 9/11 Commission states, "Not only does good intelligence win wars, but the best intelligence enables us to prevent them from happening altogether." All major post-9/11 government reorganizations, legislation, and programs have emphasized the importance of intelligence in preventing, mitigating, and responding to future terrorist attacks. This includes the creation of the Department of Homeland Security, specifically the Department's Office of Intelligence and Analysis, the passage of the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2005 ( P.L. 108-458 ), intelligence sharing provisions of the USA PATRIOT Act ( P.L. 107-56 ), as well as the creation of the Intelligence Sharing Environment (ISE), among numerous other developments. Importance of Fusion, Including Non-Traditional Intelligence/Information Another presumption that is often cited is that to prevent attacks intelligence needs to include a broad range of data, including that from non-traditional sources—state and local homeland security-related personnel and the private sector. The Commission found that the September 11 th attack plot: fell into the void between foreign and domestic threats. The foreign intelligence agencies were watching overseas, alert to foreign threats to U.S. interests there. The domestic agencies were waiting for evidence of a domestic threat from sleeper cells within the United States. As such, the 9/11 Commission concluded there was a necessity for fusing domestic and foreign intelligence. Fusing foreign intelligence with a wide spectrum of domestic information is the stated primary purpose of most fusion centers. Locally gathered information collected from a broad array of law enforcement, public health and safety, as well as private sector sources, is fused with intelligence collected and produced by the federal Intelligence Community to better understand threat and assist in directing security resources. The authors of the Fusion Center Guidelines: Developing and Sharing Information and Intelligence in a New Era stated: Data fusion involves the exchange of information from different sources—including law enforcement, public safety, and the private sector—and, with analysis, can result in meaningful and actionable intelligence and information. The fusion process turns this information and intelligence into actionable knowledge. The Homeland Security Advisory Council (HSAC) finds that this process should be continual, "...More than one-time collection of law enforcement and/or terrorism-related intelligence information and it goes beyond establishing an intelligence center or creating a computer network.... Furthermore, HSAC believes that out of the fusion process, one of the principal outcomes should be the identification of terrorism-related leads—that is, any nexus between crime-related information and other information collected by State, local, tribal, and private entities and a terrorist organization and/or attack. By fusing state and local information with federal threat intelligence, it could be argued, fusion centers serve as a vital linkage or "translator" for state and local authorities. For example, when a bombing occurs overseas, it can be very helpful for modus operandi and other tactical information surrounding that bombing to be communicated to states and localities in a timely fashion so they may align their protective resources accordingly. The fusion centers, through their connectivity with the federal Intelligence Community via either systems and/or federal personnel collocated at the centers, can serve as the single focal point for timely dissemination of that information. The imperative, according to Charles Allen, Chief Intelligence Officer at DHS, is to push the defensive perimeter outward. According to Allen: Our ability to move, analyze, and act on information is our greatest strength. And, we must use the (national fusion center) information in that network to push our defensive perimeter outward. While providing an important indication and warning function in a counterterrorism sense, the fusion process can also be harnessed for preventing other types of crime, and/or responding to natural disasters as will be discussed in-depth below. Unique Role of State, Local and Tribal (SLT) Public Sector It has been argued that state, local, tribal law enforcement, first responders, and other public and private sector entities are uniquely positioned to collect information to identify emerging threats and assist in the development of a more comprehensive threat assessment. Secretary Chertoff, speaking from his experience as a former federal prosecutor and judge, has noted that many organized crime cases were intelligence driven and that state and local police were best placed to discover anomalies in their communities that can lead to the prevention of violent acts. Although the fusion process as outlined above goes beyond law enforcement or criminal intelligence, the counterterrorism role of state and local law enforcement has been outlined in numerous reports. Those who agree with Secretary Chertoff are apt to argue that the 800,000 plus law enforcement officers across the country know their communities most intimately and, therefore, are best placed to function as the "eyes and ears" of an extended national security community. They have the experience to recognize what constitutes anomalous behavior in their areas of responsibility and can either stop it at the point of discovery (a more traditional law enforcement approach) or follow the anomaly or criminal behavior, either unilaterally or jointly with the Federal Bureau of Investigation (FBI), to extract the maximum intelligence value from the activity (a more intelligence-based approach). Numerous examples are cited by officials as demonstrating the counterterrorism role that state, local, and tribal governments and, by extension, fusion centers which have law enforcement as their core function, can play. Ambassador Thomas McNamara—the Program Manager for the Information Sharing Environment —cited three examples at the First Annual National Fusion Center Conference. The first was a narcotics investigation conducted by federal, state, and local law enforcement that "...revealed a Canadian-based organization supplying precursor chemicals to Mexican methamphetamine producers was in fact a Hezbollah support cell." A second case involved a local law enforcement investigation in Torrance, California in which an individual engaged in a series of gas station robberies dropped his cell phone. The phone was exploited by law enforcement officers who "... uncovered a homegrown Jihadist cell planning a series of attacks." Another investigation into cigarette smuggling by a county sheriffs office "... uncovered a Hezbollah support cell operating in several states." One additional incident often cited case originated in Los Angeles, California where an investigation of a car theft ring led to the discovery of a domestic group supporting Chechen terrorists. One school of thought suggests that sound law enforcement alone can disrupt terrorist plots. This theory may be accurate as it pertains to individual terrorists or terrorist groups that are not particularly well-trained or resourced and, as a result, may be more aspirational than operational. However unsophisticated and low-tech these amateur extremist groups may be, their intent is hostile and their activities are, it could be argued, worthy of disruption, generally through law enforcement actions. One important question regarding this theory is—are basic law enforcement tools, which demand a criminal predicate prior to the collection of intelligence, likely to only uncover less sophisticated terrorists and forms of terrorist activity? Are current law enforcement methodologies, including those that are deemed "proactive," such as intelligence-led policing, effective tools for discovering the unknowns about potential terrorist activity in one's community, or are different approaches necessary? It could be argued that sophisticated terrorist operatives may be so well-trained as to avoid any potential illegal activity that may undermine their inimical plots. These operatives may dissociate themselves from direct interaction with supporters who may engage in criminal acts. Do all terrorists or terrorist supporters within the United States engage in criminal activity? The answers to this question are arguable. If, however, the premise that sophisticated terrorists do not necessarily engage in criminal activity is accepted, is reactive and ex post facto collection of intelligence sufficient to uncovering sophisticated terrorist plots? Moreover, what are the limits of aggressive and pro-active intelligence collection by state, local and tribal security and law enforcement personnel? Benefits of Fusion Being a Team Function Secretary Chertoff has also stated that fusion centers are one of the most important tools that the community has to collect and connect the dots that can protect people and critical infrastructure. He was, however, cautious to stipulate that he views these centers as entities of the state and local governments that established them, and that the federal government had no intention of controlling the centers. According to Secretary Chertoff, the desired "end state" is as follows: Ultimately, what we want to do is not create a single [fusion center], but a network of [centers] all across the country, a network which is visible not only to us at the federal level, but as important, if not more important visible to each of you working in your own communities so you can leverage all the information gathered across the country to help you carry our your very important objectives. The Secretary's emphasis on the importance of fusion centers serving the state and local communities that largely "own" and operate them has been echoed by others. A counter-argument for concentrating fusion resources at the sub-federal level suggests that state and local authorities may not have the necessary resources and experience to conduct the level of advanced and/or strategic analysis necessary for achieving true "fusion." Potential Risks to Fusion Centers There are several potential risks associated with fusion center development. One risk focuses on the hazards associated with creating fusion centers without the requisite philosophical and organizational changes necessary within the intelligence and law enforcement communities to sustain the work of the centers. The other risks focus on factors that could ultimately diminish political and popular support for fusion centers, and ultimately result in their demise or marginalized contribution to the national homeland security mission. Potential Risk—Underlying Philosophy Some might argue that the rise of state and regional fusion centers may have been premature—that is, the establishment of these entities in the absence of a common understanding of the underlying discipline. Creating a fusion center is a tangible action that seeks to enhance state and/or regional coordination and cooperation to prevent and mitigate, and in some cases, respond and recover from, homeland security threats. However, if fusion center development occurs devoid of a more fundamental transformation, is any real progress made? Is the country any safer or more prepared with fusion centers or have we created a false sense of security? Given recent terrorist activity overseas, including plots and activity in the United Kingdom, what should fusion centers do to recognize potential indicators of similar plots in the homeland? It could be argued that if information flow into fusion centers is limited, the quality of the information is questionable, and the center doesn't have personnel with the appropriate skill sets to understand the information, then the end result may not provide value. Furthermore, if fusion center constituent agencies don't buy into a common fusion and prevention philosophy that arguably needs to accompany fusion centers (i.e., responsibility for security, a proactive approach, and need for understanding their environment to discern potential threats) can fusion centers be effective? It is also important to ask: If fusion centers offer some benefit, who are the beneficiaries? Are the benefits limited to the states and regions the fusion centers were largely designed to serve, given the centers were largely molded by the needs, politics, and resources of the given jurisdiction? Or, is there a "free-rider" benefit for the federal government and the nation as a whole? It could be argued that with little or no investment in state and/or regional fusion centers, the federal government stands to gain some benefit. If it is possible for state and regional fusion centers to serve state, local, regional, and national interests, what is an equitable division of responsibility, labor, and resources? Another philosophical concern stems from the different conceptions of intelligence among the intelligence and law enforcement communities (see Appendix A ). In the absence of a common understanding about what constitutes intelligence, fusion center development and progress may be impeded. Ultimately, without a common framework among disparate fusion centers and other homeland security agencies, it is possible that benefits of the their efforts will remain narrow, rather than having a national impact. While fusion center guidelines (discussed more in-depth below) represent a movement to provide fusion centers with a common framework, and were generally well-received by the centers, arguably, the Guidelines have the following limitations: (1) they are voluntary, (2) the philosophy outlined in them is generic and does not translate theory into practice, and (3) they are oriented toward the mechanics of fusion center establishment. Potential Risk—Civil Liberties Concerns or Violations The essence of fusion, as outlined above, is the integration and analysis of existing streams of information and intelligence for actionable public policy ends—be they counterterrorism, broader counter-crime issues, or natural disaster response. Embedded in the fusion process is the assumption that the end product of the fusion process can lead to a more targeted collection of new intelligence, to include private sector data, which can help to prevent crime. It could be argued that through a more pro-active and targeted intelligence process, one that has as its starting point an intelligence gap, or unknown about a particular threat, it is possible that sophisticated criminal groups could be undermined. However, the potential fusion center use of private sector data, the adoption of a more proactive approach, and the collection of intelligence by fusion center staff and partners has led to questions about possible civil liberties abuses. Director of National Intelligence, Mike McConnell, acknowledges the difficulty of balancing effective intelligence efforts with civil liberties concerns, stating: The intelligence community has an obligation to better identify and counter threats to Americans while still safeguarding their privacy. But the task is [a] inherently a difficult one...[one] challenge is determining how and when it is appropriate to conduct surveillance on a group of Americans who are, say, influenced by al Qaeda's jihadist philosophy. On one level, they are U.S. citizens engaging in free speech and associating freely with one another. On another, they could be plotting terrorist attacks that could kill hundreds of people. Arguments against fusion centers often center around the idea that such centers are essentially pre-emptive law enforcement—that intelligence gathered in the absence of a criminal predicate is unlawfully gathered intelligence. The argument is that the further law enforcement, public safety and private sector representatives get away from a criminal predicate, the greater the chances that civil liberties may be violated. Furthermore, it could be argued that one of the risks to the fusion center concept is that individuals who do not necessarily have the appropriate law enforcement or broader intelligence training will engage in intelligence collection that is not supported by law. The concern is to what extent, if at all, First Amendment protected activities may be jeopardized by fusion center activities. According to the American Civil Liberties Union (ACLU), "We're setting up essentially a domestic intelligence agency, and we're doing it without having a full debate about the risks to privacy and civil liberties." Furthermore, the ACLU is also concerned with having DHS perform a coordinating role at the federal level with respect to these centers. "We are granting extraordinary powers to one agency, without adequate transparency or safeguards, that hasn't shown Congress that it's ready for the job." Most of the fusion center representatives interviewed for this report appeared to be aware of the need to be respectful of privacy and civil liberties as a result of 28 CFR Part 23, the Fusion Center Guidelines, the National Criminal Intelligence Sharing Plan (NCISP), DHS/Department of Justice (DOJ)-sponsored fusion center conferences, and DHS—provided Technical Assistance Training, as well as interactions with peer fusion centers. Several fusion centers had, or were in the process of creating, a governance board, to serve an oversight function, especially on civil liberty concerns. In one case, a fusion center cited concern for civil liberties as the reason it had specifically chosen a former judge to sit on its governing board. Many centers also claim to have privacy policies, a couple of which were reviewed by local ACLU or other civil liberties organization representatives. However, few of the centers had aggressive outreach programs to explain to the public the type of intelligence activities their centers could and could not engage in. There are exceptions; for example, one state fusion center works closely with the most active civil liberties organization in the state, provides the center's standard operating procedures to the public, and has appointed a state attorney general office representative to the center's governing board in order to pro-actively address civil liberties issues. Another state center has brought in a nonprofit research and training organization to audit their operations, plans to invite civil liberties groups into the center to show its operations, and even stenciled the First Amendment and the following quote by Harry Truman on its walls: In a free country we punish men for the crimes they commit but never for the opinions they have. An official from a fusion center that advocated a proactive approach to civil liberties-related outreach warned colleagues of the dangers of civil liberties abuses, saying, "even the perception of abuse associated with a single center, will be devastating for us all." Those centers not engaged in a proactive civil liberties outreach effort cited the lack of need and/or the lack of funds as impediments for undertaking such an effort. Several fusion centers suggested they did not need such a proactive outreach program on civil liberties because there had been no local complaints about civil liberties abuses. In a few cases, fusion centers had done targeted outreach to assure specific communities that the fusion center and other law enforcement agencies were not out to target them, but these programs did not reach a large audience. Others suggested that other state/local agencies were responsible for such programs (although most of them were described as general homeland security-related, rather than specific to concerns related to the fusion center). In several cases, fusion centers suggested they wanted to do a public relations campaign, but they didn't have the necessary funds. While this report is not meant to provide an authoritative legal interpretation of related law, due to disparate state laws authorizing fusion center or criminal intelligence activities, for purposes of criminal intelligence systems, most fusion centers operate under federal regulations, in addition to any applicable state policies, laws or regulations. At the federal level, the authorities which guide the FBI in collection of intelligence are the Attorney General ' s Guidelines for FBI National Security Investigations and Foreign Intelligence Collection . At the state and local levels, if there is any analogue to the Attorney General's guidelines for multi-jurisdictional criminal intelligence systems, it is 28 Code of Federal Regulations (CFR) -(Judicial Administration), Chapter 1 (Department of Justice), Part 23 (criminal intelligence systems operating policies). Many centers cite 28 CFR, Part 23 as the guiding legal mechanism for their criminal intelligence operations. By its terms, 28 CFR, Part 23, applies to "all criminal intelligence systems operating through support under the Omnibus Crime Control and Safe Streets Act of 1968, as amended." From the perspective of intelligence collection, the 28 CFR, Part 23 standard is reasonable suspicion. One of the operating principles of 28 CFR, Part 23 is that "A project shall collect and maintain criminal intelligence information concerning an individual only if there is reasonable suspicion that the individual is involved in criminal conduct or activity and the information is relevant to that criminal conduct or activity." Further: Reasonable Suspicion or Criminal Predicate is established when information exists which established sufficient facts to give a trained law enforcement or criminal investigative agency officer, investigator, or employee a basis to believe that there is a reasonable possibility that an individuals or organization is involved in a definable criminal activity or enterprise. The question of how to balance civil liberties with security remains an open issue Congress and the country often weighs. The balancing is, arguably, a moving target driven by the country's collective sense of security and safety. The nation cannot necessarily have absolute security, nor absolute liberty; a pendulum swings between relative amounts of each of these "public goods." The question, to which there is no definitive answer, raised here is how aggressive should fusion centers be in pro-actively collecting and analyzing intelligence that may go beyond that which may be entered into criminal intelligence systems that fall under federal law? Which entity at the federal level is auditing the activities of fusion centers to ensure civil liberties are not violated? Given that these centers are creations of state and local governments, should an entity of the federal government be the ultimate arbiter of civil liberties protection? Potential Risk—Time Some homeland security observers suggest that the rush to establish and enhance state fusion centers is a post-9/11 reaction and that over time some of the centers may dissolve. It could be argued that in the absence of another terrorist attack or catastrophic natural disaster, over the course of the next 5 to 10 years, state and regional fusion centers may be eliminated and/or replaced by regional fusion organizations. The state fusion regional representation organizations may be an entity to facilitate future center consolidation efforts. Issues that may lead to state and regional fusion center consolidation into regional organizations include: Perceived lack of need by state leaders; State and federal financial constraints; Duplication of effort without showing tangible products and services within a given center; and Reduction of risks to a given geographic location. Alternatively, if there are additional terrorist attacks or natural disasters in the near future and fusion centers can demonstrate their tangible value by serving as proactive, analytic and/or operational information/intelligence hubs, it is plausible that substantial additional federal, state, and local funds may flow to these centers. Potential Risk—Funding A potentially time-related risk is the threat diminished or eliminated federal and/or state funding poses to fusion center development. If the United States is not the target of a successful terrorist attack, homeland security funding, arguably, may decrease. If overall federal funding levels for homeland security decrease, it is possible that there will be some level of decrease in Homeland Security Grant Program (HSGP) funding. Such a decrease might force states to re-prioritize funds for those programs deemed the most critical to their jurisdiction. Specific federal programs that fund and/or support fusion centers (i.e. DHS and FBI detailee programs) could potentially also suffer under funding cuts. It is unclear how fusion centers would fare in such a situation. It is likely that the fate of fusion centers would differ drastically from state to state, depending on a range of factors, to include, their level of maturity, buy-in from other agency partners, their resource needs, and noted successes, balanced with other critical issues and programs within the jurisdiction. During research for this report, one fusion center official stated that if federal funding went away, his fusion center would continue to operate, albeit with less staff and possibly with a more limited scope. It could be argued in some states that fusion centers would not be able to continue long after federal dollars and support ceases to exist. Others might disagree, believing it is quite possible that many fusion centers would survive despite dwindling federal support. It is even possible that many fusion centers would survive even after drastic decline in state and local funding because states and localities would be in a difficult position to officially dismantle these centers. Evolution of Fusion Center Concept As previously mentioned, almost all state and regional fusion centers were created after the September 11 th attacks. While the attacks were the direct impetus for the creation of most state and regional centers, the fusion center movement did not occur in a vacuum and can be best understood as a continuum of a mounting tide. Important influences include the increasing favor of the Intelligence-Led Policing model, among others; the perception that the High Intensity Drug Trafficking Area (HIDTA) Center structure was successfully enhancing coordination; rising agreement amongst Governors that each state should have a fusion center; and the support of the President and key federal homeland security entities, such as the Homeland Security Advisory Council (HSAC), and the Director of National Intelligence (DNI)—Information Sharing Environment Program Manager's Office. Intelligence-Led Policing and Other Policing Models In the decade prior to the attacks, the Intelligence-Led Policing (ILP) model was gaining favor in the United States following the dramatic drop in crime in Kent, England, where it was originally developed, and the reported increase in use of the model in Europe and Asia. The model, according to the Department of Justice's Bureau of Justice Assistance, is a collaborative enterprise based on improved intelligence operations and community-oriented policing and problem solving.... To implement intelligence-led policing, police organizations need to reevaluate their current policies and protocols. Intelligence must be incorporated into the planning process to reflect community problems and issues. Information sharing must become a policy, not an informal practice. Most important, intelligence must be contingent on quality analysis of data. The development of analytical techniques, training, and technical assistance needs to be supported. Additional law enforcement strategies, like Community-Oriented Policing (COP) and Problem-Oriented Policing (POP), which were becoming in vogue during the same period, also rely heavily on intelligence and situational awareness, although less explicitly than Intelligence-Led Policing. These models highlighted the importance of intelligence and/or situational awareness in crafting proactive, preventative, and targeted law enforcement strategies. The focus of these models on both intelligence and the importance of a proactive stance are likely to have influenced the later support for fusion centers. HIDTA The High Intensity Drug Trafficking Area (HIDTA) Center model also impacted the rise of state and regional fusion centers. Since 1990, 28 areas have been designated as HIDTAs across the country. HIDTAs are designed to be multi-agency entities that facilitate the coordination of law enforcement counterdrug efforts across all levels of government. Prior to 9/11, the benefits of collocation, coordination of resources, and information sharing across agencies was apparent to many in the law enforcement communities, and there were several states and regions that were looking to replicate the HIDTA model in their communities. In one case, a state had discussed creating a HIDTA-like center in the area of the state that was not serviced by the existing HIDTA prior to 9/11, however, the initiative lacked the political support to facilitate funding. After the attacks, the proposal was revised and soon thereafter became that state's fusion center. In several cases, post-9/11 state/regional fusion centers have been located with HIDTA centers, and in one case, organizationally linked with the local HIDTA—perhaps an indication of the importance of the HIDTA model influence on the fusion center movement. Grassroots Support—Governors and Homeland Security Advisors The growing focus on more intelligence-oriented policing models and the success of multi-agency law enforcement efforts, like the HIDTAs, combined with post-9/11 public demand and political support to create a strong movement toward including sub-federal law enforcement and non-traditional stakeholders in counterterrorism. However, unlike HIDTAs, which are largely federally funded and managed, this new movement was largely a grassroots movement with state and regional leaders leading the charge. Former Massachusetts Governor Mitt Romney is an advocate of the role states and locals would play, stating: Fundamentally, we recognize that we can't protect the homeland by just putting a cop out on the corner of the street. We have too many bridges, roadways, hospitals, schools, tunnels, trains. You just can't protect all of the possible terrorist targets. You have to find the bad guys before they carry out their bad acts. That requires intelligence. And the states and localities are going to finally have to be a major part of that. This appears to be a manifestation of a fundamental shift in thinking regarding responsibility for national security in which state and local officials are increasingly taking responsibility for traditionally conceptualized federal roles. This may have been the result of a belief that regardless of origin—a terrorist training camp in Afghanistan or a radicalized cell in Lackawanna, NY—state and local public officials are ultimately responsible for the safety of their citizens. Furthermore, there was a strong sentiment among state and local officials and law enforcement agencies that the federal government had not provided enough of the right information and intelligence to enable them to potentially prevent a future attack or at least mitigate its impact and respond effectively. Shift in Homeland Defense and Security Responsibility Traditionally, national defense and security were the responsibility of the federal government. The Homeland Security Advisory Council (HSAC) acknowledged this reality when it addressed intelligence sharing in its 2005 report, which states: For the most part, terrorism-related information has traditionally been collected outside of the United States. Typically, the collection of this type of information was viewed as the responsibility of the intelligence community and, therefore, there was little to no involvement by State and local enforcement entities. It could also be argued the nature of post-Cold War, transnational, sub-state threats increasingly requires all levels of government, all levels of law enforcement and a wider spectrum of public and private officials to work together to protect the United States. This may be especially important given the possibility that: those wanting to commit acts of terrorism may live in our local communities and be engaged in criminal and/or other suspicious activity as they plan attacks on targets within the United States and its territories. Characteristics of State/Regional Fusion Centers There appears to have been two waves of post-9/11 fusion center development: the first occurring in 2003, and the second wave of fusion centers that gained momentum in approximately 2005. Based on conversations with some fusion centers, this second wave gained momentum following the National Governor's Association (NGA) meeting in 2005. Indeed, the NGA published its 2006 survey of state homeland security advisors and found that "developing a state intelligence fusion center" ranked as their third priority. The importance of fusion centers to "enhance states' ability to collect, analyze and disseminate intelligence [and] intelligence sharing among federal, state, and local government," was a priority in the previous survey NGA released in January 2005. Other catalysts include the Homeland Security Advisory Council (HSAC) meeting in March 2005, the preliminary conclusions of which included that: each state should establish an information center that serves as a 24/7 "all source," multi-disciplinary, information fusion center. Many fusion centers also stated that their elected leaders, law enforcement, and other officials realized that this was a national trend and recognized that the federal government was starting to provide funding to support existing centers. A defining moment in this realization appears to have been when the National Governors Association issued its 2007 "A Governor's Guide to Homeland Security," which identified intelligence fusion centers as one of 10 "key points" a new governor should examine in an effort to enhance their state's security. Intelligence fusion centers, according to the NGA, are: the focal point for information and intelligence sharing among local, state, and federal agencies from a variety of disciplines. The continued efforts of Global Justice Information Sharing Initiative (Global), the establishment of the ISE, and the publication of the Fusion Center Guidelines, amongst other developments, also appear to have validated the growing fusion efforts at the state and local level. Furthermore, several fusion centers suggested Hurricane Katrina was influential in either solidifying their conviction that coordination of multiple stakeholder agencies via the fusion center was important for their state, and/or influencing their interest in an all-hazards approach. Ownership/Stewardship The overwhelming majority of the centers examined by the authors are state-wide in jurisdiction and are largely operated by the state police or state bureau/division of investigation. These state fusion centers are largely the outgrowth or expansion of an existing intelligence and/or analytical unit or division within the state's law enforcement agency. In many cases additional personnel, slightly expanded mission/scope, and additional resources were added to the existing intelligence unit infrastructure. As such, these state centers were more likely to stand up in a shorter period of time than those centers that regions established anew. As previously stated, due to their origins and development, some have referred to this type of state fusion center as "state police intelligence on steroids." Less than 20% of fusion centers studied for this report were regional/local in jurisdiction. The majority of regional centers exist in Urban Area Security Initiative (UASI) regions, usually large cities with substantial populations and numerous critical infrastructure sites. The regional centers were more likely than state centers to have multiple agencies involved in their development and day-to-day operational management. Legal Authority The majority of fusion centers do not operate under a separate and fusion center-specific legal authority. Currently, the states legal authorities recognizing or establishing a fusion center range from nonexistent, to memorandums of agreements by the partnering agencies, and in one case a state statute which defines the center and its responsibilities. The majority of the existing fusion centers are not currently recognized by a governor's executive order or by state legislation—rather, as most centers are an outgrowth of the existing state law enforcement agency. As such, they tend to derive their authority from statutes that created those state police agencies or bureaus of investigation. Many of the fusion centers rely on internal policy documentation to demonstrate the establishment of the centers: policy memoranda signed by leaders of the state offices of homeland security or law enforcement organizations, Memoranda of Understanding (MOU) between agencies participating in the center, and/or internal center directives discussing the roles and responsibilities of the organization. In one case, prior to the issuance of an executive order, a regional center operated simply by partner agency consensus in the absence of specific legal authority. The DHS and DOJ-produced Fusion Center Guidelines are silent on the issue of recommended authorities desired to support the establishment and continuing operation of a state fusion center. The lack of official state recognition of these centers could prove troubling for fusion centers in the future. If there is a reduction in future federal funding or moves to a cost-sharing model, federal grant deciding bodies may view those fusion centers with sustained in-state funding streams and/or a statutory recognition as more attractive candidates for continued federal funding. Multiple Fusion Centers In several states there are more than one fusion center. The number of fusion centers, as variously defined, within a single state ranges from two to eight. In some states, the fusion centers appear to work well together, or at least have taken steps to enhance their working relationship. In several states, they have worked to prevent the creation of multiple, non-integrated information silos by ensuring automatic electronic data sharing or using the same information management system. In at least two states, representatives from the fusion centers and/or it's managing agency sat on the governing board of the other center in the state. There was one case in which a regional fusion center worked to help secure more funding for the state center, which was having trouble getting homeland security grant funds due to the 80/20% mandated split for local and state governments (this will be addressed in more depth later in the report). In other cases, there appeared to be friction when several fusion centers are operating (or are proposed for development) within a single state—some even appeared to be in competition with each other. Overall, the relationships between the multiple fusion centers within a single state haven't been long established and well tested. It has been reported that in November 2007, DHS Secretary Chertoff and Attorney General Mukasey sent a letter to each state governor asking for the designation of a single fusion center to interface with the federal government for purposes of sharing homeland security information. Mission/Scope Given the fractured development of grassroots fusion centers around the country, and the broad nature of federal guidelines on the subject, fusion centers have significantly different roles and responsibilities. Some fusion centers are solely counterterrorism focused, while others have a broader mission. Some are prevention oriented, while others have a response and/or recovery role. With regard to the ultimate purpose of state and regional fusion centers, the topic remains open to debate. In some cases the stated purpose of these centers has shifted in the few years they have been operating. Many of the "first-wave" centers, those created soon after 9/11, were initially solely focused on counterterrorism. Today, less than 15% of the fusion centers interviewed for this report described their mission as solely counterterrorism. In the last year, many counterterrorism-focused centers have expanded their mission to include all-crimes and/or all-hazards. For some this shift is official, for others it is defacto, reflected in the day to day operations of the center, but not in official documentation. This shift towards an all-crimes and/or all-hazards focus can be explained by several factors: appearance of a national trend, need for local and non-law enforcement buy-in, and need for resources. First, leadership at several fusion centers interviewed for this report noted they believed the country was moving towards an all-crimes and/or all-hazards model and they felt they needed to move with the changing tide. Others suggested it was impossible to create "buy in" amongst local law enforcement agencies and other public sectors if a fusion center was solely focused on counterterrorism, as the center's partners often didn't feel threatened by terrorism, nor did they think their community would produce would-be terrorists. Rather, most police departments and public sector agencies are more concerned with issues such as gangs, narcotics, and street crime, which are more relevant to their communities. Lastly, one fusion center mentioned that having a wider purpose, that is all-crimes and/or all-hazards, allowed the fusion center to apply for a greater array of grants and draw on resources from more public agencies and individual partners. All-Crimes A little more than 40% of fusion centers interviewed for this report describe their center's mission as dealing with "all-crimes." There were shades of meaning in the definition of "all-crimes" across fusion centers. Some fusion centers were concerned with any crime, large or small, petty or violent. Such centers provided support to investigations into single criminal acts and larger criminal enterprises. Some centers, however, focused on large-scale, organized, and destabilizing crimes, to include the illicit drug trade, gangs, terrorism, and organized crime. One such center made the distinction that this approach was "homeland security focused," rather than all-crimes, which appears to recognize the potentially destabilizing impact the aforementioned crimes can have on the overall security of a community or region. All-Hazards A little more than 40% of fusion centers interviewed for this report describe their center as "all-hazards"as well as all-crimes. It appears as if all-hazards means different things to different people. The term itself appears to have come out of the Federal Emergency Management Agency (FEMA) work in the early 1980s to develop evacuation plans not only in response to nuclear attack, but to address all-hazards. The all-hazards approach to preparedness and mitigation—two of the four interrelated emergency management actions (the other two being post-event, response and recovery)—soon became part of the federal government and FEMA's approach to emergency management. In many ways the concept has evolved from a preparedness focus to a more proactive stance. After the September 11 th attacks, the federal government continued to emphasize an all-hazards approach to preparedness. Indeed, the December 2003 Homeland Security Preparedness Directive (HSPD) No. 8 encourages an all-hazards approach to homeland security preparedness and specifically defines "all-hazards preparedness" as "preparedness for domestic terrorist attacks, major disasters, and other emergencies." However, the focus of the term seems to have shifted with the help of the fusion center movement, as some fusion centers appear to have adopted an all-hazards mission with a more proactive, prevention-focused stance. Moreover, there are some indications that different fusion centers viewed "all-hazards" as pertaining to either their data streams, agency partners, or the center's role. For some, all-hazards suggests the fusion center is receiving and reviewing streams of incoming information (i.e., intelligence and information) from agencies dealing with all-hazards, to include law enforcement, fire departments, emergency management, public health, etc. To others, all hazards means that representatives from the aforementioned array of public sectors are represented in the center and/or considered partners to its mission. At some centers, all-hazards denotes the entity's mission and scope—meaning the fusion center is responsible for preventing and help mitigating both man-made events and natural disasters. For others, "all-hazards" indicates both a pre-event prevention role as well as a post-event response, and possibly recovery, role. Several fusion center officials that described their center as having an all-hazards focus mentioned the influence of Hurricane Katrina on their center's development. In most cases, the fusion centers with an all-hazards mission sought to facilitate intelligence/information sharing and analysis pre-event (whether man-made or natural disaster), but unlike some entirely prevention-oriented, all-crimes- or counterterrorism-focused centers, also facilitated situational awareness post-event (again for both man-made or natural disaster). In most cases, all-hazards-oriented fusion centers sought to act as a force multiplier and support structure for existing Emergency Operations Centers (EOCs), which remain responsible for coordinating the response to large-scale incidents and disasters. Operational v. Analytical The majority of fusion centers interviewed for this report serve a solely, or at least primarily, analytic role. These centers operate a support function for operations and investigations, but are not directly engaged in such activities, although there were some exceptions. Those centers that are more operational in nature tended to be either largely "owned" and operated by a single state police/bureau of investigations agency, and/or predominately staffed by sworn law enforcement personnel (as compared to more analyst-heavy fusion centers). The fusion center leadership of state-wide centers, which were largely "owned" by one state agency, tended to have a more direct relationship with the "boots on the ground." These centers operated under the same parent agency, usually a state police or investigation agency, making it easier to have direct access to both investigators and their information/intelligence collection efforts. Regional and more-multi-agency "owned" centers appeared unable, largely due to chain of command issues, to directly task their partner agencies' staffs. The operational activities of these centers included responding to incident scenes, running/assisting with investigations, and tasking collectors. In one case, a fusion center provided an operational support unit to assist local law enforcement with investigations where it lacked appropriate equipment and/or personnel. Prevention and/or Response Most fusion centers fulfill both prevention and response functions, with a bias toward prevention. Many states that have a separate emergency management organization can direct greater attention toward prevention. Prevention The overwhelming majority of fusion center officials interviewed for this report saw their centers as primarily prevention-oriented entities. In order to prevent, as well as mitigate, a variety of threats, fusion centers work to enhance information sharing, conduct threat assessments and analysis, and support and/or facilitate preparedness efforts. To those ends, most fusion centers acted as: intelligence/information relay centers; collocation centers for personnel from various agencies (often with access to their agencies' databases); facilitators of coordination on a variety of projects; analytic centers; and case support centers. For example, some centers operated largely as filtering stations—sifting through many finished information and intelligence products from federal agencies, other state fusion centers, and state and local law enforcement agencies to identify relevant information for the center's jurisdiction, which would be distributed to customer agencies in the region. Others added analytic value to existing products by supplementing local information or explicitly highlighting local connections to the larger trends. Some fusion centers check the variety of databases they and their partner agencies have access to in response to inquires from local police departments, as the result of a private citizen tip relating to a suspicious incident, or as a result of information gleaned from another information product. Sometimes fusion centers provide case support to law enforcement agencies (at all levels of government). As a general trend, it appears as if all of the fusion centers interviewed for this paper are involved in at least one step of the intelligence cycle, but none appears to be involved in all steps of the cycle. Response In most states, there is an emergency management agency and/or operation center that is responsible for response activities to both man-made and natural disasters. However, in numerous cases, the fusion center is described as playing a situational awareness role to support the emergency operations center (EOC) during events. Some fusion centers said they had a reserved seat at the EOC that they could access during events. In a few cases, fusion centers had a more active role: at least two have sent analysts to the command posts at both high profile events (i.e. pro golf tournaments) and relevant emergencies (i.e. a fire or an explosion) to relay information back to the fusion center. Proactive v. Reactive As previously stated, the overwhelming majority of fusion centers reviewed for this report were described by their leadership as being primarily prevention focused. In order to be successful in preventing (and mitigating) threats, fusion center officials across the county frequently advocate the proactive stance their centers have adopted. Many fusion centers state their proactive orientation marks a departure from traditional policing, which is often reactive, post-event, and prosecution focused. However, research indicates that while fusion centers want to become more proactive, many continue to follow a reactive model. Most fusion centers respond to incoming requests, suspicious activity reports, and/or finished information/intelligence products. This approach largely relies on data points or analysis that are already identified as potentially problematic. As mentioned above, it could be argued that this approach will only identify unsophisticated criminals and terrorists. The 2007 Fort Dix plot may serve as a good example—would law enforcement have ever become aware of this plot if the would-be perpetrators hadn't taken their jihad video to a video store to have it copied? While state homeland security and law enforcement officials appear to have reacted quickly and passed the information to the FBI, would they have ever been able to find would-be terrorists within their midst if those individuals avoided activities, criminal or otherwise, that might bring to light their plot? It is unclear if a single fusion center has successfully adopted a truly proactive prevention approach to information analysis and sharing. No state and its local jurisdictions appear to have fully adopted the intelligence cycle. While some states have seen limited success in integrating federal intelligence community analysis into their fusion centers, research indicates most continue to struggle with developing a "true fusion process" which includes value added analysis of broad streams of intelligence, identification of gaps, and fulfillment of those gaps, to prevent criminal and terrorist acts. Access to Information/Intelligence An important consideration when assessing the maturity of fusion center information sharing and analysis efforts is the centers' access to and quality of relevant information and intelligence. Following the September 11 th attacks, there was an outcry about the failure of information sharing between the federal intelligence and law enforcement communities and state and local officials. The 9/11 Commission concluded, "The biggest impediment to all-source analysis—to a greater likelihood of connecting the dots—is the human or systemic resistence to sharing information." As some homeland security observers have noted those who do not share information outside their agency may use the classification barrier (not having appropriate clearances) or the reciprocity challenge associated with security clearances (having a clearance sponsored by an agency other than the one that owned the information) as an excuse for failing to probatively share information. This was especially true with regards to vertical information sharing - sharing between federal agencies and sub-federal entities, like state and local law enforcement and other first responders. Clearances In the nearly six years since the attacks, it appears as if federal intelligence agencies have made a concerted effort to provide clearances to numerous state and local personnel. Almost all fusion centers studied for this report had multiple personnel with security clearances, although there were a couple of exceptions that had few if any cleared personnel. On average, fusion centers appear to have 14 staff with Secret clearances, which is not insignificant considering the average staff size of the fusion centers interviewed for this report was approximately 27 full-time persons. Clearances for state and local personnel were not restricted to Secret-level clearances, but also included some Top Secret (approximately 6 persons on average) and Top Secret-Secure Compartmentalized Information (SCI) (approximately one person on average) clearances as well. In some cases federal detailees to the centers held the highest level clearances, in other cases, state, and local officials assigned to the center held TS/SCI clearances. It is important to note that discussions with fusion center officials suggest there is a lag between obtaining clearances and obtaining the necessary equipment for receiving and storing classified intelligence. It appears the FBI provided most of the initial security clearances for state and local authorities following September 11 th . According to the FBI, as of August 2005, 6,011 such clearances have been authorized since the program began in 2002. However, based on interviews with fusion centers, that appears to be changing. Fusion center representatives claimed that in recent months DHS has increasingly conducted security clearances for state and local personnel at fusion centers. Fusion centers claimed that the DHS process has improved to the point that it was faster than the FBI's. In a few cases, fusion centers reported turning to DHS after local FBI leadership no longer offered to clear state and locals in their fusion center. Others suggested the FBI only provided high-end (Top Secret, TS SCI) clearances, while DHS conducted investigations for Secret clearances. Regardless of who is sponsoring security clearances for non-federal government personnel, issues remain regarding reciprocity among agencies in recognizing another's clearance which at times hinders an individual from accessing facilities and computer systems. Classified Systems Access In the past few years, state and local authorities have received increased and enhanced access to classified information systems. This appears to be largely facilitated by the proliferation of systems designed for state and local law enforcement and other public sector use, and due to increased collocation with federal agencies, and, as previously mentioned, a growing number of security clearances for state/local officials. DHS created HSIN, HSIN-Secret, and the Homeland Security Data Network (HSDN) as portals to facilitate information sharing with and among state and local agencies, including at the classified level. Reportedly, DHS is considering replacing or upgrading the HSIN with a more efficient system for sharing homeland security information with state and local entities. In addition to the significant number of cleared state and local personnel at the fusion centers, fusion center collocation with federal agencies has also increased state/local access to threat intelligence and information. However, often that access was indirect (i.e. a federal official may need to access the information on behalf of state and local fusion center staff). For example, state/regional fusion centers collocated with the FBI's Joint Terrorism Task Force (JTTF) or Field Intelligence Group (FIG) often have indirect, and sometimes direct, access to FBI information systems and/or the other systems housed in the facility's Sensitive Compartmentalized Information Facility (SCIF). Fusion centers that are not collocated, but that have federal agency detailees often have indirect access through those representatives. There are several fusion centers who have built, or are in the process of building, their own SCIF or secure room in order to have direct access to such systems. Responsibility to Share Replaces Need to Know The support within the federal IC and law enforcement agencies to share sensitive information with state and local law enforcement, fusion centers, and other public sector entities appears to have increased in recent years. Moving from a "need to know" rule to a "responsibility to share" rule for information sharing and addressing the security designation and handling restrictions that act as barriers to effective information sharing appears to be a priority for the DNI's office, as is evident by the efforts of the Program Manager for the Information Sharing Environment (PM-ISE or ISE). However, it could be questioned whether the PM-ISE has authorities commensurate with the office's responsibilities to implement its initiatives across all levels of government. Numerous fusion centers officials claim that although their center receives a substantial amount of information from federal agencies, they never seem to get the "right information" or receive it in an efficient manner. According to many state fusion center leaders, often pertinent threat intelligence must be requested by fusion centers, rather than federal agencies being proactive in providing it. The obvious difficulty arises regarding the inability to request relevant threat information that is unknown to members of the fusion center. The 9/11 Commission criticized the lack of incentives to share information and penalties for those who didn't share within the Intelligence Community. Even if federal IC agencies have instituted incentives and penalties for information/intelligence sharing, it is unclear if these requirements would apply to vertical sharing with state and local authorities, as well as the private sector counterparts and what mechanisms might be in place to assess effectiveness. Both H.R. 1 and S. 4 , two bills pending before Congress, address enhanced information sharing mechanisms, including monetary and non-monetary awards to federal employees as incentives for information sharing. Information/Intelligence Sharing and Management By all accounts information sharing between federal and sub-federal agencies has improved since the September 11 th attacks. However, according to some fusion officials it appears that information sharing from the federal government to the state and local fusion centers continues to be a largely reactive, especially when it comes to information state and local officials believe is relevant to their jurisdiction. Several fusion center officials remarked that they receive such intelligence and/or information when they request it, which is an improvement over pre-9/11 situation, however according to fusion center officials, federal agencies are still not proactive in reaching out to state and regional fusion centers, sometimes even when a connection to that locality is apparent in an analytic product. Other fusion centers cited a lack of feedback when the fusion center or one of its state/local partners provides information up to the federal government. State/Locally-Administered Systems Research indicates that there may be a misconception that all states and regions are operating sophisticated intelligence management systems that have access to all databases available within their jurisdiction. Not every state has a state-wide intelligence system, in fact many don't. Such systems are expensive and potentially problematic in getting all agencies with homeland security-related missions to adopt a particular system. Even states that have such a system, often don't have access to all the data pools outsiders believe they do. For example, one center that is more mature than many of its counterparts reported having access to only 30% of the law enforcement data in the state—and that was good compared to other respondent fusion centers. One state is preparing to go online with a statewide database that will have access to 92% of law enforcement records (state and local), but this is the exception rather than the rule. Access to Private Sector Systems There is also a misconception that fusion centers, and the information management systems that some of them manage, have access to vast amounts of private sector data. This is largely unfounded. Even within fusion centers that have long established relationships with private sector organizations and individual companies, as some do, fusion centers do not typically appear to have access to their data. The flow of information from the private sector to fusion centers is largely sporadic, event driven, and manually facilitated. It does not appear that these databases are directly linked together. In general, the private sector seems very wary of that level of sharing—concerned with lack of government safeguards, industrial espionage, exposing weaknesses to competitors, as well as privacy and civil liberties concerns. Lack of Interoperability of Systems There are areas of concern related to these information management systems, specifically that there is a lack of coordination regarding the adoption of such systems nationally. In many cases, state-wide intelligence systems cannot work in conjunction with other systems within the state or regionally. Despite federal efforts to promote the use of Extensible Markup Language (XML) as the standard format across levels of government for justice and public safety information management systems, fusion centers and states continue to purchase systems that operate using proprietary language and that cannot "speak" to other systems without additional equipment and costs. This may be due to the lack of mandatory guidance on this issue and other technology-related concerns. Currently, all guidance on this is voluntary. Plethora of Federally-Sponsored Systems In addition to funding concerns, the most consistent and constant issue raised by fusion center officials relates to the plethora of competing federal information sharing systems. The fusion centers interviewed for this report cited numerous sites operated by federal agencies that they needed to check in order to receive information from the federal law enforcement and intelligence communities, including, but not limited to, the HSIN and its sister systems HSIN-Secret and HSDN, Law Enforcement Online (LEO), Federal Protective Service (FPS) portal, Regional Information Sharing Systems (RISS), among others. Respondent fusion center officials remarked that their staff could spend all day, every day reviewing all the information posted on these systems, and still not be confident they had seen all relevant and/or unique data. Often information is duplicated on several sites, but because of the occasional situation when it is not, fusion center officials believe they need to check them all. One official found the message from Washington regarding efforts to streamline dissemination channels contradictory with the continued promotion of individual agency's "pet projects" at the state and local level. In addition, fusion center officials found the systems' usability and security lacking. This problem affects not only how fusion centers receive information, but how they pass it to federal agencies. In several cases, it appeared as if information flow to a particular federal agency was severely impeded because the fusion center resisted using the system/portal run by the agency and did not have personal contacts to send information directly. Classified Systems Several fusion center officials mentioned problems related to the different requirements federal agencies have for creating secure spaces to house their classified information systems. The lack of reciprocity for such spaces and the lack of coordination between federal agencies likely results in increased costs for fusion centers. The construction of secure spaces needed to house classified intelligence systems can reportedly cost "two to 10 times the cost of conventional office space, depending on features required." Construction companies estimate that the cost of building a SCIF in an existing state/local facility can cost $200-$500 per square foot, and sometimes more depending on the requirements of the federal sponsoring agency. Several fusion centers interviewed for this report mentioned estimated costs between $75,000-$100,000 to build each secure space at their respective centers. In a few cases, fusion centers mentioned they had been advised they would need more than one such space because individual federal agencies had different security requirements for their own systems. One such center that is moving to a new space was told they needed to create three different secure spaces to house different federal information systems—a cost that would be largely, if not entirely, borne by the center. Over-classification and Excessive Number of Security/Handling Instructions Systematic over-classification was identified by the 9/11 Commission Report as preventing critical intelligence from reaching law enforcement, state officials and infrastructure operators. It could be argued that the federal government has been slow to address the over-classification of intelligence, and the culture of "ownership" over intelligence products generated by particular federal intelligence or law enforcement agencies continues to be an obstacle to information sharing. In addition, there is a serious lack of standardization regarding classification designations and dissemination guidelines. Sensitive But Unclassified (SBU) Moreover, it has been argued that the federal government uses a large number of distinct security designations and a variety of handling instructions that make using classified information unnecessarily confusing and onerous. A 2006 Government Accountability Office (GAO) study found federal agencies involved with terrorism-related intelligence currently use "a total of 56 different designations for information they determined to be sensitive but unclassified, and agencies that account for a large percentage of the homeland security budget reported using most of these designations." More than half of the agencies involved in the study reported encountering difficulties sharing sensitive but unclassified information. This is certainly echoed by state and local law enforcement agencies, which found the "multiplicity of designations and definitions not only causes confusion but leads to an alternating feast or famine of information." In addition, "lack of clarity on dissemination rules and lack of common standards for controlling sensitive but unclassified information, often overwhelm end users with the same or similar information from multiple sources." GAO concluded that, without standardization for security designations, guidance and monitoring, there is a probability that "the designation will be misapplied, potentially restricting material unnecessarily or resulting in the dissemination of information that should be restricted." One PM-ISE effort that may ameliorate this issue is the Controlled Unclassified Initiative (CUI) which is seeking to reduce the number of SBU designations from over 100 to three, with clear instructions for security, handling, and dissemination. This initiative appears to still be in the development stage. Over-classification Congress and the Administration have acted to address over-classification through the IRTPA which required the President within 270 days of the enactment of IRTPA to issue guidelines for acquiring, accessing, sharing, and using information, including guidelines to ensure that information is provided in its most shareable form, such as by using tearlines to separate out data from the sources and methods by which the data are obtained. To date, it appears that no such guideline has been issued and due to continued over-classification, it may be that fusion centers, as well as other pertinent SLT officials, may not receive all the relevant threat information they need. Before IRTPA, the 9/11 Commission also addressed the issue of over-classification in its final report. The report proposes that when a[n] [intelligence] report is first created, its data be separated from the sources and methods by which they are obtained. The report should begin with the information in its most shareable, but still meaningful, form. Therefore the maximum number of recipients can access some form of that information. If knowledge of further details becomes important, any user can query further, with access granted or denied according to the rules set for the network—and with queries leaving an audit trail in order to determine who accessed the information. The argument that security designations are often necessary due to sensitive sources and methods, which prevents intelligence from reaching many SLT officials, may be overstated. In many cases, the intelligence may have even been culled from open source information. In addition, the majority of fusion center officials interviewed for this report were near emphatic that they were not concerned with sources and methods. Rather, fusion center officials wanted to know if the originating agency had deemed the threat credible and if the threat had been corroborated. Funding: A State Perspective While not mandated by federal law or executive order, many federal government agencies recognize the utility of state created fusion centers. As such, over the past two years the federal government has provided financial support to the fusion centers with the states continuing to pay for approximately 80% of fusion center budgets. While state leadership has expressed appreciation for this funding others have questioned the effectiveness of federal government support to state fusion centers. Other state leaders are concerned that the desire for additional federal funding and direction may be problematic as they are concerned that the greater support provided by the federal government will lead to prescriptive requirements levied on the fusion centers. According to FY2007 homeland security grant guidance, the State Homeland Security Program, Urban Area Security Initiative (UASI) grant program, and Law Enforcement Terrorism Prevention (LETTP) Program, and the Metropolitan Medical Response System (MMRS) grant program (the four of which comprise the overwhelming majority of all Homeland Security Grant Program (HSGP) funding streams, and the majority of all homeland security-related grants administered by DHS ), require that at least 80% of all funds be passed to local jurisdictions. This policy was cited continually by fusion center officials as a major hurdle in channeling the homeland security funds toward state-wide fusion center efforts. Several also cited the required spending split as leading to the creation of regional fusion centers within states that already had a state-wide center operating. These requirements have been used in several previous grant cycles. Much like the diverse missions of fusion centers, state and federal funding and programmatic support to the nation's fusion centers also varies greatly. As noted earlier in the report, to date the nation's fusion centers have largely been paid for with state funds. Some of the surveyed fusion centers did not receive state or federal start-up funds and were established by simply combining and renaming existing state and/or local public safety-related agencies into a state fusion center. Annual budgets for the fusion centers studied for this report appear to range from the tens of thousands to several million (with one outlier at over $15 million). Similarly, the sources of funding differed significantly from center to center—as stated, some were entirely dependent on diverting funds from existing state and/or local funding streams, while others were largely funded by federal grants. Federal funding ranged from 0%-100% of fusion center budgets, with the average and median percentage of federal funding at approximately 31% and 21%, respectively. Thus, it appears that on the whole, fusion centers are predominately state and locally funded. Staffing In general, the fusion centers studied for this report remain largely law enforcement oriented entities. That said, centers appear to be increasingly bolstering their non-sworn officer ranks and reaching out to non-law enforcement homeland security partners. Staffing Levels Staffing levels at fusion centers that are fully operational range from 3 to nearly 250 full-time personnel, with the average number of full time staff at approximately 27 persons. Part time personnel ranged from 0 to over 100, with the average number of part time staff at fusion centers running far lower. Federal representation at the fusion centers in question is small percentage-wise, but can have a big impact on the center itself. Such participation can provide access to additional information streams and help facilitate the security clearance process, as well as impact the overall relationship between the federal sponsor agency and the fusion center. Law Enforcement Personnel In general, law enforcement personnel are the dominant participants in the fusion centers studied in this report. Furthermore, the majority of sworn officers detailed to fusion efforts are from state police agencies and state bureaus of investigation, rather than local departments. Some may argue this is natural given the majority of fusion centers are state-wide entities that grew out of state police/bureau of investigation intelligence/analysis units. Of the local law enforcement agencies represented, the overwhelming majority are from the largest local police departments in the country, which have more resources, and in some cases, intelligence units (which are somewhat rare in local police departments as will be discussed below). While in general, law enforcement and public safety officials have more prior experience with intelligence then the other non-law enforcement public sector entities that are increasingly involved in fusion centers, it is important not to overstate law enforcement experience and/or resources with regard to intelligence. In general, many local law enforcement agencies may not have an intelligence or analytic unit, reiterating what RAND found in 2004 when it reported that 64 percent of state law enforcement agencies reported having a separate criminal intelligence unit, as compared to only 10 percent of local law enforcement agencies. While many local police departments do not have an intelligence unit, they may have an analyst(s). However, even when local departments have an analyst(s) and were interested in detailing someone to the fusion center, they may not have enough man power to do so on a full time basis, and for many on a part time basis. There are many other cases where local law enforcement agencies appear unconvinced of the value of fusion centers—and by their cost/benefit analysis, it does not currently benefit the department to detail personnel to the center. Non-Sworn Personnel from Law Enforcement Agencies Although the majority of fusion center personnel come from law enforcement agencies, not all of them are sworn officers. It appears that most fusion centers have made a concerted effort to hire crime and/or intelligence analysts. In one case, a fusion center had tactically oriented, case support analysts, and more strategic analysts that managed specific threat portfolios, as well as non-sworn analyst supervisors. Over the last two funding cycles, fusion centers have increasingly hired contract analysts using homeland security funds, although the length of the contracts has proved problematic for many fusion centers, which will be discussed further below. Non-Law Enforcement Personnel All-hazards centers are more likely than their counterterrorism or all-crimes colleagues to have non-criminal justice personnel, to include Department of Health, Fire, Emergency Management Services (EMS), and other non-traditional homeland security partners in the public sector. Surprisingly, there were a number of fusion centers that had been described as all-hazards that did not have non-law enforcement personnel working in the center. In many cases, non-law enforcement public sector detailees to the fusion centers worked part-time and/or had a desk and were pre-cleared so they could work out of the center as needed and/or during an event. Federal Participation As will be addressed in greater detail below, almost all of the fusion centers studied for this report have some federal presence. The agencies represented, roles they play, and size of detailee staff differed significantly from center to center. To varying degrees, federal participation in state and regional fusion centers appears to influence the relationship between levels of government, state, and local access to information and resources, the flow of information/intelligence, and maturation with regards to intelligence cycle functions. Approximately 30% of fusion centers are collocated with a federal agency(s), and as a result, that federal agency(s) may have a significant influence on their development, operation, and even budget demands. There appears to be a direct correlation between contact between a federal agency and a fusion center, and the center's positive outlook on the relationship between the two. In general, fusion centers collocated with a federal agency reported favorable relationships with that agency. This was often in stark contrast to the views of other fusion centers not collocated with a federal agency(s). For instance, one fusion center collocated with Immigration and Customs Enforcement (ICE) had nothing but praise for the agency, but another fusion center not collocated expressed frustration at not getting cooperation from ICE. It should be noted that collocation and praise for inter-agency coordination does not necessarily translate to enhanced organizational effectiveness. Many fusion center leaders stated that collocation and the appearance of seamless coordination did not obviate the need to frequently inquire about information or an incident that was known to federal employees but not shared with state fusion center representatives. Furthermore, fusion centers that were not collocated with a federal agency, but had a representative from a federal agency located full time in the center, were more likely to have a favorable impression of the relationship between the two than centers that lacked such a representative. Thus it is not surprising that many of the fusion center directors surveyed spoke of a close relationship with the local FBI entities: JTTF, Field Office, and FIG, given the large number of detailees from those entities. Federalism and the Federal Role in Fusion Centers One of the central, if implicit, themes that runs throughout this report is federalism. That is, while fusion centers were largely established by states, if the federal intent is to create a network of fusion centers that can be leveraged for both state, local, and federal public safety and homeland security purposes, there are several challenges that must be overcome. Research indicates one of the central challenges of designing a constructive and productive federal role in supporting these state and local fusion centers is working to ensure that the centers retain their state and local-level identity and support from those communities. According to many homeland security observers, one manifestation of this tension lies in the need to strike a balance between the national needs for a consistent provider of state and local threat information with the state's autonomy to pursue issues deemed of importance to local jurisdictions. This tension is often notable when reviewing the diverse, and at times incompatible, types of threat and warning products required by state leaders and contrasted to those requested by federal homeland security and law enforcement entities. Part of the challenge from the federal perspective has been how to guide, but not dictate to, the "owners and operators" of these largely state-established entities prior to the provision of any federal financial support. And, once federal financial and human resources support was provided, how to coordinate and target these resources for maximum overall return on investment. Another example of how federalism flows throughout the fusion center issue is the legal treatment of terrorism. Terrorism is a federal crime. If it is prosecuted at all, it is usually done at the federal level. However, since the September 11 th attacks, terrorism has been codified as a crime in many states. Another example of how federalism permeates fusion centers is privacy. There is one Federal Privacy Act, and numerous state privacy laws. If fusion centers are serving both state, local, and federal ends, one of the central questions becomes what is the role of the federal government in supporting these centers, and what products and services can the federal government reasonably expect the centers to produce, given federal funding levels. As elements of the states and regions they serve, fusion centers began to develop critical mass or staying power in the years immediately following the terrorist attacks of 2001. As these centers continued to proliferate across the country and garnered state support, federal entities began to take notice. While some 30 percent of the fusion centers interviewed were established prior to 2004, concrete federal financial support for the centers did not materialize until Fiscal Year 2004, when, according to DHS, it provided $29 million of Homeland Security Grant Program funding. Federal guidance to the fusion centers followed shortly thereafter in July 2005. Finally, in 2006, human capital support in the form of DHS and FBI detailees to the centers began taking place. While DHS has provided direct financial support to the fusion centers through the HSGP, the FBI has not provided direct financial support. The FBI's contributions have come more in the form of support for security clearances, personnel support, and other "in-kind" contributions, such as rent payments when centers are collocated with FBI Joint Terrorism Task Forces or Field Intelligence Groups. The federal government has played several roles in assisting states and regions to develop their fusion centers, including the provision of: Recognition, post-9/11, of the need to have state and local governments and the private sector, non-traditional actors in national security matters, play an increasingly important role in homeland security. Guidance, to be adopted voluntarily by fusion centers, on the central elements of a fusion center and suggested methods for how to establish and operate sound fusion center policies and practices. Technical assistance and training related to issues encountered as fusion centers develop. Financial resources to support fusion center "start up" costs, including system connectivity. Human resources to assist in interaction with federal agencies and analytical fusion. Assistance to support enhanced information sharing between the federal government and state and local entities through the fusion centers. Congressional hearings on fusion centers. Promulgation of federal regulations. Recognition of Homeland Security Role for Non-Traditional Actors As alluded to above, the rise of state and regional fusion centers is part of a greater movement to decentralize homeland security to include non-traditional stakeholders (public health, emergency responders, and the private sector) at all levels of government (to include state, local, and tribal). The federal government appears to have recognized that the September 11 th attacks signaled a need for greater state and local participation in homeland security. The 2002 National Strategy for Homeland Security acknowledges the expansion of responsibility for homeland defense and security, stating: The nature of American society and the structure of American governance make it impossible to achieve the goal of a secure homeland through federal executive branch action alone. The Administration's approach to homeland security is based on the principles of shared responsibility and partnership with the Congress, state and local governments, the private sector, and the American people. Even prior to the attacks of 9/11/2001, before the term "homeland security" was part of our national lexicon, the Department of Justice was working to ensure public safety and criminal information was shared across levels of governments. In 1998, the Department of Justice created the Global Justice Information Sharing Initiative (Global), a "group of groups" representing more than 30 independent organizations spanning the spectrum of law enforcement, judicial, correctional, and related bodies. In October 2003, Global released The National Criminal Intelligence Sharing Plan (NCISP), which sought to: link federal, state, and local law enforcement agencies so that they can share intelligence information to prevent terrorism and crime. However, the NCISP does not explicitly address fusion centers and their role in information sharing fusion is not mentioned. It was not until July 2005 that federal fusion center guidelines were issued. Federal Fusion Center Guidelines Under the aegis of the DOJ's Global, Federal Fusion Center Guidelines have been developed, as recommended by the Homeland Security Advisory Council's Intelligence and Information Sharing Working Group in December 2004. Global has issued two sets of Guidelines, and continues to work on additional guidance with, among other entities, the Office of the Director of National Intelligence's Program Manager for the Information Sharing Environment. The first set of Guidelines, entitled Fusion Center Guidelines: Developing and Sharing Information and Intelligence in a New Era—Guidelines for Establishing and Operating Fusion Centers at the Local, State, and Federal Levels—the Law Enforcement Intelligence Component was published in July 2005. The second set of Guidelines, entitled Fusion Center Guidelines Developing and Sharing Information and Intelligence in a New Era—Guidelines for Establishing and Operating Fusion Centers at the Local, State, and Federal Levels—Law Enforcement Intelligence, Public Safety and the Private Sector was published in August 2006. The federal Fusion Center Guidelines (FCG) received support from several law enforcement organizations, including the Law Enforcement Intelligence Unit (LEIU) and Major Cities Chiefs Association (MCCA), which added further credibility to the fusion center movement. On balance, fusion center respondents had generally positive impressions of these voluntary guidelines. Fusion centers that were more advanced in their development when the FCG were released generally found that they validated their existing, policies, structures and activities. One center, however, found that the FCG were not helpful as the issues discussed were not tied to an over-arching national fusion center strategy and did not address technical aspects of operating a fusion center. Fusion Process Technical Assistance Program Consistent with many of the 18 Guidelines outlined in the aforementioned Fusion Center Guidelines, the DHS and DOJ-sponsored fusion process technical assistance program offers seven fusion center services in order to assist fusion center development. Instructors for these courses include fusion center and DHS representatives. The seven technical assistance services include (1) Fusion Process Orientation, (2) Fusion Center Governance Structure and Authority, (3) Fusion Center Concept of Operations (CONOPS) Development, (4) Fusion Center Privacy Policy Development, (5) 28 CFR, part 23 (criminal intelligence systems), (6) Fusion Center Administration and Management, and (7) Fusion Center Liaison Officer Program Development. Research indicates that those fusion center representatives that have either participated in these services as trainers or students have found the sessions to have some utility. Others believe that, while the services were a useful first step, a more sustained form of fusion center mentorship, based on a national fusion center strategy, would add additional value to these brief courses. Federal Financial Support for Fusion Centers Federal financial support for fusion centers has largely come in the form of Homeland Security Grant Program (HSGP) funding. While the amount of funds recently provided by Congress to DHS to support state fusion center activities are unknown, past Departmental funding activities could be interpreted as somewhat confusing. The Consolidated Appropriations Act of 2008 provides DHS Office of Security and Office of Intelligence and Analysis funds to support state and local fusion centers. In December 2006, DHS reported that it has "...provided over $380 million in support of these centers." According to a DHS Office of Grants and Training (G&T) representative, this information includes the period from 2001 to the end of 2006. Subsequently, in April 2007, DHS reported that in fiscal years 2004-2006, it provided a total of $131 million to "...establish or enhance a fusion center or fusion cell." If the $250 million "delta" between these two figures is attributable to time alone, that would mean that from March, 2003, when DHS was established, the Department allocated approximately $250 million to fusion centers. While this is plausible, it may be unlikely, given the lack of DHS focus on fusion centers at that time and the small number and relative immaturity of fusion centers in existence during the 2001-2003 time period. According to a DHS representative, the difference between the two figures lies in two factors: time and "requested" versus "actual" funding data. Because data on actual funding lags data on requested funding, in order to provide the most up to date information, DHS G&T has used both figures. While this may be reasonable, even given DHS's methodological explanations, such wide variance in funding ($380 million versus $131 million) can be misleading. Empirical research suggests that the figures cited by DHS as having been allocated to fusion centers do not necessarily reach the centers themselves. This may represent a problem at the state level, as State Administrative Agents (SAAs) that administer HSGP funds may not always allocate funds in a manner that is entirely consistent with how the funds were requested. Alternatively, it could represent a problem with how DHS has defined fusion centers, and calculates the HSGP funding provided to the centers. One example offered by a fusion center leader noted that the center hired several analysts using HSGP funds but within a few months these personnel were reassigned to another non-fusion center homeland security effort. According to DHS, its methodology for calculating DHS-funded activities at fusion centers involves relying upon state and localities to report to the Department through use of the State Bi-Annual Strategy Implementation Reports (BSIR), an element of the Grants Reporting Tool (GRT). DHS searches through the GRT databases using, among other methods, keyword search terms such as terrorism intelligence, emergency preparedness, response teams, fusion, analysis, and others. DHS recognizes this method has its limitations in terms of accuracy, as it has stated: "Because fusion center and/or fusion cell related projects may exist in the GRT that do not specifically use the term "fusion" in one of the search fields, this list of projects should not be considered to be all inclusive of DHS-funded fusion center activities nation-wide." Moreover, the information on DHS-supported fusion center activities is based on grant recipients' entry of information into the GRT. While this method of calculation may serve DHS's purpose of articulating the specific projects funded related to fusion centers, there are a number of limitations associated with this methodology: Requested versus actual data could be stated more clearly. If both figures continue to be provided, historical percentages of requested amounts that are approved for actual funding might prove helpful. It speaks more to how HSGP funds may have been spent versus how they have been allocated. Notwithstanding the fact that Fusion Center Guidelines may not have been developed until 2005, if DHS and DOJ have been supporting fusion center "related" activities since 2001 when there were few fusion centers, the agencies should be able to ascertain the funding amount allocated to these activities. Grants allocated to fusion centers are done in a manner consistent with annual HSGP Guidelines which, while increasingly including direct language relating to fusion center activities, such as analysis of intelligence and information, are not specifically targeted to fusion centers. There is no "fusion center grant program." If it is a Departmental priority to develop a national network of fusion centers, it could be argued that a direct funding stream and/or HSGP Fusion Center Program might facilitate more targeted and tailored development of fusion centers. Alternatively, it could be argued that targeting fusion center funding more directly could undermine broader homeland security goals which transcend fusion center activities. In recent federal homeland security grant cycles, funds were permitted to be used to finance several fusion center-related activities and infrastructure investments. In a review of fusion centers nationwide, it appears that federal funding was likely to be used for start up costs and technology and infrastructure investment. In the last two years of homeland security funding, federal grants could be used to fund one- to two-year contractor slots for analysts at fusion centers. Additionally, federal grants were used to fund training for fusion center personnel. The salaries of federal employees detailed to fusion centers and the cost (rent, etc.) associated with collocation if a federal agency housed the fusion center, neither of which are funded through federal homeland security grants, are also represented in the overall federal contributions tallied in this report. Another central question with respect to federal funding for fusion centers, not unlike other federal funding streams, is the extent to which it is reasonable to attach certain conditions to the funding. As mentioned above, one challenge is to retain the grass-roots, state and local priority basis of these centers. Yet, from a business perspective, it is not unreasonable for the federal government to expect some return for its investment in fusion centers. Other than generally enhanced information sharing, it is not certain what that return on investment is from the federal perspective. Part of this question may be resolved when decisions are made about the extent to which, if at all, the federal government determines sustainment funding will or will not be provided to the centers. Sustainment Funding One of the central questions and challenges to fusion centers continues to be the provision of sustainment funding, or funding which is provided annually, on a sustainable basis, to fusion centers to support personnel costs and information connectivity, among other functions. At the first annual national conference on fusion centers, Secretary Chertoff stated that one of the manners in which DHS has supported fusion centers is by providing grant funding—over $300 million—for the creation of fusion centers. However, he continued, the funding ... helps fledgling centers get off the ground and start to build fundamental baseline capabilities. This is not meant, by the way, to be sustainment funding. We are not signing up to fund fusion centers in perpetuity. But we do want to use these grants to target resources to help fusion centers make the capital investment and training investment to come to maturity. And then, of course, we expect every community to continue to invest in sustaining these very important law enforcement tools. At the same conference where Secretary Chertoff delivered his direct message that sustainment funding was unlikely, a representative of the Homeland Security Council (HSC) delivered a seemingly more sanguine message on this topic. According to the HSC representative, the Administration realizes that fusion centers are not a "fly by night operation," and, as a result, "... if we are asking you to invest resources...we need to remain committed." The HSC representative stated that while there were no definitive percentage splits on burden-sharing, the Administration was having such conversations. Representative Jane Harman, having recently visited numerous fusion centers, raised concerns about fusion center sustainment funding, stating, "all the DHS staff assistants (detailees) in the world won't get the job done if fusion centers do not have adequate and sustained funding. Without money, they're going to disappear, and DHS State and local fusion center programs won't succeed. DHS Chief Intelligence Officer, echoed Representative Harman's funding concerns, testifying that I share many of the concerns expressed by this subcommittee ... about creating a sustainable fusion center capability at the non-Federal level. DHS, in partnership with DOJ, is a major supporter of fusion centers through our grants and accompanying technical assistance program, and in providing classified infrastructure.... Alternatively, it could also be argued that if fusion centers can prove their tangible value to their state, local, and regional constituents support base, funding will continue to be provided through state and local revenue sources. Empirically, numerous respondent fusion centers shared that if federal funding is eliminated, it was likely that the center would continue to exist, but its activities would become far more parochial—by focusing largely on criminal intelligence relevant to the state and locality alone—and not issues pertaining to federal homeland security concerns. What remains to be defined, and will be addressed below is, from a federal perspective, how is fusion center "maturity" defined, and how is it being assessed by the federal government, and according to what performance metrics? Given Secretary Chertoff's remarks, at what level of maturity do resources cease to be provided? Some argue that a federal fusion center strategy may be beneficial in addressing some of the historical fusion center concerns. Human Capital Support Research indicates that there are two levels of federal human capital support provided to fusion centers—individuals who have some level of contact with the centers as either local clients of the center and/or providers of information to the center, and part-time or full-time federal detailees to centers. The first category includes a relatively broad range of federal law enforcement and public safety professionals including representatives from the National Guard , Centers for Disease Control, High-Intensity Drug Trafficking Areas, as well as various DHS elements. The second category of part-time and full-time detailees to the fusion centers is composed largely, although not exclusively, of FBI and DHS representatives. While the FBI and DHS share certain missions, such as counterterrorism, they are unique agencies with distinctive missions and resource levels to meet their mission. Questions concerning the deployment of federal human capital resources to the centers might include To what extent have the FBI and DHS formally coordinated their deployments to fusion centers? How did the FBI and DHS determine to which fusion centers they would deploy personnel? What criteria were used to support the decision? What types of professionals were deployed to the center? How have the FBI and DHS personnel currently deployed been utilized? What roles have they played and what value have they added to fusion center operations and analysis? Table 1 below provides some data related to each of the aforementioned questions. What is notable is that it does not appear that the FBI and DHS drafted a joint, formal strategy outlining their approach to interaction with the centers. While each agency has its own unique mission, counterterrorism and countering crime are two large areas of mission overlap between these two federal agencies and the state and local fusion centers. Moreover, it also does not appear that the Homeland Security Council, a coordinating body akin to the National Security Council (NSC) primarily focused on homeland security issues, has issued a national strategy for fusion centers. While there are numerous issues that are raised by the lack of a comprehensive national strategy for what the federal government wishes to achieve through its interaction with fusion centers, one of the central issues becomes the allocation of human resource to the centers. While risk, maturity, and individual center needs are entirely valid means by which to determine how to provide resources to centers, these funding criteria could result in numerous centers with significantly increased human resources, while others with arguably similar levels of risk remain in a stage of relative immaturity due to lack of human resource support. The question of what the federal government collectively defines as a "mature" center, or what the minimum level of capability for a fusion center is from a federal perspective, it could be argued, hampers the development of a long-term and sustained partnership between the federal government and the state and regional fusion centers. "Lanes in the Road"—Roles and Responsibilities of Federal Detailees Fusion center leadership often described FBI detailees as having well-defined roles and responsibilities compared to that of the DHS representatives whose roles in the organization were often less well-defined. DHS officials claim to place Department representatives based on the needs and wants of the center. Thus, there appears to be a wider spectrum of roles for DHS personnel detailed to the various state fusion centers as their tasks vary from an intelligence analyst, to Departmental coordinators, to an advisor on federal grant applications. Yet all 15 DHS detailees come from the Office of Intelligence and Analysis. Some critics suggest that work undertaken outside of the core information sharing role between DHS and the fusion centers hampers the primary reason for being detailed to the center and negates any opportunity to "facilitate the flow of timely, actionable, all-hazard information between state and local governments and the national intelligence and law enforcement communities." Overall, relationships with DHS were described by fusion centers having a DHS detailee as relatively positive. However, by comparison, fusion centers reported a more favorable relationship with the FBI than DHS. There are numerous plausible explanations for such attitudes ranging from the different missions of FBI and DHS, to the sheer difference in numbers of FBI and DHS personnel assigned to these centers. Furthermore, it is likely that fusion centers, despite the traditional friction between state and local law enforcement and the FBI, are more comfortable with the FBI, because they share a common lexicon and world view that comes with being a member of the greater law enforcement community. Corporate DHS is, however, a relatively new entity and in many ways state fusion center personnel—who are often sworn law enforcement officers—are still trying to determine how they interact with the Department. An example of this is the concern many state and local law enforcement and fusion center staff have expressed regarding sharing law enforcement sensitive information with the Department, which often has contractor analysts and other non-law enforcement personnel review data. On a few occasions, fusion centers mentioned steps they had taken to ensure DHS analysts would not be able to access various portals utilized by the center or participate in information sharing calls with other law enforcement agencies. A common refrain from state fusion center leadership was that there was no coordination between the FBI and DHS with respect to substantive mission support and resource allocations were often duplicative or nonexistent. At present, the majority of terrorism-related issues that are brought to the attention of state fusion center entities are provided directly to the local JTTF, with the FBI deciding to investigate the issue or returning the lead to the reporting agency. However, DHS has also requested that all state fusion centers report any suspicious incident that may be perceived to be terrorist activity to the Department. Confusion exists whether this information should be transmitted to DHS' Office of Intelligence and Analysis, the DHS National Operation Center, or provided simultaneously to the DHS and the FBI JTTF. If the latter, homeland security observers are concerned that due to a lack of definitive federal roles and responsibilities crucial information may not be acted upon as DHS and the FBI will presume the other agency is undertaking the proper due diligence of ascertaining the viability of a potential threat. The reporting chain problem—from state and local fusion centers to the Federal government—has been recognized. Under ISE Guideline 2, one recommendation is that DOJ and DHS, in consultation with the Program Manager's Office, develop standards to: (1) specify the means through which State, local and tribal data related to terrorist risks and threats and associated requirements and tasks is communicated to federal authorities and private sector entities and (2) develop, maintain and disseminate assessments of terrorist risks and threats gathered at the state, local or tribal levels, and (3) develop processes and protocols to ensure Suspicious Incident Reports and Suspicious Activity Reports are reported to appropriate law enforcement authorities. Implementation of this recommendation within fusion centers remains nascent and, therefore, inefficient dissemination procedures continue. A related problem, that further highlights the lack of coordination between the federal agencies, is the vehicles for reporting and receiving information. As previously stated, fusion center officials expressed continued frustration about the multiple, seemingly competing, information systems promoted by various federal agencies. Entering the same data into multiple databases is time-consuming and inefficient. One fusion center official criticized DHS and FBI for failing to consider fusion center needs while promoting their own "favorite pet projects." Enhanced Information Sharing In order to ensure that terrorism information is shared "... among all appropriate federal, state, local and tribal entities, and the private sector through the use of policy guidelines and technologies...," Congress and the Administration created the Information Sharing Environment. Enhanced horizontal information sharing between federal agencies and vertical information sharing between all stakeholders across all levels of governments is the ISE goal. Located within the Office of the Director of National Intelligence, the Program Manger for ISE has been working to integrate fusion centers into a broad initiative to enhance information and intelligence between the federal government, and state and local law enforcement and public safety entities, as well as the private sector. The Homeland Security Advisory Committee believes that the concept of intelligence/information fusion has emerged as a fundamental process (or processes) to facilitate the sharing of homeland security-related information and intelligence at the national level, and, therefore has become a guiding principal in defining the ISE. According to its Information Sharing Environment Implementation Plan (November 2006), the ISE has or will take the following actions with respect to fusion centers: Establish a Federal Fusion Center Coordination Group "... to identify resources to support the development of a network of State-sponsored fusion centers charged to share information at all levels of the ISE, and will recommend funding options." Encourage DHS and DOJ to "... work with Governors and other senior State and local leaders to designate a single fusion center to serve as the statewide or regional hub to interface with the Federal government ..." Encourage statewide and major area fusion centers to "ensure locally generated terrorism information is communicated to the Federal government through appropriate systems identified by Federal officials as part of ISE implementation." If, as mentioned above, one of the federal government's goals is to create a national network of fusion centers to share homeland security information in a timely and effective manner, these initiatives, once implemented will assist in integrating federal, state, and local public safety and law enforcement officials together. However, these initiatives do not necessarily, in and of themselves, constitute a national strategy for fusion centers, as they do not clearly articulate, among other factors, federal expectations of fusion centers, and the extent to which sustainment funding will be provided by the federal government for fusion centers. With passage of the Implementing Recommendations of the 9/11 Commission Act of 2007 (P.L. 11-53), the Interagency Threat Assessment Coordination Group (ITACG) was statutorily recognized as the federal agency responsible for facilitating the flow of finished intelligence products to state and local homeland security entities. The participation of state and local personnel in the ITACG, located at the National Counterterrorism Center (NCTC), allows state and local officials to develop an understanding of the volume and breadth of federal intelligence. Another objective of the ITACG is to allow federal Intelligence Community personnel to learn more about the types of information and intelligence that is valuable to state and local governments. Fusion center participation in the ITACG may be valuable, as the fusion centers represent a central point through which federal intelligence can flow across the country through appropriate dissemination channels and security procedures. At this stage of development, it is unclear what relationship the ITACG will have with state and regional fusion centers. A director for the HSAC stated that "DHS used to have its own way of sending out information, and the FBI did too...now [thanks to the ITACG] we have a coordinated way to send out threat assessment information." However, there are some indications that the FBI and DHS will retain dissemination rights, thus calling into question whether the ITACG will streamline intelligence flow to state and local authorities, or exacerbate the current information sharing channel problems. Some might suggest the ITACG would be the natural arbiter for fusion center information and intelligence coordination efforts. Congressional Oversight and Funding While fusion centers are not federal entities and, therefore, have no federal statutory basis, federal agencies with homeland security responsibilities appear to be relying heavily on the information gathered at the local level to support the development of a national threat assessment. Congress plays a role in supporting these centers and federal government homeland security efforts in at least two areas. First, as mentioned above, it authorizes and appropriates both HSGP funding, some of which is allocated to support fusion center related activities, and the National Foreign Intelligence Program (NFIP) budget which supports DHS and FBI personnel detailed to the centers. Second, Congress has held numerous hearings to learn more about fusion centers. Notably, during the 109 th Congress there were over five hearings held related to intelligence sharing, DHS Intelligence, and fusion centers. Federal witnesses included representatives from the FBI, DHS, and Office of the DNI. There were also numerous witnesses from state and local agencies, including, but not limited to, the Illinois State Police, the Virginia Fusion Center, the New Jersey Office of Homeland Security and Preparedness, and the Commonwealth of Massachusetts. Thus far in the 110 th Congress, there have been at least five hearings related to state and local fusion centers, with one hearing taking place in Washington State. Witnesses have included representatives from the private sector, including The Boeing Company and Pacific Northwest National Laboratory, and individuals from state and local fusion centers in Florida, Tennessee, and Delaware. DHS-OIA funding levels are classified as a result of OIA being a member of the U.S. Intelligence Community. As a result, the level of DHS-OIA budgets allocated to detailing intelligence professionals to fusion centers is unknown. In another indicator of congressional interest in increasing funding to the centers, P.L. 110-28 , the "U.S. Troop Readiness, Veterans Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007," provided an additional $8 million to the DHS Analysis and Operations account "... to be used for support of the State and Local Fusion Center Program...." Promulgation of Federal Regulations—28 CFR, Part 23 As mentioned above, all fusion centers are guided by federal regulation 28 CFR, Part 23 with respect to how they manage their multi-jurisdictional intelligence systems operating under Title I of the Omnibus Crime Control and Safe Street Act of 1968 (P.L. 90-351). 28 CFR, Part 23, requires all multi-jurisdictional law enforcement information management systems funded in part by federal grants to follow guidelines for the collection, storage, and purge of information. 28 CFR, Part 23 states that information stored in such a system must be "reviewed and validated for continuing compliance with system submission criteria before the expiration of its retention period, which in no event shall be longer than five (5) years." It is based on a "need to know" and "right to know," which are not explicitly defined terms. Rather, 28 CFR, Part 23, calls upon each project to establish their own written definitions. In many ways, 28 CFR, Part 23, may be outdated and in need of evaluation against the backdrop of the current threat environment. 28 CFR, Part 23, is focused on traditional crime, not terrorism. As such, it has relatively short information retention periods which may not necessarily be consistent with known terrorist planning cycles and/or the need for historical data for terrorism threat assessment. Furthermore, this federal regulation was written before many of the data storage and data-mining technologies were available. It is unclear whether some of the technological devices available today, like those that allow users to query disparate databases which are not directly connected, would fall under the jurisdiction of 28 CFR, Part 23. The regulations also promote a "need and right to know" standard, which has been judged as one of the factors contributing to the (real or perceived) "wall" between intelligence and law enforcement at the federal level that prevents effective information flow. Finally, it could be argued that 28 CFR, Part 23, is too vague in parts because it allows agencies to define their own terms, like "need to know," which could contribute to vastly different standards across jurisdictions and, ultimately, ineffective information sharing. Private Sector Purposes and Roles in Fusion Centers The relationship and role of the private sector is a function that most state fusion centers have yet to fully define and/or embrace. A number of the fusion centers surveyed have undertaken informational and security-related discussions with some of the major critical infrastructure owners and operators and data-providers within their respective jurisdictions. However, while acknowledging that a comprehensive understanding of the risks to the state/region is impossible to attain without a viable relationship and consistent information flow between the center and the private sector entities within the center's jurisdiction, the vast majority of centers have yet to put the processes in place to support such an endeavor. Very few of the state and regional fusion centers have an infrastructure sector representative detailed to their organization and rely, in part, on open-source information, data provided by the federal government, or contract data vendors for information about threats to a critical infrastructure facility. Common reasons for the lack of a relationship between the fusion center and private sector entities are prioritizing the infrastructure sectors to be represented in the center based on risk; a lack of appreciation as to the role and information a sector representative might provide; and the lack of a federal government strategy or recommendations regarding how the fusion center should incorporate private sector data into the analytic fusion process. Information Sharing and Analysis Centers (ISACs) Although representative ISAC organizations have different mandates and provide different types of information and services, generally the entities provide its members data related to threats, vulnerabilities, pending legislation, and issues of concern to a specific infrastructure sector. ISAC organizations, originally envisioned as a mechanism for the sharing of critical infrastructure information between partnering corporations and with the federal government currently are not being fully utilized by state and regional fusion centers as a resource for information. One option for fusion centers is to enhance their relationship with private sector organizations through the establishment of education and information-exchange efforts with ISAC representative organizations. Some homeland security observers suggest that the building of a productive relationship with private sector entities may allow the fusion center to enhance information sharing efforts with operators of the state's critical infrastructure and assist in the preparation and prevention phase of homeland security. Protected Critical Infrastructure Information (PCII) The Protected Critical Infrastructure Information (PCII) Program may also be a venue that would allow a fusion center to be in the best possible position to effectively assess risks within its jurisdiction and/or respond to a potential situation at a critical infrastructure facility. If DHS is authorized by the private sectors engaged in this effort to disseminate this information to state and regional fusion centers, it may allow state and local officials to approach potential situations of concern with knowledge of hazardous critical infrastructure vulnerabilities that may place the state/region at greater risk. Should PCII data be authorized for sharing with state fusion centers, the information may enhance state and local authorities plans for incident response coordination efforts. Privacy Concerns and Private Sector Data Use by the Federal Government As stated throughout this report some homeland security observers note that increasing the universe of available information does not necessarily translate into a better understanding of the risks to a geographic location or infrastructure sector. Since 9/11, many programs have been established or enhanced for the purposes of searching for signs of terrorist activity in a central repository to assist with information collection, trend analysis, and spotting of anomalies. Of note, the DHS Analysis, Dissemination, Visualization, Insight, and Semantic Enhancement (ADVISE) program, which is being developed to "analyze large amounts of data, such as the relationships among people, organizations, and events" when fully functioning may have the ability to receive and provide information to the nation's fusion centers to assist with analytic strategic indications and warnings. Should ADVISE or other data collection and analysis programs become fully functional and accessible by fusion centers, some might see this as a devolution of national intelligence capabilities from the federal government to state governments resulting in the encroachment on individual civil liberties. Some are concerned that as fusion centers and the IC agencies codify relationships, there is increased potential for misuse of private sector data. It could be argued that such a relationship will allow state entities to act as agents of the federal government in performing federal intelligence community activities that violate federal privacy laws. Fusion Center Challenges and Potential Options for Congress Given that fusion centers are entities established by states, localities and regions to serve their own criminal, emergency response, and terrorism prevention needs, and the sensitivities associated with federalism, there may not necessarily be a federal remedy to every fusion center-related issue identified in this report. Moreover, there is a direct correlation between federal remedies to issues affecting fusion center development, and the extent to which Congress wishes to condition the funds it authorizes and appropriates for such centers. As a result, there are at least two categories of challenges and potential options: (I) those challenges for which there are unique federal remedies and (II) those challenges for which there are no unique federal remedies, and may be more oriented toward possible state or level governmental intervention. Congressional remedies could potentially involve a broad range of possible actions including, but not limited to, oversight of federal agencies and entities engaged in interaction with fusion centers, requesting Executive Branch action on any number of fusion center-related issues, establishing a statutory basis for fusion centers, convening additional hearings which include state and local fusion center leaders as expert witnesses, adjusting future funding levels for fusion centers, and/or considering the extent to which, if at all, any future federal funding may be conditioned on certain performance benchmarks being met. I. Federal Challenges and Potential Options for Congress Given the stated need to develop a national network of fusion centers, and that a certain amount of financial and human resources have been devoted to assisting the states and regions develop their fusion centers, the following represent challenges and options that the federal government and, specifically, Congress may wish to consider. Option 1: Draft a National Fusion Center Strategy Notwithstanding the fact that individual federal agencies and offices may have their own strategies concerning their interaction with state and regional fusion centers, there remains no definitive national strategy on fusion centers . One option for Congress is to recommend the executive branch draft a cross-agency national strategy with input from the FBI, DHS, ODNI - PM-ISE, DOD and other Intelligence Community, and state and regional fusion center representatives. Should such a strategy be determined desirable, it might address the following issues: Ownership and benefits. Who "owns" fusion centers and who benefits from their work? Federal versus SLT roles and responsibilities, to include funding. What is an equitable division of labor and costs? Permanence—statutory basis and sustainment funding. If fusion centers play an important homeland security role, should they be provided a statutory basis at the federal level? If continued federal funding is being contemplated, how might it be structured to yield the most productive outcome for federal, state and local fusion center clients? Ultimate goals and performance measures. What gaps do fusion centers fill and how does the federal government measure performance? Coordinated federal interaction with fusion centers. How does the federal government ensure the various agencies engaged in homeland security have a coordinated plan for fusion and efficient interaction with fusion centers? Relationship between fusion centers and the Federal Intelligence Center. How closely, if at all, should fusion centers be integrated into the federal intelligence community? Are fusion centers members of the intelligence community, adjuncts or partners with the intelligence community, a proxy information source, or an unrelated and parallel information effort? Pros and Cons. There are many arguments in favor of the creation of a national strategy for fusion centers. Such a strategy would likely create coherence to what could be argued is currently a somewhat ad hoc and informal approach to fusion centers. Some might argue that without such a overarching national strategy, fusion centers will only provide limited benefits to limited consumers. Arguments against this option might include disruption to ongoing activities, or that such a strategy, while not formal, already exists in the form of the collective activities of DHS, the FBI, Global Justice, and the Office of the Director of National Intelligence's Program Manager for the ISE. Furthermore, to be successful in creating a cohesive structure for forty+ fusion centers across the country, a national strategy may need to deal with several politically sensitive issues, such as the need for a joint deployment strategy for the federal agencies that detail personnel to state and regional fusion centers. However, if this issue and other sensitive topics are not comprehensively addressed and resolved, fusion centers may have limited national impact. The strategy's potential for success is likely to hinge on the perception of input by all-levels of government and sectors, and the means used to implement the goals and objectives outlined in the strategy. Option 2: Answer the Sustainment Funding Question While respondent fusion center leaders had many high priority items concerning their interaction with the federal government, the question of sustainment funding was foremost in their minds. Should federal funding to fusion efforts be continued? To what end? And how conditional does Congress want federal aid to fusion centers to be? The current regime of HSGP funding includes some limited conditions for funding fusion centers. However, the Fusion Center Guidelines remain entirely voluntary even for recipients of federal HSGP funds. As a result, for example, the federal government has no formal and systematic means of auditing whether each center is appropriately protecting civil liberties, or using federally funded intelligence analysts in a manner that is consistent with national goals and objectives for fusion centers, should they be explicitly defined. As outlined above, should Congress determine it wishes to take action on this option, a range of possible legislative tools are available, as discussed below. 2a. Status Quo The most obvious option is to continue the current manner of funding—that is, using the HSGP grants as the federal mechanism to make funding available for states and localities for potential allocation to state and regional fusion centers. This process is reliant on state grant applications, and the flow of federal funds to state/regional fusion centers is largely determined by the sub-federal designees that make homeland security grant allocation decisions within each state and/or municipality. Furthermore, fusion centers compete with a wide range of homeland security initiatives for funding. While certain elements of HSGP funding are geared toward supporting fusion center development, there is no targeted funding stream directly allocated to fusion centers themselves. If the approach to funding fusion centers remains the status quo, then Secretary Chertoff's statement that DHS has not "... signed on to fund fusion centers in perpetuity...." will remain true. Without a dedicated funding stream, and/or another large-scale terrorist attack within the United States, it is unclear whether fusion centers will continue to receive federal funding, as well as sub-federal resources, to continue their current functions as outlined in this report. Pros and Cons. Arguments in favor of maintaining the status quo include those who suggest such an option would result in a natural progression of the current funding model. It would allow for a certain amount of continuity in funding streams and methods of allocating funds. Such an option would likely result in minimal HSGP program disruption. Arguments against this option might include that the status quo would continue to leave the fundamental sustainability question—one that is foremost in the collective mind of fusion centers—unanswered. Maintaining the status quo may have a drawback as it might perpetuate uncertainty about sustainable federal aid. This uncertainty might continue to hamper how fusion centers plan their information technology and human resource needs for the future. 2b. Status Quo "Plus"—Enhance Flexibility of the Current HSGP or Establish a Fusion Center Grant Program Within HSGP Under this potential option, the current grant program could be slightly altered to address some of the oft cited hurdles that state and local officials believe impede the flow of federal grant funds to fusion center projects. Two such alterations to be considered include Increasing the duration of grant cycles in order to allow for enhanced continuity and human resource planning, particularly for contract-supported intelligence analysts. Building some level of autonomy into the HSGP "80/20" localities/state split of HSGP funding to allow state political leadership some autonomy to re-allocate a portion of overall HSGP funds to a single, designated state-wide fusion center. Such flexibility could be conditioned on formal HSGP audits to ensure accountability and that funds re-allocated within state HSGP awards are consistent with the state's fusion center mission and Federal Fusion Center Guidelines. These audits would include input from fusion center leaders, State Administrative Agents, and the state's Homeland Security Advisor. A more significant adjustment to the existing HSGP that could potentially alleviate some of the difficulty associated with facilitating the flow of federal homeland security funds to fusion centers is the creation of a narrowly targeted "Fusion Center" grant category, similar to the Port Security Grant Program (PSGP) and the other four sub-categories included under the Infrastructure Protection Program (IPP). If such a program were established and funded, arguably, it could provide the federal government with increasing leverage to condition the funding on a number of factors, not the least of which may be compliance with Fusion Center Guidelines, or other, more specific fusion center performance metrics. Pros and Cons. Arguments against this option might include the position that such a program might set a precedent for other more narrowly tailored homeland security oriented programs to advocate for a similar approach. It could also be argued that such a program might undermine the current federal approach to fund the functions which underlie homeland security—such as information sharing and analysis. Alternatively, it could also be argued that there are several existing programs that are narrowly tailored to ensure that risks and capabilities determined by the federal government to be nationally critical are already funded in this manner (such as the Buffer Zone Protection Program (BZPP), and other Infrastructure Protection Program (IPP) grants). If the federal government determined that state and regional fusion centers provide a critical homeland security function, both protecting critical national infrastructure and transportation security, might it not be prudent to have a fusion center grant program? 2c. Develop a Sustainment Funding Approach If it is determined that establishing a national network of fusion centers serves long-term, national homeland security interests, it may be reasonable to design a system which provides resources to state and local fusion centers commensurate with the national benefit derived. This presupposes the development of (1) a cogent set of concrete national interests served by fusion centers, (2) a set of metrics that can quantitatively capture how well fusion centers are meeting these interests and goals, (3) standards for "minimum levels of capability" and fusion center "maturity,"and (4) thresholds linking levels of maturity to levels of federal funding. These standards and metrics could be developed as part of a cooperative endeavor between federal, state, and local representatives, possibly under the "Global" program. As with other options above, the extent to which Congress could condition such an approach is an open question. Pros and Cons. One of the primary arguments that could be made against this option is that it is too complex and, as a result, would be difficult to implement and may encourage states to "game the system" so as to remain immature enough to retain federal funding. Alternatively, arguments in favor could be that Congress is responding to fusion center requests for a long-term and explicit federal approach to sustainable funding. While the states may not like the performance metrics developed and/or the thresholds for funding phase-outs, these metrics and standards would at least create an environment of certainty in which states could better plan and target state and local funding streams to meet their ongoing funding needs that the federal government has clearly informed them it will not meet. If this option is pursued, metrics development and center evaluation would likely be most effective if designed and undertaken with fusion centers and SLT agency sponsors to ensure they are not resisted or rejected. 2d. Direct and Sustainable Fusion Center Functional Support Alternatively, Congress alone, or with input from DHS, the FBI, and the ODNI's PM- ISE, could determine that there are certain fusion center functions that provide direct value and benefits to the federal government, and as such, warrant sustainable federal financial support. For example, it might be determined the development of state-wide intelligence systems, and information and intelligence analysis, are two core fusion center functions that are clearly linked to the federal benefit derived from fusion centers. As such, the federal government could determine that it would support these functions directly and possibly in a sustainable manner. If such a decision were made, a pilot program might be established and implemented at certain fusion centers over a specified time period to ascertain empirical federal benefits derived from direct support of such functions. Pros and Cons. Arguments against this option might include that such an approach goes beyond what some in the federal government have stated the government will support, and could increase federal outlays beyond levels currently being supported, and might create a sense of entitlement among fusion centers. Arguments in favor of this option are that such an approach would provide fusion centers with a sense of certainty about federal funding. If, for example, fusion centers knew Congress would support funding for intelligence analysts, they would no longer need to budget for such personnel. It could also be argued that such an approach would be relatively simple—after a period in which seed funding is provided and centers reach maturity (as judged by the federal government), centers would get some level of sustainment funding for a relatively specific function or set of functions subject to a pilot program's assessment of output that benefits national interests. Some lessons could be learned from the federal government's other grant program experiences, including the Community Oriented Policing Program model. It could be argued that federal support and cultivation of the relevant skills and capabilities within fusion centers that provide direct benefit to the federal government may result in state and regional fusion centers acting as a "force multiplier" for federal efforts. Option 3: Training Given that effective information/intelligence fusion and proactive approaches to all-hazard prevention and preparedness depends on a common understanding of intelligence and information and the potential uses thereof, an argument can be made for enhanced and uniform fusion center training. Research indicates that the diversity of types of professionals serving in fusion centers can lead to differing perspectives, or possibly, competing visions for the fusion center. Retired military intelligence officers may approach intelligence differently from, for example, state first responder personnel. While neither approach may be "best" and the center might benefit from diversity of opinions, a common understanding of and lexicon for intelligence and its benefits and limits amongst all level of fusion center personnel can go a long way toward ensuring cohesiveness, clarity of vision, and productivity of a fusion center. In addition to intelligence training, some homeland security observers note that fusion centers may benefit from additional and standardized civil liberties training. Most fusion centers surveyed claim to have institution-wide civil liberty training and awareness activities that ensure all employees are aware of how personal and corporate information can be collected, received, stored, and combined with traditional intelligence community information toward producing a risk assessment for a given issue of concern. However, this training is often agency-specific and there may be differences between state activities and federal expectations. As such, the federal government may wish to require a part of all funding allocated toward a state fusion center be used for nationally consistent civil liberties training with special attention to concerns surrounding the use of private sector data. Another option would make such training a precondition for receiving federal grants. Should Congress wish to pursue this option, a range of possible legislative tools are available, including designating a federal government entity (See Option 4f) to provide oversight of these efforts, amongst others, as discussed below. 3a. Philosophy—Develop National Intelligence and Information Lexicon and Standards for Fusion Centers Congress may consider requiring the Intelligence Community to work with law enforcement (State, Local, and Tribal (SLT) and federal) to develop a common lexicon and definitions for intelligence, information, situational awareness, and other key concepts to ensure all entities, at all levels of government, that are engaged in homeland security are working from the same play book. These basic definitions and standards may be applicable whether the information/intelligence is national security-related or criminal in nature. The PM - ISE, which is currently working to reconcile different sensitive but unclassified security designations and handling instructions, might be a natural coordinator for such an effort. The creation of enhanced and standardized, national fusion center training could help promote this common "dictionary of intelligence." Pros and Cons. Arguments in favor of this option might include that the lack of clarity between a "pure" intelligence and criminal intelligence role leads to over-aggressive or under-aggressive intelligence postures in fusion centers. In short, clarity would lead to greatly enhanced information sharing. Arguments against this option could include a fundamental disagreement with the belief that there is a difference between "pure" intelligence and criminal intelligence—both seek to prevent man-made threats, including crime and terrorism. Therefore, no additional training is needed—fusion centers understand the legal regimes under which they operate. Another argument against creating these standards and common definitions is that it is likely to be a difficult undertaking given the sheer number of agencies involved and remnants of ownership culture that still persist within the federal Intelligence Community. 3b. Enhance Civil Liberties and Privacy Training Given the potential for privacy and civil liberties violations to substantially undermine the public support for fusion centers, enhanced and periodic re-fresher training in civil liberties may be a valuable tool for fusion center personnel. While all respondent fusion centers were cognizant of the need to protect civil liberties and provided initial training on privacy and civil liberties protection, in general, this was one time, static training. Enhanced training might include in-state or national instances in which violations of privacy and/or civil liberties occurred and possible lessons learned from those instances. Moreover, annual re-fresher training that emphasizes how First Amendment protected activities differ from speech which incites violence or sedition, may be useful. In addition, the adoption of national standards and/or guidelines in this area would support this effort. There have been some efforts in this area - PM-ISE issued privacy guidelines for the information sharing environment in December 2006, which are available to the public and could be utilized by fusion centers. It could be argued, however, that these guidelines aren't likely to have a significant impact on state and regional fusion centers in their current form, as they are too vague, only focused on federal agencies, and entirely voluntary. Pros and Cons. Arguments against this option may be resource-based—that is, training resources may not allow for such training. Arguments in favor of this option may include an understanding of history. The lessons of COINTELPRO, the period of domestic intelligence abuses in the late 1960s and early 1970s, necessitate such training. It may also be worth examining the training related to 28 CFR, Part 23, which was adopted in response to COINTELPRO abuses. 3b-Part II. Enhance Training of 28 CFR, Part 23 With regard to training on 28 CFR, Part 23, the federal regulation governing multi-jurisdictional intelligence systems, many law enforcement agencies involved in fusion centers (often because the latter were an outgrowth of the former) reported that they had received some training from DOJ and/or other contractors on the regulation when they first began operating an intelligence management system. In many cases, that training took place many years ago and the agencies in question have had little to no follow up training. Many didn't know who at DOJ to contact in the event that the fusion center had a 28 CFR Part 23-related question or what office fielded additional training requests. Almost all fusion centers interviewed for this report facilitated 28 CFR Part 23 training for their staff either through the center directly or via the state police or bureau of investigation. As this is taking place at the state and local level, it is unclear if there is a consistent application of 28 CFR. Currently, fusion centers are in the difficult position of being urged to be proactive to help prevent future attacks, while simultaneously being warned about being too aggressive. Additional and periodic training to fusion centers might be considered, even if their parent state police/bureau of investigation agency and other law enforcement participants have already received such training at some point in their development. Consideration may also be given to providing legal resources for fusion centers that want an external legal opinion on their collection, storage, and dissemination activities. Pros and Cons. Some might argue that the advantage to this type of additional and periodic training is that it might help eliminate questionable intelligence practices, clarify legitimate activity, and ensure the protection of civil liberties. The availability of additional legal resources to fusion centers and SLT law enforcement agencies may result in better and consistent legal advice and assist resource-strapped entities that are currently suffering a fiscal crisis. Arguments against such training might be resource-based. Furthermore, if 28 CFR is going to be revised (Option 6a, page 69), training on what could be viewed by some as the "old regime" may not seem productive. 3c. Establish a Fusion Center Mentor Program As mentioned above, when fusion centers have had an opportunity to avail themselves of the DHS/DOJ Technical Assistance Program attest, the program seems quite beneficial. However, the support is provided over the course of a few days and many fusion center respondents desire longer-term and sustainable assistance, the type characteristic of traditional mentoring programs. While some fusion centers have created informal mentoring programs of their own, a more formal program could be designed that would flexibly pair centers of varying levels of maturity with one another to share best practices and means of surmounting what may be common obstacles to fusion center development. Pros and Cons. Arguments against this option may be that it is essentially superfluous as informal mentor relationships are already being established by the proactive outreach of fusion center leaders either informally within their region, or at fusion center conferences. Moreover, fusion center conferences and the DHS "Lesson Learned" website provide an opportunity for centers to conduct liaison and share best practices formally and informally. Arguments in favor of this option include the position that such a program would constitute a relatively minor addition to the Technical Assistance Program in terms of resources. The program could facilitate the pairing up fusion centers they believe could learn from one another. While official guidelines for the mentor relationships may not be necessary, the federal government might require any new lessons learned be added to the DHS Lessons Learned Information Sharing database. 3d. Enhance Private Sector Outreach and Information Some homeland security observers view the relationship between state fusion centers and the private sector as one of both unlimited potential and great concern. Currently, most fusion centers describe an interest in expanding their relationship with the private sector in their jurisdiction, but consistently, most fusion centers were admittedly behind in developing those relationships. Information sharing with the private sector was often ad hoc and inconsistent. Furthermore, it is important to note that fusion centers did not appear to be systematically importing and incorporating private sector data into their information/intelligence fusion efforts, although some expressed an interest in better utilizing private sector data in some form. It is important, however, to identify the opportunity to introduce new types of data, including those from private sector sources, into the intelligence fusion process to allow for a comprehensive risk assessment to a given geographic environment or infrastructure facility. It may be that the data pointing to a pending attack cannot be understood in context unless all knowable information is available for assessing. On the other hand, absent strenuous civil liberty protections and safeguards the possibility for misuse of personal or corporate data looms over many fusion center activities the state may undertake in partnership with or support of private sector organizations. Furthermore, it could be argued that massive private data collection and analysis efforts are wasteful and a better use of resources would be to follow known criminal leads rather than sifting through an enormous amount of data looking for possible signs of terrorism. Pros and Cons. Arguments in favor of increasing interaction between fusion centers and the private sector focus mostly on increasing the availability of possible terrorism-related information. Should the federal government and private sector routinely share information some believe this will lead to a better understanding of the threat environment which in turn may deter or defeat future terrorists attacks. Others argue that the sharing of significant amounts of private sector data with the nation's fusion centers will do little to increase security as crucial pieces of terrorism-related information will not be discernible due to being included in databases containing large quantities of irrelevant information. These homeland security observers suggest that the possibility of civil liberty abuses of private sector data residing in a state's fusion center far outweighs the possible benefits that may occur when combining private sector data with other suspected terrorism-related information. 3e. Enhance Public Sector Outreach Some respondent fusion centers had a relatively pro-active public outreach strategy that included a website, brochures and billboards, and/or a 1-800 "tip" line that encouraged the public to call into the center directly. More often, fusion centers had minimal level of interaction with the public by design and due largely to resource constraints. While not violating the precept that "one size does not fit all fusion centers," it could be argued that, if resources allow, centers should be encouraged to have a public message and image consistent with their public mission. Public support and understanding of what these centers can and cannot do may be essential to their long-term viability. Moreover, the law enforcement elements of fusion centers are responsible for knowing their communities and being able to spot anomalies. Public outreach can facilitate calls into fusion center tip lines when they witness behavior that "just does not seem right." Pros and Cons. Arguments against this option are likely to be largely resource-based. Centers with fewer personnel do not have the necessary staff to operate these programs, for example, a phone bank necessary for a tip line. If the federal government is considering requiring such outreach as a condition of accepting funds, it may need to provide additional funds, and/or re-programming of existing funds. Arguments in favor of this option include a fundamental belief that these centers serve a public mission and should be not perceived as secret or clandestine entities that are spying on law-abiding citizens. If the centers do not define themselves to the public, they may be defined by other groups who may not necessarily have primary source knowledge about the center and its activities. 3f. Additional Training for SLT Cleared Personnel Some may argue that clearing SLT personnel, which remains an obstacle to effective information sharing, (Option 6e) without providing them training on how to handle classified intelligence and how to use it without disclosing sensitive information to their staffs may be unfair and ill-advised. Congress may wish to consider funding additional intelligence training for the SLT personnel assigned to fusion centers. It may also be possible for the federal agency detailees at fusion centers to assist with this process. Congress may wish to consider urging DHS, the FBI, and other agencies with detailees at fusion centers to train their staff to assist fusion center leadership with using classified intelligence and tasking personnel based on threat information, without divulging classified information. Pros and Cons. Arguments in favor of such a training program include that it may help facilitate necessary information sharing, while ensuring classified information remains secure. However, federal agencies may reject the idea of having field personnel assisting in such an effort and may wish to retain such authority at headquarters. Option 4: Build Additional Linkages to the Federal Intelligence Community DNI Michael McConnell's "Focus Area 5: Accelerate Information Sharing," in the 100 Day Plan for Integration and Collaboration , stipulated, "The Plan includes objectives related to enhancing information sharing within the IC as well as the formalization of fusion centers that are in the process of being developed." Formalization and linkages between the fusion centers and the federal intelligence community could have many interpretations and concrete manifestations. As outlined above, should Congress determine it wishes to take action on this option, a range of possible legislative tools are available, as discussed below. 4a. Formalizing, Creating a Statutory Basis For, and Strengthening the Interagency Threat Assessment Coordination Group The concept of the Interagency Threat Assessment Coordination Group (ITACG) was first raised in November 2006 in the PM-ISE Implementation Plan, and then subsequently in January 2007 in S. 4 ., the "Improving America's Security By Implementing Unfinished Recommendations of the 9/11Commission Act" of 2007. Under the terms of the Act, the ITACG, which has been alternatively called the Federal Coordination Group, is intended to "... facilitate the production of federally coordinated products derived from the information within the scope of the (ISE)." Since the establishment of the Intelligence Community there has been little reason or mandate for federal Intelligence Community agencies to have direct or sustained interaction with state and local law enforcement and public safety personnel. What little interaction there was, generally took place between the FBI, a statutory member of the Intelligence Community, and state and local law enforcement entities. It could be argued that the nature of the threat today requires a broader range of interaction. In 2007, the executive branch established the ITACG and the organization was placed a the National Counter Terrorism Center (NCTC). To date few state employees are assigned to the center and most fusion center leaders were unaware of the organization or its mission to provide timely and relevant information to state and local homeland security entities. Pros and Cons. The arguments against the ITACG, as currently envisioned in S. 4 , might include (1) the name itself is misleading, as the group will be unlikely to engage in formal "threat assessment" analysis while at the NCTC, (2) security concerns—back channel and un-authorized communications between state and local representatives to the ITACG could undermine existing intelligence dissemination channels and further complicate the cohesiveness of federal threat assessments to state and local consumers, and (3) the detailing of a handful of state and local personnel to the burgeoning NCTC, while useful, may not be enough personnel to have a substantial impact. Alternatively, one of the primary arguments in favor of such a center include a recognition of the importance of cross-training and mutual learning. It is sometimes the case that federal intelligence officials and state intelligence officials speak past one another because they each have a limited understanding of respective consumer demands, use different terms and standards, and the don't always recognize the inherent limitations of intelligence. By participating in the production of federally coordinated products at the national level, it could be argued, state and local fusion center personnel will learn about the volumes, specificity, and inherent limitations of the numerous "INTS" collected by the Intelligence Community. Moreover, through interaction with state and local fusion center personnel, federal Intelligence Community officials will learn what is most valuable to state and local personnel, and as such, will be better prepared to create products tailored to their needs. 4b. Intelligence Analyst Exchange—Fusion Centers and NCTC Directorate of Intelligence While the proposed ITACG would work on developing federally coordinated intelligence products for dissemination to state and local fusion centers for further dissemination, ITACG members are unlikely to be engaged in formal analytical threat assessments. It could be argued that further analytical cross-training could be achieved through significantly increasing state fusion center intelligence analysts who are not federal employees to the NCTC's ITACG or Directorate of Intelligence, and offering NCTC analysts an opportunity to work at a fusion center. Congress may wish to consider enhancing support for the ITACG's efforts to enhance information exchange with state and regional fusion centers and facilitate analytical cross-training with state and local representatives detailed to the organization. Pros and Cons. One central argument against such an exchange is that there may be limited utility. If analysis is a discipline that has at its core a fundamental set of skills, including, but limited to, critical thinking, hypothesis generation and testing, written and oral communication skills, and an ability to ascertain salient trends from voluminous data sets, why does it matter if these skills are exercised at the state or federal level? Furthermore, there are very few fusion centers and/or public safety agencies at the state and local level with the resources and existing capacity for this type of strategic analytical assessment. Another argument against such an option is that fusion center analysts and NCTC terrorism threat analysts, arguably, serve different consumers and, as result, do not necessarily need to understand one another's positions. Arguments in favor of such an option might include that the NCTC is a client of the fusion centers, and the fusion centers are a client for the NCTC's Directorate of Intelligence. As a result, "walking a mile" in your client's shoes can help you understand what is valuable to them. Another argument in favor of such integration could be that threat analysis at the federal level may be more well-developed than at some fusion centers, and cross-training may be very instructive for fusion center intelligence analysts who could also take advantage of other Federal Intelligence Community analytical training session while detailed to Washington, DC. 4c. Draft a National Intelligence Estimate (NIE) Concerning the Potential Nexus Between Criminal Activity and Terrorism It is an underlying assumption, supported by some terrorist cases within the United States, that some terrorists have engaged in criminal activity or terrorism precursor crimes, to support their activities. One way to prevent terrorism is, therefore, to use all existing law enforcement tools aggressively. Fusion centers can assist law enforcement agencies in directing their resources to areas of greatest threat. However, as mentioned above, one can reasonably question if sophisticated terrorists, those who have received formal terrorism training from established international groups and may be planning catastrophic attacks, engage in criminal activity prior to, and in support of, a terrorist attack. Will following all criminal leads and terrorism tips lead to the disruption of sophisticated terrorist plots? Should such an NIE not exist, it may be useful to draft one focused on the nexus between terrorism and crime. The DNI's National Intelligence Council could draft it and potential clients might include the Homeland Security Advisory Council, National Security Council, all members of the Intelligence Community, and state and regional fusion center leaders. Importantly, research and analysis for the report might incorporate input from the fusion centers to determine the extent to which criminal cases in the United States demonstrate meaningful linkage between precursor criminal activity and terrorist activity. Such data sets could be compared and contrasted to the activities of terrorist groups overseas to determine any commonalities. Any such findings or trends overseas could be applied to the domestic arena, through fusion centers, to align protective resources accordingly. Pros and Cons. Arguments against such an option might include the hypothesis that existing cases in the United States have already demonstrated a link between terrorism, at least with respect to "aspirational" terrorist groups, and crime. Therefore, there is no need for a specific NIE on the subject, as it would require extensive resources needed elsewhere. Arguments in favor of such an option might include the reasoning that if such a study has not been done, it represents an example of how international trends may inform our national counterterrorism efforts, which include, in part, the contributions of a national network of fusion centers. Furthermore, such an NIE would provide fusion centers with specific trends and potential threats that they could be used to create their own collection requirements as well as enhance their strategic understanding of potential terrorism precursor crimes. 4d. Enhance Mechanisms for Fusion Centers to Task the IC for Information and Receive "Feedback" Currently, fusion centers are limited to going through a relatively slow "request for information" process in order to acquire information tailored to their needs from the federal Intelligence Community. If there is a movement, as DNI McConnell stated, to formalize information sharing with fusion centers, which implies a bi-directional flow of information, there will be a need to develop a robust feedback loop where information shared is assessed and requests for information are handled expeditiously. While not all respondent fusion centers had developed intelligence collection requirements, some not only developed requirements but had collection plans designed to fill those requirements. For example, some fusion centers might ask, how might a simultaneous al Qaeda attack manifest itself in fusion center areas of responsibility, or why might fusion centers be more concerned with thefts of chlorine gas than diesel fuel? Some of this general information reaches fusion centers now, although many argue that federal agencies are still not as proactive and sufficiently wide in scope in what they choose to share with SLT agencies, but it is the follow-up requests that are not met in a timely fashion. Respondent fusion centers often indicated that information they provided to the federal Intelligence Community, largely through the FBI or DHS went into a "black box," with little feedback as to the value of the information or how it may have been used. Frequently, fusion centers are told that they can't receive follow up information because it is part of an open investigation. Fusion centers are often in a position of not knowing if the information they passed was noteworthy or worthless. They don't know if they should be actively looking for similar information to pass onto the federal community. Moreover, the lack of feedback creates resentment towards federal agencies. State and regional officials reported being further disheartened to learn that locally gathered information they provided to DHS for risk assessment and subsequent grant allocations, was not used in any systematic and meaningful manner. It is important to note that the lack of feedback and forthcoming information from the federal government is frequently cited as one of the predominate reasons many fusion centers were established initially. Critics might ask, if fusion centers do not have access to feedback, can they ever expect to fully participate in the intelligence cycle and achieve true fusion? Two bills pending before Congress, S. 4 and H.R. 1 , include language, under the sub-title "Homeland Security Information Sharing—Establishment of Business Practices," that would require the Secretary of DHS to "...develop mechanisms to provide (analytical and operational) feedback regarding the analysis and utility of information provided by any entity of state, local or tribal governments or the private sector that gathers such information and provides such information to the Department." Pros and Cons. An argument against enhancing the feedback loop would include what some might view as a reasonable amount of time for the federal government to respond to fusion center requests. Some fusion centers, as a result of collocation with the FBI or having federal detailess integrated into their centers, might get fairly rapid responses to certain requests for information. However, even some fusion centers with established relationships with FBI JTTFs and FIGs found the FBI still held tightly to certain sets of ongoing case data. An argument in support of such an option, would be if the nation is truly going to use fusion centers as a national network to prevent and respond to man-made and natural disasters, without a timely and effective information sharing and feedback mechanism practiced daily, in times of crisis, the network may prove ineffective. 4e. Establish a Mechanism for Fusion Centers to Have Input into the NIPF The National Intelligence Priorities Framework (NIPF) outlines the process and results for determining where intelligence assets are directed against prioritized threats. As one would expect, intelligence priorities are linked to assessments of threats to national and homeland security. Yet, today there are few direct mechanisms which allow fusion centers, individually or collectively, to provide their assessments of threats facing their communities into the NIPF. Pros and Cons. Arguments against this might include the perspective that unless it is a national trend which presupposes a collective sense of existing fusion centers, a threat does not belong in the national (emphasis added) Intelligence Priorities framework. One argument in favor of such input could be that the trends being seen at the state and local fusion center level may represent national trends, and/or may include trends not yet identified by federal agencies, even if there is no "national fusion center" currently in existence that integrates all the trends being seen by individuals centers. 4f. Civil Liberties and Privacy Protection—A Role for the IRTPA-Established Privacy and Civil Liberties Oversight Board While fusion centers were created by state and local governments, with participation and support from federal entities, at what point, if at all, does the federal government become responsible for privacy and civil liberties issues associated with fusion center activities within the states? Where does the federal responsibility to protect civil liberties and privacy stop and where does state responsibility to protect these social goods begin? It could be argued the more federal financial and human resources provided to the centers, the more the centers are perceived as hybrid federal-state entities. Therefore, the federal government could be perceived as being partly responsible for any potential violations of privacy or civil liberties. When Congress passed the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ), it established the Privacy and Civil Liberties Oversight Board to, among other functions, "...review the implementation of laws, regulations and executive branch policies related to efforts to protect the nation from terrorism including the implementation of information sharing guidelines...." If fusion centers are to become true partnerships, it could be argued, that there is shared responsibility to protect civil liberties. In terms of the modalities of the Oversight Board's role, it might work with state agency general counsels to ensure that the fusion centers have requisite policies and practices in place consistent with the Fusion Center Guidelines. Moreover, the Oversight Board might assist in designing an oversight or inspection regime for privacy and civil liberties protection at fusion centers. Pros and Cons. Arguments against this option might include a belief that as fusion centers are creations of state and regional communities, the federal government has minimal responsibility to exercise oversight with respect to them. Some might argue that legally, the federal government has no right to direct fusion centers on protection of privacy and civil liberties. With respect to privacy rights, it might also be argued that the differing standards for privacy across states would complicate any effort to implement a consistent approach in this area. Arguments in favor of this option might include the claim that even if the federal role in exercising oversight of fusion centers is limited, federal financial and human resources support, as well as support for formalization of the fusion center, requires some level of civil liberties oversight. Some might argue, the current voluntary implementation of civil liberties and privacy protection may be insufficient. Has the federal government conducted audits of fusion centers to determine if they are in compliance with even the voluntary standards as set out in the Fusion Center Guidelines? Moreover, it might be argued that without federal oversight, litigation is likely to serve as the only significant oversight mechanism. Litigation, however, may not necessarily be the most effective oversight tool, due to the length of time it takes for the judicial system to adjudicate such cases. Moreover, by the time an issue has made its way into the courts, there is likely to be considerable skepticism amongst the public regarding fusion center activities. 4g. Create a Statutory Basis For an Intelligence "Confidence" Ranking System for All Federal Intelligence Products In at least two reported instances, federal threat information reportedly provided to state and local fusion centers and/or state/local officials manifested competing assessments of source reliability and validity and, by extension, the nature of the threat. In the two incidents, which took place in Boston in January 2005 and in New York City in October 2005, the FBI and DHS provided local officials with competing assessments of source reliability and/or the urgency of the threat. Federal officials have since testified that coordination mechanisms have been put in place to prevent such future occurrences. However, in order to assist state and local fusion centers to determine how imminent and/or valid a potential threat may be, Congress may wish to consider the creation of a universal confidence ranking for federally produced intelligence products that would rank an agency's confidence in the reliability of the sources—reflecting the source's reporting history and corroboration with other intelligence sources, etc. To some extent, the failures associated with certain elements of pre-war intelligence on Iraq have served as a catalyst for an intelligence confidence and transparency initiative underway at the national level and with respect to National Intelligence Estimates. Thomas Fingar, Deputy DNI for Analysis, stated a recognition of the need to "show(ing) our homework—greater transparency about sources, which allow analysts to better assess the quality of intelligence reporting." Former Deputy Director of the CIA's Directorate of Intelligence stated in a speech to all CIA analysts "... that when you are 'calling it as you see it', you must give the policymaker full transparency into your confidence in the judgments you are making." An important question concerning these recognitions, however, is the extent to which this confidence system is formal, and is being extended into products and judgements regularly provided to fusion centers. Congress may wish to consider oversight hearings to determine the progress of this initiative as it pertains to fusion centers. Pros and Cons. A credibility ranking system might reduce the need to include sources and methods information in intelligence products, thus making the creation of declassified and "less classified" versions of intelligence products easier. Such a ranking would provide state and regional fusion centers better information to use in making informed decisions about the threat to their communities and related responses. An argument against this option suggests it may be difficult to get multiple federal intelligence and law enforcement agencies to agree on common "credibility" criteria. Getting consensus on assigning a particular ranking to a intelligence product could potentially be a lengthy process that could potentially delay intelligence dissemination. On the occasion that one or more agencies disagree with the majority consensus, a system for "line-item" analytic comments may be necessary (as is currently utilized for National Intelligence Estimates). It should also be noted, that the credibility ranking system described above is unlikely to have a positive impact on state and regional fusion center analysis and assessment unless it is preceded by training on intelligence, related terminology, the intelligence cycle, etc. to give context to the system. Option 5: Consider Structural Issues As mentioned throughout this report, there is no "cookie cutter" approach to fusion centers. Although the centers may all have some core functions, the financial and personnel resources they have to dedicate to those functions differ widely. Structurally, the continued development of the fusion center concept could progress along any of the following, albeit non-exhaustive, paths. Should Congress determine it wishes to take action on this option, a range of possible legislative tools are available that might influence that path of development, as discussed below. 5a. Support the Current Path of Development Under the current path of development, states and localities continue to make decisions about the number of fusion centers. There is little to no federal input into these independent decisions, as the centers are created and largely funded by the states and localities. This has reportedly resulted in several seemingly unusual homeland security purchases and funding decisions according to fusion center officials who noted the creation of competing fusion centers in some states. Pros and Cons. An argument in favor of this option is the position that it would respect states rights and the ability of states and localities to make independent determinations about the structure of fusion centers that best fits their needs. An argument against this option suggests the increasingly complexity, from a federal perspective, of funding numerous fusion centers within one state. A proliferating amount of fusion centers in a single state can lead to competition for resources that may lead to an allocation of existing funds that does not necessarily best advance the fusion function. 5b. Support the Designation of One Lead Fusion Center Per State Under this option, the state's Homeland Security Advisor, acting on behalf of the governor, might dedicate one fusion center as being the lead center for the state. Federal financial resources could be provided to that center, which would have the ability, acting through the state Administrative Agency, to re-allocate a portion of those funds to "satellite" fusion centers across the state. As mentioned earlier in the report, DHS and DOJ have requested that each state governor designate one state fusion center as the main interface for exchanging terrorism and homeland security information. Pros and Cons. Arguments in favor of this option might include the belief held by some fusion center respondents that the competition for limited federal resources does not serve fusion centers well. That is, particularly if there are relatively few highly qualified intelligence analysts, having them at one central location where they have easiest access to the flow of information coming into the center may best serve the interests of fusion centers. Arguments against this option may include that fusion centers are essentially state and local entities, and as such, they should be designed in whatever configuration, to include multiple centers if desired, if that is determined to serve the state or locality's interests. For example, some large states have several large cities and having one central fusion center serve as the recipient of federal grants might undermine "satellite" fusion center operations. 5c. Expand the FBI FIGs to be the Federal Strategic Analysis Fusion Centers Although provocative and radical, fusion center critics might argue that fusion centers are superfluous insofar as the primary federal benefit they seek to provide is prevention of manmade (terrorist) attacks (a traditional federal agency role) and/or destabilizing crime (gangs, narcotics, etc.—both a federal and SLT responsibility). Those who subscribe to this school might argue that state and regional fusion centers could be eliminated and federal agencies take over all the functions those centers once performed, with intelligence and counterterrorism-related work going to the FBI, and the all-hazards functions adopted by some fusion centers turned over to FEMA or the state/local agencies that traditionally handle natural disasters. The counter to this argument is that a changed threat environment requires non-traditional thinking—designed to prevent and respond to terrorist attacks and respond efficiently and effectively to substantial natural disasters. Nevertheless, the argument that fusion centers may represent an organizational solution to a functional information sharing and analysis problem can still be made. A less radical, albeit still drastic, version of this option would suggest that the FBI take over all strategic analysis and assessment roles and that state and regional fusion centers focus solely on tactical analysis of criminal intelligence. Under this option, the FBI's Field Intelligence Groups (FIGs), whose primary purpose is to manage the FBI's intelligence process at each of the 56 FBI field offices, would assume a broader set of responsibilities. One version of this option would have the FIGs conducting this analysis, using FBI analysts, to be shared with SLT agencies. Another approach would have SLT personnel previously assigned to fusion centers be re-detailed to the FIGs to assist with the analytic process, although that process would be run and directed by the FIG. Either way, the FBI might be able to conduct the types of analyses that could assist state and local law enforcement, public safety, and private sector potentially to direct their protective resources into the areas of greatest criminal and homeland security threats if the FBI had: Direct access to all the state and local criminal intelligence and information that fusion centers have. Established relationships with even rural law enforcement personnel, private sector personnel, and other related homeland security stakeholders. Information systems which could facilitate the sharing and analysis of unclassified and classified information across all homeland security stakeholders in the country in a timely and effective manner. This option does not presuppose that existing state and local fusion centers would be supplanted. However, federal financial resources could be re-directed toward the establishment of state-wide intelligence systems that are interoperable and to which the FBI FIGs would have direct access as an input into strategic analysis. Relieved of the strategic analysis burden, fusion centers could focus on tactical analysis in support of constituent member or fusion center cases and/or situational awareness. Pros and Cons. Arguments against expanding the role of the FIG relative to fusion centers might find that it represents a thought process that is part of the problem—that is, that homeland security is essentially a federal function, with a minimalist role for state and local law enforcement and public safety personnel. Such an approach might marginalize the important role that state and local homeland security stakeholders can play. It may also result in the failure to fully utilize the resources and institutional knowledge of SLT agencies, the stakeholders who know their own communities more intimately than any federal agency. Moreover, it could also be argued that the FBI is being asked to do so much in the post-9/11 world—to be the foremost counterterrorism and counter-criminal organization in the United States—that this somewhat expanded role may be asking too much. Lastly, from an analytic perspective, tactical and strategic analysis are mutually supportive and it may not be prudent to separate the two. Arguments in favor of this option might find that such a role for the FBI does not involve supplanting existing fusion centers. It would merely federalize the strategic analytic function, one that many fusion centers have difficulty dedicating personnel to because their clients do not necessarily demand these types of products. Lastly, it is not a great expansion of FBI responsibilities, it only involves analysis of an enhanced set of raw data that is relatively under developed due to the nascency of state-wide criminal intelligence systems. State-run emergency management agencies or the fusion centers in cooperation with these agencies would continue to respond to natural disasters as the FBI fulfills its traditional investigative mission. 5d. Establishment of a National Fusion Center Representative Organization Today, there are more than 40 plus fusion centers operating, largely independently, around the country. It can be argued that the next fusion-related development should be "2 nd generation fusion" or "fusion of the fusion centers." Informally, this has started to happen to some degree. Post-9/11 demands for increased domestic security served as a catalyst for some state fusion centers to collaborate with each other to facilitate the flow of information and intelligence. The means and the ends of that collaboration are important. First, the means - at times, these informal center-to-center or more formalized regional group relationships have been used to share threat information specific to investigating a past or ongoing incident of concern. To achieve the next step in fusion center collaboration, from ad hoc relationships to a more formalized, structured relationship between fusion centers that would create a representative voice to address mission and resource related issues with the federal government, there are several organizational network models that could emerge, as well as a hybrid of several models: It is important to note that the depictions in Figure 1 represent "pure" theoretical models. Elements of these aggregate models exist today, although the models could be formally adopted in an effort to bring more structure to the existing fusion center network structure. For example, all the fusion centers interviewed for this report have some direct linkages with other fusion centers, although an individual center may not have established links with every other center in the country, nor are those links of the same strength. It is also common for fusion centers to have stronger links and more constant contact with nearby fusion centers or those centers at similar levels of maturation. To the former point, there are examples where fusion centers in a particular area have set up regional fusion center coalitions, like Southern Shield in the southeast, to facilitate information sharing. Each option has its own advantages and disadvantages. Moreover, like fusion centers themselves, it is not clear that one model would work for all stakeholders involved in the network. In reality, any fusion center configuration is likely to be a hybrid of some or all of the models represented above. However, some homeland security observers argue that significant success in maturing a national fusion center constellation may be assisted by the creation of nation fusion center representative entity that provides the federal government prioritized mission and resource issues of interest. Second, the ends—an often stated concern by state homeland security leaders is a lack of understanding how the federal government prioritizes funding, personnel, and technical support provided to the nation's fusion centers. Conversely, many homeland security observers note that federal government leadership has difficulty in responding to the needs of the fifty state fusion centers in a prioritized and logical manner. To facilitate a more comprehensive approach to putting forth the needs of state fusion centers in a given region, some state leaders have established regional fusion center representative organizations. At present individual state fusion centers request services and support from DHS that are relevant only to the organization's operations. It is the perception of fusion center leaders that DHS responds to the needs of a single center without the consideration of the priority of the request with respect to the needs of others centers that may be in locations deemed higher at risk, or the needs of all of the nation's fusion centers. A coordinated national or regional representative fusion center organization that can propose to the federal government prioritized common issues of concern may assist DHS and FBI submit, manage, and allocate fusion centers budgets based on strategy rather than the perceived need by a single center. Pros and Cons. An argument in favor of the establishment of national fusion center representative organization entails increasing the nation's contextual understanding of threats and vulnerabilities through increased collaboration by state fusion centers. Such an organization may assist the federal government in ascertaining the risks to the nation and understanding the resources needed to support the federal-state information sharing environment. An argument against such a structure is the possibility of the inadvertent creation of a "group-think" environment whereby centers, in an effort to support unity of effort and collaboration, may compromise their independent analysis of risks to the region in favor of supporting the representative organization. 5e. Move Toward Regional Fusion Centers A second option for addressing the need for 2 nd generation fusion is the creation of regional fusion centers to coordinate disparate fusion efforts at the state and regional level. This option is likely to be supported by those homeland security observers who question the viability of each state having its own homeland security fusion center (or several in some cases). There are some indications that federal intelligence community agencies are already considering developing a regional architecture to promote information sharing. Under this option, fusion centers could move to a regional model based on any number of federal regional designations (HIDTA, FBI FIG, FEMA, Drug Enforcement Agency Organized Crime Drug Enforcement Task Forces etc). Increasing center-to-center and regional collaboration on issues of common concern may help garner support for such a proposal. A regional approach—in the several forms it could take—may help facilitate information sharing, effective resource dispersal, and help transform the current localized, reactive, and tactical approaches to threat analysis to a more proactive and strategic posture. One possible approach to regionalization could be the combining of numerous state fusion centers into a regional homeland security center. Such a strategy may become more popular if there are no large-scale terrorist attacks or disasters in the United States, which result in less homeland security-related funding and a lack of political support to sustain fusion efforts. Such an occurrence may be predicated by the following situations: Existing state fusion centers detailing personnel to bordering state organizations thus developing a notional regional network within existing organizations. Barring a future terrorist attack or catastrophic natural disaster, the elimination of state fusion centers may lead to the establishment of large regional centers staffed by surrounding state personnel. Modeled after numerous existing organizations located throughout the Nation (HIDTAs FBI FIGs [see option 5c above], FEMA), a federal government-led regional fusion center is established in partnership with state employees focused on strategic analysis and/or response efforts in support of federal, state, and local missions. Pros and Cons. An argument against this option includes the reasoning that by adopting regional fusion centers, the new fusion entities will no longer provide as many benefits to local communities and as such, they will have difficulty maintaining buy-in and detailees from local agencies. An argument for regionalization is the claim that by pooling resources, expanding their scope, and establishing regional spokespersons, regionalization may assist with the resource dilemma and facilitate both more strategic approaches to analysis and effective communication with the federal government. Option 6: Enhance Information Access and Management There are numerous measures which Congress might consider in this area to assist fusion centers. Should Congress determine it wishes to take action on this option, a range of possible legislative tools are available that might influence that path of development, as discussed below. 6a: Federal Regulations of SLT Criminal Intelligence Systems—28 CFR, Part 23 As highlighted above, 28 CFR Part 23, the federal regulation which governs state and local criminal intelligence systems, was written, in part, as a response to the domestic intelligence abuses of the late 1960s and early 1970s related to COINTELPRO. While the concerns raised then about civil liberties violations remain demonstrably present today and must be vigilantly guarded against, so too has the threat environment changed. Along with changes in the threat have come substantial technological changes, including the ability to exploit voluminous amounts of commercially available data. As a result, it could be argued that 28 CFR, Part 23 might be revised to include updated information retention time frames and mechanisms to include available technologies. Pros and Cons. Arguments in favor of such a revision include that a reexamination of 28 CFR Part 23 would potentially result in a new balance being struck between protecting civil liberties and effective and proactive security efforts. Such a revision might also contribute to the creation of national standards for information collection and exchange. Furthermore, changes that address technological advances and the realities of the current threat environment may clarify the limits of how such technologies can be used by fusion centers. An argument against such a revision might include civil liberties advocates being critical of any alterations to 28 CFR Part 23 that may be seen as loosening requirements and/or expanding existing law enforcement powers. Any changes made without SLT consultation and/or that narrow SLT-level leverage are likely to be met with resistence from fusion centers and SLT law enforcement. 6b. Require All Federally Funded Systems to be Interoperable Peer-to-peer communication has been a priority for the Administration and Congress as demonstrated in the IRTPA instructions to the ISE. Congress may wish to consider further steps to enhance such communication between fusion centers—dubbed by some in the fusion business to be "2 nd generation fusion." Congress could consider several initiatives in this area, to include requiring fusion centers and states that wish to use federal funds to purchase information management systems to ensure their systems are able to "speak" to other systems. This would enhance the potential to make connections between disparate data points and reduce information silos at state and/or regional levels. This may limit the number of systems fusion centers can purchases in the short term, but in the long term, such a move is likely to force the companies that sell these systems to work in XML or create the appropriate loaders to translate between XML and its proprietary language. Pros and Cons. There are several arguments for implementing this option, including the need to ensure federal funds don't contribute to further "silo-ization" of information streams, as well as the potential to encourage more effective information sharing and better data analysis. Arguments against this option may highlight concerns about the immediate limiting impact on systems choices and potential financial costs for state and regional fusion centers and related agencies. 6c. Standardize Reporting Formats Another option that may enhance peer-to-peer communication among fusion centers and between fusion centers and the federal community is standardized reporting formats. Currently, while there are common "top-down" standardized federal reports, including Intelligence Information Reports (IIRs), Intelligence Bulletins, and Intelligence Assessments, no such standard set of products exists for "bottom-up" reporting from fusion centers to the federal community. The creation of common lexicon and standards is likely to contribute to this end. DHS has given its roughly 15 fusion center detailees reports officer training to facilitate this effort, but it is clear it needs to be done on a grander scale and in coordination with the FBI and other federal recipients. If this is to be successful, coordination with fusion center staff is likely to be essential to ensure that fusion centers are not overburdened with a multiple reporting formats, required to fill out duplicate copies, and upload through various information systems (Option 6d), thus thwarting effective information sharing. A standardized format will also reinforce efforts to instill the use of a common lexicon and definitions nationally. Such formats should likely include input from state and local law enforcement and fusion centers to ensure consistency and buy-in, and find ways this requirement can fit within existing standard operating procedures rather than creating additional work. Pros and Cons. A potential impediment associated with this option is the likely difficulty of getting federal and SLT agencies to agree on a standardized report format. Furthermore, it will likely be equally difficult to devise a way to create a common report form and process that does not create additional work for fusion centers. It can be argued that to be effective and efficient, such an option is inextricably tied to the consolidation of federally run information systems (Option 6d, below) and without a serious effort to consolidate information flow between federal and fusion center entities, a standardized reporting format may still be unwieldy. An argument for this option is the assertion that without standardized reporting, the current range of standards and formats being used is likely to impede effective information sharing and analysis, which has been deemed crucial for our nation's homeland security efforts. 6d. Consolidate Federal Information Sharing Systems Congress might consider compelling federal intelligence and law enforcement agencies to consolidate existing federally owned and operated information sharing systems. Designating a single system as the primary system through which all information from the federal government would be sent to state, local, and tribal agencies may also be an option to consider. Congress may wish to continue to exercise rigorous oversight of the progress the ISE has made toward creating the necessary "policies, procedures, and technologies linking the resources (people, systems, databases, and information) of federal, state, local, and tribal entities and the private sector to facilitate terrorism information sharing, access, and collaboration." Pros and Cons. Prioritization and/or consolidation of federally run information systems would likely reduce the stress on fusion centers and enhance the flow of intelligence between SLT and federal agencies. However, it could also be argued that such changes are likely to be opposed by the federal agencies whose respective systems are not promoted as the single information sharing architecture. "Ownership" of intelligence and information systems appears to remain an obstacle in sharing information with sub-federal entities. 6e. Consider Increasing the Number of Cleared SLT Personnel at Fusion Centers Congress may wish to consider urging the FBI and DHS to increase the number of clearances they provide for state and local personnel, especially those currently assigned to and/or slated to work at state and regional fusion centers. Congress may also wish to examine the classified intelligence reciprocity issue which prevents a holder of a DHS-cleared fusion center, for example, from accessing DOD-origin classified systems and intelligence. While a perennial issue within the federal community, the continued lack of reciprocity creates needless bureaucratic and logistical hurdles that continue to thwart effective information sharing. Pros and Cons. An argument in favor of this option would be that it allows additional personnel at the centers to receive threat information and direct it to appropriate personnel for action. This may reduce some of the obstacles that currently inhibit the flow of federal intelligence assessments that fusion center analysts can "fuse" with locally focused, grassroots-collected information. With better access to classified information, fusion centers may increase their capacity for "true fusion" by marrying strategic and long-term threat assessments generated by federal agencies with locally focused, grassroots-collected information. An argument against this option could include the contention that, while seemingly positive, it does nothing to address the over-classification of intelligence, and in fact, could further promulgate a culture of classification. Clearing fusion center personnel, especially management, and not the "boots on the ground" personnel puts the former in a difficult position. They are usually incapable of deploying resources or directing collection based on the classified intelligence they have received. As such, it may be more beneficial to enhance the declassification process—and the capability to create SLT-relevant intelligence products (Option 4a, page 59)—at the federal level then overemphasizing the importance of clearing additional SLT personnel. Furthermore, an increased number of cleared personnel at the state and local level will not be beneficial to fusion centers unless it is accompanied by equipment to receive and store such information, training on how to use intelligence, and guidance on how to identify gaps or generate collection requirements from that intelligence. 6f. Urge Compliance with Intelligence Reform Act and 9/11 Commission Regarding Over-Classification Congress may wish to examine classification issues and urge more progress on efforts to declassify existing products, as well as produce less sensitive or tear-line versions of classified intelligence reports. This could be done by urging the compliance with the requirements and deadlines laid out in the IRTPA ( P.L. 108-458 ), many of which have not been met. Congress may also wish to consider this and other incentives for facilitating the creation of declassified or "less-classified" versions of intelligence threat reports to ensure fusion centers can receive, store, and utilize threat reporting. Pros and Cons. A federal government-wide effort to declassify relevant intelligence products could potentially assist SLT agencies and fusion centers to identify potential threats and trends within their respective jurisdictions. Alone, some critics might argue, declassified products based on federal intelligence will not meet the information needs of fusion centers and SLT agencies. Rather, intelligence products need to be created based on SLT information requirements and operational considerations to ensure they are relevant to the recipients. A potential negative tradeoff of a concerted effort to declassify intelligence for fusion centers and SLT agencies might be an increase in the amount of time it takes to get important information from federal agencies to the SLT-level. Option 7: Create a True Trusted Partnership In recent years, much has been said about the partnership between SLT agencies, state and regional fusion centers, and federal agencies to tackle homeland security challenges. While there are many agencies, initiatives, and individual leaders who are working to advance the level of cooperation between a wide spectrum of public sector agencies at all levels of government, there are indications that the "partnership" between them is not as strong and dynamic as it is frequently described. It could be argued that the federal government will be hard-pressed to view SLT agencies and entities, like fusion centers, as true partners. Rather, the federal government will likely approach the later as a "consumer" of their work, but not necessarily a common and equal "partner." It is also important to recognize that this tension goes beyond the level of government divide—there is also a significant gap between traditional intelligence and law enforcement agencies (see Appendix A ), and between first responders and law enforcement. The relationship between SLT and federal agencies can be tension-filled; they each operate from different historic roles and responsibilities, resources, and jurisdictions. In some locations there appears to be some residual resentment of the FBI and some other federal agencies amongst SLT entities after years of being treated as inferior and an information source—not necessarily as a consumer. On the federal side, there is often a distrust of SLT entities, a concern about the erosion of federal jurisdiction, and, in some cases, a resistence to accepting an enhanced SLT role in some homeland security areas. Although relationships vary across the country, in some locations the two groups do not have the necessary understanding and familiarity with each other, despite some continued contact (i.e. state and local interaction with the FBI via JTTFs). Several fusion center officials cited their perception about the failure of federal agencies to understand their needs. In January 2007, Washington, DC, Police Chief Kathy Lanier testified to the cultural differences and lack of understanding between SLT and federal communities: the Department of Homeland Security is not a law enforcement agency like the FBI ... is a law enforcement agency.... So it's very difficult for them to understand what my need to know is, if they don't know what it is that I do. If they're not familiar with what I do on a daily basis, what resources I have, and how I can reduce vulnerabilities through the daily activities of more than 4,500 employees here in Washington, D.C. ... So a lot of information doesn't get to me, because they don't believe I have a need to know.... I think it's just a lack of understanding. And this is not in all DHS's fault ... local law enforcement's just as much at fault. The Department of Homeland Security is not completely aware of what our operational capabilities are and how the information, if passed on to us, could be used to reduce the vulnerability.... So information that may be shared with us is not shared with us because they don't think it's something that we can do anything with or that we can use to help reduce that vulnerability. As mentioned above, this lack of understanding can lead to unrealistic expectations. In talking with state and local officials who are relatively new to the intelligence discipline, it is often apparent that they believe that the federal government knows far more than it tells them, and that the intelligence the "Feds" have is usually clear and specific regarding the "who, what, where and when" of a threat. This is often not the case, but it leads to latent distrust instead of open discussion. As previously stated, the two sides operate using different language and standards. The lanes in the road are often unclear and in some cases there remains a degree of competition between various agencies and levels of government. In short, while there is an enhanced level of trust between the federal and state and local communities, according to some fusion center respondents, they would not necessarily characterize the relationship as a true partnership. Pros and Cons. Arguments against this option are likely to focus on the difficulty of creating a plan and implementing a strategy for enhancing SLT-federal partnership, something that can be difficult to define and measure in tangible terms. Those who wish to maintain the status quo are unlikely to support such an option. On the other hand, supporters of this option may opine that regardless of logistical challenges, the importance of enhancing the relationships between levels of government and various homeland security stakeholder communities is so essential to post-9/11 U.S. security, that it cannot be ignored. As outlined above, should Congress determine it wishes to take action on this option, a range of possible legislative tools are available. One concrete manner of working toward this true partnership and mutual understanding is through personnel exchanges. Option 7a. Enhance Coordination Efforts Through Personnel Exchanges It could be argued that the more interaction and detailing of personnel between state and local fusion centers and federal agencies, the better. While periodic conferences are helpful in building relationships, living in your partners environment and understanding the demands and limitations of that environment is essential to building mutual trust and understanding. Potential details of personnel to a Interagency Threat Assessment Coordination Group (Option 4a, page 59) and to the NCTC (Option 4b, page 60), options mentioned above, may be concrete measures which could enhance partnerships and mutual understanding. Pros and Cons. Additional clarity about each communities' roles, responsibilities, and resources is likely to reduce duplication, clarify the "lanes in the road," influence intelligence sharing selections, and potentially could lead to enhanced coordination. In some cases these issues have been avoided because of sensitivities regarding jurisdictional issues, which could come to a head during such an exercise. II. Fusion Center Options With No Unique Federal Remedy There are some issues associated with fusion centers for which there are no unique federal remedies. This is largely due to issues associated with federalism. State Legal Authorities There were a number of legal issues discovered in the course of research. Because they involve state law, there is likely no federal remedy, unless constitutional issues are involved, a situation that would have to be assessed on a case-by-case basis. State Option 1: Add or Revise State Legal Authorities While acknowledging that the majority of state programs are not recognized by legislation or a governor's executive order, many homeland security observers are concerned that an uncertain funding line coupled with unreasonable mission expectations may lead to the elimination of fusion centers in the future. One near-term priority of fusion center leadership might be to coordinate efforts with the state's homeland security advisor, the governor's office, and state legislators to recognize the center, define its mission, and devote suitable long-term state funding to its operations. With future federal funding levels uncertain, a situation may be developing that could be detrimental to the future needs of the state. Should a state not recognize or devote dedicated funding to its fusion center, the ability to provide strategic forward-looking threat assessments or tactical operational prevention and response activities may suffer. There are concerns that if the federal government increases funding to fusion centers, mission and administrative conditions may accompany these resources. Such a situation might detract from the state-focused mission and possibly result in the center failing to meet the expectations of state leadership. State Option 2: Consider Revising Statutory Language Impeding Information Sharing A number of fusion centers had state laws which had the unintended effect of impeding information sharing. In one instance, a state law made it a Class A misdemeanor if any person knowingly released criminal intelligence information (as defined in statute) to an agency or person other than a criminal justice agency. According to one fusion center leader, one of the unintended consequences of this law was that any intelligence the fusion center received from the federal community could not be shared directly with any non criminal justice entity or person that may be a target of the threat and/or have resources essential to preventing or preparing for an event. State Fusion Center Personnel and Management Issues Research also indicated a number of potentially problematic issues related to state fusion center personnel which, again, do not necessarily have any unique federal remedy. These issues include: Personnel Option 1: Selection of Fusion Center Leaders As the fusion centers continue to mature and the security role and functions of the organization attempt to align with the realities of the threat environment, some homeland security observers hypothesize that state leadership may wish to reconsider the attributes required of fusion center leaders. In response to the evolving homeland security environment some centers have started ensuring that the core leadership team of the organization have representative experience and knowledge of the four phases of homeland security: preparation, prevention, response, and recovery. For example, fusion centers that focus on all-hazards may look for leadership that have both criminal and emergency responder experience. Some state homeland security observers are concerned that one implication of a possible significant increase in federal funding to state fusion centers might entail the federal government's desire to be consulted regarding personnel selected by state leadership for positions that are responsible for managing state fusion center funds. Personnel Option 2: Assignment and Performance of Fusion Center Personnel One concern often voiced during the interviews with fusion center leadership was the ability to select and manage the personnel assigned to the center. There is a general concern about the quality of detailess. Given resource constraints within partner agencies, fusion center leadership are concerned that those agencies may seek to detail personnel who fail to perform. Considering the immaturity of many of the nation's fusion centers and their need for personnel, centers often unknowingly accept individuals with skills that do not support the mission. There are also issues regarding clarity of roles and responsibilities. Despite memorandums of understanding (MOU) signed by the fusion centers and the detailing organization, there is often a lack of definitive understanding of the roles and functions the detailee is to undertake in support of the fusion center. With regard to federal agency detailees, this lack of clarity could result in unmet expectations, reduced federal-state coordination, and agency representatives departing the center prior to the conclusion of the assignment. Unlike the lack of specifics of the functions to be performed and the role of the individual in the organization, the MOUs often specify that salary, training, and annual performance reviews will continue to be provided by the parent organization. It is often argued this programmatic arrangement is necessary to quickly detail individuals to the organization; however, such a process does not appear conducive to the effective management of individuals detailed to the fusion center. While it is true that fusion center leaders are on occasion asked about the performance of detailees, many suspect the arrangement does not have a lasting impact on detailee work productivity. Barring dismissal from the center, the organizational relationship limits the leverage a center leader may have in increasing the performance of detailees that may have suspect qualifications or lack of knowledge of the assigned mission. Such an organizational dynamic may negatively affect the center's mission effectiveness and compel center leadership to question the parent organizations commitment to the fusion center. Personnel Option 3: Employee Performance Metrics Several fusion center officials mentioned concerns regarding the lack of tools to measure personnel performance. During times of fiscal crisis, which is especially acute in some states, fusion center officials are being pressured to justify their existence in light of other cuts to law enforcement and public services. Without well established entity-wide and personnel specific metrics, fusion centers reported difficulty demonstrating their importance to those officials responsible to budgets and grant allocations. To address this situation, one fusion center was creating their own metrics to evaluate individual performance, based largely on the military performance evaluation system. Option 4: Sub-State Competition and Lack of Planning As previously mentioned, many states and municipalities are currently in fiscal crisis. There are numerous agencies and projects competing for limited state budget dollars as well as federal grant resources. Numerous fusion center officials cited the lack of strategic planning for resource distribution within their state. In some states, non-intelligence focused agencies and personnel are responsible for dividing federal grant funds among state/local initiatives. Some fusion center leaders believe a lack of understanding of the role of fusion centers has put the centers at a disadvantage for receiving federal grants from the decision making bodies. In at least one case, a fusion center was told by those making grant distribution decisions that "fusion centers benefitted the federal government, so the federal government should fund them directly"—an indication they did not think the homeland security grant funds should be used to fund that state's fusion center. Another complaint focuses on the lack of strategic coordination. In some states, regional councils or municipalities themselves can determine what to spend federal homeland security grants on, without proving that such expenditures fit within a strategic state-wide effort to reduce risk. In one state, regional councils that distribute funding choose to fund local fusion centers, even though there was already one established for the state, potentially creating duplication of effort, wasting resources, and stirring competition. One example of poor planning included the authorization by one council for 500 megahertz radios, while another council approved and funded ones that were 800 megahertz, thereby perpetuating a lack of interoperability. Option 5: How States Can Achieve Enhanced Buy-In Another potential hurdle to fusion center development is creating buy-in at the sub-state level. In many states there are indications that small police departments and public sector agencies are not thoroughly convinced of their fusion center's worth, and if and how the center will benefit them. Creating buy-in is a difficult process. Expanding from a solely counterterrorism focus to an all-crimes approach appears to have helped some fusion centers create buy-in. As previously mentioned, providing investigative resources to small agencies that need them has assisted another in this regard. However, these services are not often "fusion"-related, and thus it begs the question, how can fusion centers convince local law enforcement agencies that they should expend resources and time to working to enhance the fusion process? Moreover, non-law enforcement agencies are often skeptical about fusion centers. First, all-crimes and counterterrorism-focused centers have a more difficult time than all-hazards centers marketing themselves to public health, environmental protection, fire fighters, etc. These entities tend to have had far less intelligence experience and enjoy a reduced level of comfort with the intelligence cycle than law enforcement. In addition to apprehension with the subject, non-law enforcement public sector agencies are unclear about what role they should play and how to play it. Furthermore, some non-law enforcement fusion center officials complained about what they perceive as conflicting messages from the federal government about the role of agencies like theirs in the fusion process. Appendix A. Philosophies of Intelligence To better understand the potential philosophical, cultural, and logistical barriers to effective integration of intelligence and information fusion centers with existing federal intelligence and terrorism/crime prevention efforts, it is helpful to examine the different conceptions of intelligence within the federal Intelligence Community and the law enforcement community. Intelligence Community and Law Enforcement Community Approaches to Intelligence. The absence of a common lexicon between the Federal Intelligence Community and law enforcement intelligence is one area in need of further explanation, as it is manifested in approaches fusion centers take to their work. The majority of fusion centers examined for this report deal with a combination of intelligence, information, and situational awareness. Most centers that described themselves as having a response role or support function for another response-oriented entity were more concerned with situational awareness. However, in a few cases, it was not clear if the fusion center leadership had a thorough understanding of the differences between intelligence and information. This is somewhat understandable: People often use the term intelligence interchangeably with information , but there is an important distinction. Intelligence Community Conception of Intelligence. Mark Lowenthal, an expert on intelligence issues, differentiates intelligence from information in the following way: Information is anything that can be known, regardless of how it is discovered. Intelligence refers to information that meets the stated or understood needs of policy makers and has been collected, processed, and narrowed to meet those needs. Intelligence is a subset of the broader category of information. Intelligence and the entire process by which it is identified, obtained, and analyzed respond to the needs of policy makers. All intelligence is information; not all information is intelligence. Intelligence is the product of the intelligence cycle (see Figure A -1 below), a process that begins with Step 1 - planning and direction, which leads to Step 2 - the setting of collection requirements based on threats in the form of questions and identified gaps in existing knowledge, and which is followed by Step 3 - the collection of intelligence based on known gaps. Step 4 includes synthesis and analysis of collected intelligence and results in the creation of an intelligence product, which in Step 5, is disseminated to policymakers and those responsible for taking action based on that analysis. Step 6 is the feedback loop from the customer to evaluate the utility of the product and facilitate another round of the cycle by assisting with Step 1 - planning and direction. It is important to explain that there are different definitions of "intelligence," and those used by the fusion centers often differ from the more "pure," conception of "intelligence" outlined immediately above. Law Enforcement Conception of Intelligence. In law enforcement, the term intelligence has been defined slightly differently than within the halls of federal intelligence agencies engaged in all-source, strategic intelligence. David Carter, a criminal intelligence expert states: In the purest sense, intelligence is the product of an analytic process that evaluates information collected from diverse sources, integrates the relevant information into a cohesive package, and produces a conclusion or estimate about a criminal phenomenon by using the scientific approach to problem solving (i.e., analysis). Intelligence, therefore, is a synergistic product intended to provide meaningful and trustworthy direction to law enforcement decision makers about complex criminality, criminal enterprises, criminal extremists, and terrorists. Law enforcement intelligence (LEINT) is thus "the product of an analytic process that provides an integrated perspective to disparate information about crime, crime trends, crime and security threats, and conditions associated with criminality." Carter's definition appears akin to what the Intelligence Community would consider "finished" intelligence—intelligence that has been synthesized and analyzed. One might argue that criminal intelligence, as conceptualized above, is reactive—information becomes intelligence after it is analyzed, as compared to more pure concepts of intelligence, which are more proactive, in that pre-identified intelligence gaps based on policymaker needs are the starting point for intelligence collection. This would be in line with traditional approaches. It could be argued that the Intelligence Community tends to be proactive in dealing with national security matters, while law enforcement in the United States has traditionally been reactive, post-event, and prosecution focused. Some might argue that the use of law enforcement tools such as the enterprise theory of investigation have indeed been proactive in the collection of intelligence, although not necessarily through the formal implementation of the intelligence cycle. Carter believes intelligence can be used for both prevention and planning/resource allocation within law enforcement. The primary differences, then, between pure or traditional conceptions of intelligence and law enforcement intelligence lie in the following three areas: (1) the predicate for the intelligence activity itself, (2) intelligence clients and consumers, and (3) the legal regimes under which intelligence is collected. Whereas the pure intelligence community uses a known intelligence gap as the starting point for collection, it is less likely that a law enforcement intelligence group will have a developed set of intelligence collection requirements and, as a result, a criminal event or case is the starting point for intelligence collection. With respect to consumers, while the Intelligence Community serves action-oriented officials within the military and federal intelligence communities, it largely serves the needs of national policymakers. In the law enforcement community, the consumers are largely law enforcement officers investigating a crime or criminal groups, prosecuting attorneys and law enforcement executives seeking to align protective resources. From a legal regime perspective, national intelligence collection, arguably operates under a less restrictive legal regime than law enforcement intelligence, an issues which is largely driven by the subjects of intelligence collection—U.S. persons or non-U.S. persons. The conceptual differences between these two closely related communities and disciplines has implications for fusion centers. Under which model and legal regime are they operating? As mentioned above, how proactive can the centers be in intelligence collection without violating civil liberties? A lack of clarity on these issues can lead to fusion centers either taking a too conservative or too aggressive approach, either of which undermines their full productivity, and serves as an overall risk to the fusion center concept. Appendix B. Map of Current and Planned Fusion Centers A Methodological Note Research for this report included a review of literature related to state and regional fusion centers, primary source interviews with the majority of state fusion center leaders and operational directors, as well as with stakeholders within the federal government, including Intelligence Community (IC) organizations, Department of Homeland Security (DHS) and the Government Accountability Office (GAO) officials. In the interest of engaging in open dialogue with the centers, the conversations were conducted on a "not for attribution basis." The inherent limitations of the survey method are acknowledged, but were adopted in the interest of efficiency and effectiveness. Other stakeholders and interested observers of state fusion centers outside the government, including individuals in academia, the American Civil Liberties Union (ACLU), and state and local law enforcement were also consulted. Primary source interviews were conducted by the authors and were based on a survey they developed.

Although elements of the information and intelligence fusion function were conducted prior to 9/11, often at state police criminal intelligence bureaus, the events of 9/11 provided the primary catalyst for the formal establishment of more than 40 state, local, and regional fusion centers across the country. The value proposition for fusion centers is that by integrating various streams of information and intelligence, including that flowing from the federal government, state, local, and tribal governments, as well as the private sector, a more accurate picture of risks to people, economic infrastructure, and communities can be developed and translated into protective action. The ultimate goal of fusion is to prevent manmade (terrorist) attacks and to respond to natural disasters and manmade threats quickly and efficiently should they occur. As recipients of federal government-provided national intelligence, another goal of fusion centers is to model how events inimical to U.S. interests overseas may be manifested in their communities, and align protective resources accordingly. There are several risks to the fusion center concept—including potential privacy and civil liberties violations, and the possible inability of fusion centers to demonstrate utility in the absence of future terrorist attacks, particularly during periods of relative state fiscal austerity. Fusion centers are state-created entities largely financed and staffed by the states, and there is no one "model" for how a center should be structured. State and local law enforcement and criminal intelligence seem to be at the core of many of the centers. Although many of the centers initially had purely counterterrorism goals, for numerous reasons, they have increasingly gravitated toward an all-crimes and even broader all-hazards approach. While many of the centers have prevention of attacks as a high priority, little "true fusion," or analysis of disparate data sources, identification of intelligence gaps, and pro-active collection of intelligence against those gaps which could contribute to prevention is occurring. Some centers are collocated with local offices of federal entities, yet in the absence of a functioning intelligence cycle process, collocation alone does not constitute fusion. The federal role in supporting fusion centers consists largely of providing financial assistance, the majority of which has flowed through the Homeland Security Grant Program; sponsoring security clearances; providing human resources; producing some fusion center guidance and training; and providing congressional authorization and appropriation of national foreign intelligence program resources, as well as oversight hearings. This report includes over 30 options for congressional consideration to clarify and potentially enhance the federal government's relationship with fusion centers. One of the central options is the potential drafting of a formal national fusion center strategy that would outline, among other elements, the federal government's clear expectations of fusion centers, its position on sustainment funding, metrics for assessing fusion center performance, and definition of what constitutes a "mature" fusion center. This report will be updated.

FDA Laws, Regulations, and Guidance Documents on Off-Label Use Relevant Provisions of the Federal Food, Drug, and Cosmetic Act and Related Regulations Until the FDA has approved a new drug pursuant to either a new drug application, an abbreviated new drug application, or an investigational new drug submission, the new drug may not be "introduc[ed] or deliver[ed] for introduction into interstate commerce." When a person submits a new drug application to the FDA for approval, the application includes samples of the proposed labeling for the drug. The FDA may refuse to approve a new drug application if the HHS Secretary finds, among other possibilities, that it is not safe or effective "for use under the conditions prescribed, recommended, or suggested in the proposed labeling." In other words, the FDA approves drugs for specific uses that are reflected in their labeling. An unapproved use of a drug, also known as an off-label use, has been defined as a "use for indication, dosage form, dose regimen, population [i.e., the drug is approved for adults but not children] or other use parameter not mentioned in the approved labeling." While a physician may prescribe a drug for off-label uses, a pharmaceutical manufacturer may not market or promote a drug for uses other than those on the label—those uses approved by the FDA in a drug application. Off-label uses have been estimated to account for 21% of all prescription drug use. Manufacturer marketing and promotion of off-label uses is linked to the FFDCA's prohibition against misbranding. The concept of misbranding is one of the basic components of the FFDCA, and persons who violate the act's prohibitions are subject to criminal and civil penalties, as well as injunctions and seizures of the misbranded product. A drug or device shall be deemed to be misbranded if, among other possibilities, the labeling is false or misleading or if its labeling does not bear "adequate directions for use." The phrase "adequate directions for use" means "directions under which the layman can use a drug safely and for the purposes for which it is intended." An "intended use," in turn, "refer[s] to the objective intent of the persons legally responsible for the labeling of drugs," such as the drug's manufacturer, and that person's objective intent may be shown by "labeling claims, advertising matter, or oral or written statements by such persons or their representatives." Intended use may also "be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised." Manufacturers are "required to provide adequate labeling for" off-label uses of a drug that the "manufacturer knows, or has knowledge of facts that would give him notice that [the] drug ... is to be used for conditions, purposes, or uses other than the ones for which he offers it." It appears then that, if a drug manufacturer promotes an intended use that is an off-label use, the drug's label will not bear adequate directions for use and will thus be a misbranded drug. A drug manufacturer would therefore be required to submit a supplemental new drug application for that off-label use and accompanying label or dosage changes. The FFDCA defines labeling as "all labels and other written, printed or graphic matters (1) upon any article or any of its containers or wrappers, or (2) accompanying such article." Labeling includes brochures, motion picture films, and literature, as well as reprints and similar pieces of printed, audio, or visual matter descriptive of a drug and references published (for example, the 'Physician's Desk Reference') for use by medical practitioners, pharmacists, or nurses, containing drug information supplied by the manufacturer, packer, or distributor of the drug and which are disseminated by or on behalf of its manufacturer, packer, or distributor. It appears that a reprint of an article published in a medical journal that is presented to a doctor by a pharmaceutical representative could fall within the FFDCA's labeling provisions and accompanying regulations. The FDA Modernization Act's Off-Label Marketing Provisions Before Congress passed the Food and Drug Administration Modernization Act (FDAMA) in 1997, the FDA had issued several guidance documents regarding off-label promotion in 1996 regarding the industry's dissemination of reprints and reference texts. FDAMA § 401 superceded those guidance documents and generally enabled manufacturers to disseminate information about new, or off-label, uses under specified conditions, but only if the manufacturer submitted a supplemental new drug application for the off-label use. FDAMA § 401 expired on September 30, 2006. Other than the FDA's 2009 guidance document, it does not appear that the FDA currently has another statute, rule, or policy in effect that explicitly addresses the dissemination of reprints or reference texts with regard to promoting an off-label use. This section details the FDAMA provisions, which are similar, in parts, to those in the recent FDA guidance and which provide a basis for understanding current discussions of the FDA's January 2009 guidance. As emphasized in a Federal Register notice post-FDAMA, § 401 created a safe harbor. As long as information dissemination on off-label uses adhered to FDAMA, it was not to be construed as evidence of a new intended use of a drug that differed from the intended use described in its official labeling. Nor was it to be considered labeling, adulteration, or misbranding under the FFDCA. To disseminate information, the manufacturer was required to submit to the Secretary a copy of the information 60 days before distribution, including clinical trials and clinical experience about the safety and effectiveness of the unapproved use, and to comply with the requirements for filing a supplemental new drug application. Manufacturers were required to include a prominent statement showing the following, if applicable: that the information concerned an unapproved use of a drug; that the disseminated information was being paid for by the manufacturer; the names of any authors with financial ties with the manufacturer; the official labeling for the drug; a statement that there were other approved products or treatments for the use for which the information was being disseminated; and the identification of all persons who funded any study about the off-label new use. Manufacturers were also required to include a bibliography of published articles about the unapproved use from scientific or medical journals. If the Secretary determined, after providing notice and an opportunity for a meeting, that the off-label use information failed to provide objective and balanced information, the Secretary could have required the dissemination of additional information, along with a statement of the Secretary about the safety and effectiveness of the drug's unapproved use. Manufacturers were allowed to disseminate information about an unapproved new use only if the information was in the form of an unabridged reprint or copy of an article peer reviewed by experts. The unabridged article was required to originate from a medical journal or a reference publication, describe a scientifically sound clinical investigation, and not be false or misleading. In addition, to disseminate off-label use information, manufacturers were required to prepare and submit biannually to the Secretary a list of articles and reference publications about their drug's unapproved uses that were disseminated for the six-month period prior to the submission of the list. Manufacturers were also required to submit lists that identified the categories of providers that received that material for the same time period. If the Secretary determined that the unapproved use may not have been effective or may have presented a significant risk to the public health, the Secretary could have ordered corrective action, including the cessation of dissemination of the information. In the event that the Secretary required corrective action to be taken, manufacturers had to keep records regarding the dissemination of off-label information that could be used in such situations. Manufacturers were also responsible for reporting results of additional clinical research about the safety and effectiveness of the unapproved use involved. To disseminate off-label use information manufacturers were also required to submit a supplemental new drug application to the Secretary, receive certification that they would file a supplemental application based on completed or planned studies, or receive an exemption from submitting such an application. A manufacturer could qualify for an exemption from the requirement to submit a supplemental application in three situations. Exemptions could only have been approved if the Secretary determined that the supplemental application would have been economically prohibitive or if the Secretary determined that it would have been "unethical to conduct the studies necessary for the supplemental application." The Secretary could have terminated such approval at any time and ordered the manufacturer to cease distributing the information. Legislative History The legislative history provides some background for the policy reasons for including the provision relating to off-label drug uses. Some of the issues raised prior to the enactment of the now-defunct provision of FDAMA may still pose concerns today: The conference agreement's inclusion of [§ 401] is intended to provide that health care practitioners can obtain important scientific information about the uses that are not included in the approved labeling of drugs, biological products, and devices. The conferees also wish to encourage that these new uses be included on the product label. Therefore, the agreement includes strong incentives to conduct the research needed and file a supplemental application for such uses. The House Report on the earlier House version of the FDAMA, H.R. 1411 , remarked on the FDA's jurisdiction and authority with regard to the dissemination of information by manufacturers. The report noted that the agency "has a role to play with respect to assuring balance and objectivity and to protecting the public health." Representative Markey, on the other hand, took issue with the off-label provisions: The drug bill contains a dangerous and precedent-setting provision regarding dissemination of information. The "Off-label" provision could better be described as the "under the table" provision, allowing companies to market a product for unsupported uses that could seriously send thousands of consumers "off the cliff." In putting profits over patient care, this bill opens the door for aggressive promotion of unproven uses of drugs, while giving companies three to five years to produce scientific evidence that these off-label uses are safe and effective.... The FDA's January 2009 Guidance The FDA's guidance on good reprint practices was issued in the last few days of the Bush Administration. It contains provisions similar to some of the FDAMA dissemination provisions that expired in 2006, but also appears to expand the ability of the pharmaceutical industry to disseminate such information. The guidance differs in several ways from the expired FDAMA provisions. The guidance does not include the following, which were present in FDAMA: (1) the requirement for a submission of a supplemental new drug application or the Secretary's approval of an application for an exemption from this requirement; (2) the Secretary's ability to require a manufacturer to disseminate (a) additional scientifically sound information to provide objectivity and balance, and (b) a statement from the Secretary on the safety and effectiveness of the unapproved use; (3) the Secretary's ability to order the manufacturer to cease dissemination of information in certain situations, such as if the Secretary determined that the unapproved use may not be effective or may present a significant risk to public health, or if the information did not comply with FDAMA's provisions; (4) provisions that required manufacturers to submit lists of the articles and reference publications that they disseminated and to keep records in case the manufacturer was required to take corrective action; (5) the requirement that the manufacturer include, along with the information being disseminated, "a statement that there are products or treatments that have been approved or cleared for the use that is the subject of the information being disseminated" and, if applicable, a statement "that the information is being distributed at the expense of the manufacturer"; (6) the requirement that a copy of the information to be disseminated and clinical trial information regarding the unapproved use be submitted to the Secretary 60 days prior to dissemination; (7) the requirement that the article not have unapproved uses of drugs or devices as its primary focus; and (8) a provision requiring that a scientific or medical journal be a publication "that is generally recognized to be of national scope and reputation." However, the guidance also contains new potential safeguards that were not present in FDAMA, such as (1) the recommendation that reprints of scientific articles not be distributed with promotional materials, at promotional exhibit halls, or during promotional speaker events, in addition to not being the topic of discussion during a sales visit by a sales representative to a physician's office; (2) the recommendation that a journal reprint be accompanied by a statement disclosing "all significant risks or safety concerns known to the manufacturer concerning the unapproved use that are not discussed in the journal article" and a disclosure of "the manufacturer's interest in the drug or medical device that is the subject of the journal reprint or reference text"; (3) examples of what would constitute false or misleading information, such as a reprint of an article that is characterized as definitive but "is inconsistent with the weight of credible evidence"; and (4) examples of publications that would not meet the guidance's recommendations, such as reports of early clinical trials in healthy subjects. The guidance seemingly creates a safe harbor for dissemination of information on off-label uses of FDA-approved drugs by stating that "if a manufacturer follows [its] recommendations ... the FDA does not intend to consider the distribution of such medical and scientific information in accordance with the recommendations in this guidance as establishing intent that the product be used for an unapproved new use." While some view the document as shielding a "controversial promotional practice," others believe the guidance would "probably restrict more aggressive companies." Additionally, the document's issuance, along with a set of proposed rules and other guidance documents, has been criticized by some who are concerned that the FDA may be placing pharmaceutical industry priorities over public health protections for consumers. Questions have been raised regarding whether the FDA has the authority to issue this guidance document. Administrative Law Issues FDA rules may be subject to legal challenges. This section addresses administrative law principles that may come into play in the event that the FDA's guidance is implemented or enforced in a manner that would render it a binding rule that should have been promulgated under the provisions of the Administrative Procedure Act (APA). Additionally, this section addresses the question of whether the FDA had the authority to issue such a guidance document, due to the expiration of the FDAMA provisions. Rules and Guidance Documents Agency rules have the force and effect of law and may be reviewed and invalidated by courts. Under notice-and-comment rulemaking procedures, agencies must publish notice of a proposed rulemaking in the Federal Register , provide opportunity for the submission of comments by the public, and publish a final rule and a general statement of basis and purpose in the Federal Register "not less than 30 days before its effective date." In contrast, guidance documents do not have to undergo notice-and-comment procedures. They do not have the force and effect of law; they are a type of general statement of policy. General statements of policy are agency statements that "advise the public prospectively of the manner in which the agency proposes to exercise a discretionary power." General statements of policy do not "impose any rights and obligations," nor do they "establish a 'binding norm'" because they do not represent the final determination regarding the issues they address. Congress has passed requirements specific to FDA guidance documents, which note that such documents "shall not create or confer any rights for or on any person, although they present the views of the Secretary on matters under the jurisdiction of the Food and Drug Administration." Thus, while the FDA guidance on reprint practices indicates the agency's thoughts on the topic and potentially how the agency itself would use, or rather limit its use of, its enforcement powers—such as criminal and civil penalties, injunctions, and seizures—with regard to the practices outlined in the guidance, the document is not legally binding on courts or persons outside the agency. A guidance document can become binding on an agency in practice, however. One academic has commented that "[i]n some circumstances, if the language of the document is such that private parties can rely on it as a norm or safe harbor by which to shape their actions, it can be binding as a practical matter." If a policy statement is implemented in a manner that is binding on the agency and outside parties, it will be regarded as a rule and will be deemed invalid for failing to comply with APA notice and comment procedures. APA procedural requirements do not apply to "interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice," unless such documents are, in fact, binding, substantive rules. Is the Guidance a Substantive Rule Subject to a Notice-and-Comment Rulemaking? This dynamic raises the question as to whether the FDA's guidance will be implemented in a manner that will in fact render it a rule that must have been promulgated under the notice-and-comment procedures in the APA. Since the guidance document was recently issued, it is not clear how the agency and the pharmaceutical industry will use the document. Additionally, the FDA under the Obama Administration may approach this issue differently than the Bush Administration. If the FDA treats the guidance document as both prospective and voluntary, and as a policy that preserves the agency's discretion, then the document will not likely be considered a substantive rulemaking document that needs to follow APA notice-and-comment procedures nor be considered to be in violation of the APA. If the FDA uses the guidance document in a manner that constitutes the agency's implementation of a substantive rule, then a reviewing court could determine that the FDA would be in violation of the APA requirements for notice-and-comment rulemaking. A reviewing court would examine whether the document has a binding effect, whether the agency retains its ability to exercise discretion, whether the document uses voluntary or mandatory language, and whether the FDA characterizes the document as guidance, in order to determine if the guidance document is in fact a substantive rule. Additionally, some have argued that a guidance document can become "binding as a practical matter" in some cases "if the language of the document is such that private parties can rely on it as a norm or safe harbor by which to shape their actions." It is not known how the pharmaceutical industry would rely on the guidance document, although the document itself is similar in many respects to the FDAMA provisions that Congress did not renew in 2006. Presumably, the pharmaceutical industry could have relied on the FDAMA provisions and the FDA's implementing regulations while they were in effect, in order for the manufacturer's distribution of reprints regarding off-label uses not to be used in an enforcement case as evidence of the manufacturer's intent that a drug be used for an unapproved, off-label use. Therefore, it seems that pharmaceutical manufacturers could attempt to use the FDA guidance as a safe harbor when distributing a peer-reviewed article. Does the FDA Have the Authority to Issue the Guidance? Additionally, the question arises as to whether the FDA has the authority to issue such guidance because Congress had given the agency explicit authority on this topic in FDAMA but then did not renew the provisions granting the agency that authority. In a letter to the FDA Commissioner, Representative Waxman described the FDA's issuance of the guidelines, in draft form, as "an effort by FDA to displace Congress and establish by administrative fiat a new system for use of journal articles that lacks the safeguards set by Congress." A reviewing court would examine the FFDCA, "and the ever-evolving statutory scheme, recognizing that the [FFDCA]'s meaning may be affected by other Acts, particularly where Congress has spoken subsequently and more specifically to the topic at hand." The FDA could assert that its general statutes and regulations grant it such authority. FFDCA § 701(h)(5) required the FDA to issue regulations on the agency's policies for developing, issuing, and using guidance documents. FDA regulations on good guidance practices define a "guidance document" to include "documents that relate to: The ... labeling [and] promotion ... of regulated products ... and inspection and enforcement policies." The FDA's guidance on reprint practices would appear to fall within the definition of a guidance document, as it relates to labeling and promotion of unapproved new uses of FDA-approved drugs and medical devices. The FDA can also assert that it has attempted to address dissemination of information on off-label uses even prior to FDAMA. For example, in 1992, the FDA issued a notice asking for comment on a draft policy statement regarding "the categories of educational activities that may continue to be funded by industry and yet avoid regulation as advertising or promotional labeling." It noted that "[t]he companies' programs and materials are subject to the labeling and advertising provisions of the act." Thus, based on these statutes and regulations, it would appear that the FDA is acting on a legally tenable basis in issuing the guidance on the reprint practices. Since the FDA's guidance document does not have the force of law, to the extent that it is challenged, it would not receive the same degree of deference as a substantive rule promulgated under the APA notice and comment procedures. To the extent that the guidance document receives deference by a reviewing court, that deference would be of the type elucidated in Skidmore v. Swift & Co. : [T]he rulings, interpretations and opinions of [the agency], while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control. In other words, courts will often give weight to an agency's interpretations, due to the agency's "specialized experience" in the administration of its given functions. Such agency documents are entitled to a "respect proportional to [their] 'power to persuade.'" In the guidance document, the FDA appears to be loosening the standards passed by Congress on off-label marketing, without regard to the sunset of the FDAMA provisions on the dissemination of information regarding off-label uses in 2006 and subsequent congressional silence. Therefore, a court may give less deference to the agency or find the guidance document unpersuasive due to its lack of consistency with earlier agency positions, in particular, those mandated by Congress. In a case addressing an agency's jurisdiction, when a specific statutory provision prohibited the Federal Communications Commission (FCC) from having jurisdiction over certain intrastate communication services, but the agency attempted to exercise its jurisdiction in that area regardless, the Supreme Court stated the following: [A]n agency literally has no power to act ... unless and until Congress confers power upon it.... Thus, we simply cannot accept an argument that the FCC may nevertheless take action which it thinks will best effectuate a federal policy. An agency may not confer power upon itself. To permit an agency to expand its power in the face of a congressional limitation on its jurisdiction would be to grant to the agency power to override Congress. Although Congress did not enact a specific statute prohibiting the FDA from addressing reprint practices, it is conceivable that some might assert the agency's action—in light of Congress's decision to legislate the sunset of the off-label provisions—could be viewed as an attempt by the FDA to alter federal policy in the area. Alternately, the FDA's statutes appear to grant the agency authority to issue guidance documents relating to promotion of FDA-regulated products. The congressional silence in this area since the sunset of FDAMA stands in contrast to other cases where Congress has considered and rejected bills on the subject. First Amendment Challenges Assuming that the FDA has the authority to issue the guidance, these provisions may face a First Amendment challenge. FDAMA § 401 and the earlier 1996 FDA guidance documents (both of which addressed permissible methods for the dissemination of information about "off-label" uses by drug manufacturers) have been challenged on First Amendment grounds. The U.S. District Court for the District of Columbia initially found that these provisions violated the First Amendment and issued an injunction. However, subsequent developments at the Court of Appeals level caused the injunction to be vacated, leaving the constitutional question open. This section will briefly describe these cases. The Washington Legal Foundation (WLF), a nonprofit group that advocates against excessive government regulation, challenged earlier FDA guidance documents (issued in 1996) dealing with the distribution of enduring materials by drug manufacturers. In particular, the WLF argued that the FDA was impermissibly restricting constitutionally protected speech. The district court in WLF v. Friedman (WLF I) determined that the FDA was restricting protected speech, but that the speech was entitled to a lower degree of constitutional protection because it was commercial in nature (rather than wholly scientific or academic, as WLF argued). In order for a restriction on commercial speech to be constitutional, the restriction must satisfy a four-part test. The first question addressed in the four-part test is whether the speech covered by the restriction is false, misleading, or concerns an illegal activity. The First Amendment does not protect commercial speech concerning unlawful activities or false or deceptive advertising. The district court in WLF I determined that the speech addressed by the FDA guidance did not concern an illegal activity, because the speech being distributed by the drug manufacturers "addresse[d] using FDA-approved drugs to treat conditions and in treatment regimens other than those set forth in the label approved by the FDA," an activity that is not unlawful. A closer question for the court was the whether the speech could be deemed false or misleading. Here, the court looked at whether the information being distributed could be characterized as "inherently misleading." In making its determination, the court looked at the controls available to the FDA concerning the information that may be distributed by the manufacturers. The court found that these controls circumscribed the possibility that untruthful or misleading information could be disseminated by manufacturers. As a result, the court did not consider the speech to be inherently misleading. The speech at issue, therefore, is entitled to some degree of First Amendment protection. In order to determine whether the FDA's policies were a constitutionally permissible restriction on commercial speech, the court proceeded to the next three steps of the constitutional analysis: (1) whether the government has a substantial interest in imposing the restriction on speech; (2) whether the restriction at issue directly advances that interest; and (3) whether the restriction at issue is not more extensive than necessary to achieve that interest. The court found that the government does have a substantial interest in encouraging drug manufacturers to get off-label treatments on-label, as many uses for drugs that have been approved in other treatment contexts would otherwise evade the FDA approval process (a process that Congress has declared all uses for drugs should endure). The court also found that restricting marketing options for off-label uses of approved drugs advances this interest, because it is "one of the few mechanisms available to the FDA to compel" manufacturers to seek FDA approval for off-label uses (considering that the conventional mechanism of preventing the drug from being introduced into interstate commerce is unavailable because FDA-approved drugs may be introduced into interstate commerce, regardless of whether they will be prescribed for an off-label use or an FDA-approved use). However, the court found that the guidance documents at issue in this case were nonetheless unconstitutional, because they were, in the court's estimation, more extensive than necessary to achieve the stated interest. Though, under a commercial speech analysis, the government need not choose the least restrictive method for achieving its goal, an effort must be made to create a reasonable fit between the method chosen and the ends sought. If a commercial speech restriction burdens substantially more speech than necessary, courts will not allow the restriction to take effect. The district court, finding that the FDA guidance burdened substantially more speech than necessary, cited at least one alternative method that the government could have used to achieve its objectives, which placed a significantly smaller burden on protected speech. For example, the court hypothesized that requiring complete and unambiguous disclosure by manufacturers who would disseminate the information at issue would be equally effective in achieving the government's goal and would place a lesser burden on speech. As a result, the court held that while the government may restrict drug manufacturer promotion of off-label uses, the restrictions in the guidance documents were too extensive to withstand constitutional scrutiny. The district court issued an injunction barring the FDA from prohibiting, restricting, or sanctioning drug manufacturers "for disseminating or redistributing to physicians or other medical professionals any article concerning prescription drugs or medical devices previously published in a bona fide peer-reviewed professional journal, regardless of whether such article includes a significant or exclusive focus on uses of drugs or medical devices other than those approved by FDA and regardless of whether such article reports the original study on which FDA approval of the drug or device in question was based." Following the issuance of this injunction, which applied to the guidance documents of 1996, FDAMA took effect in 1997 and superseded the guidance documents. The district court amended its injunction to clarify that the injunction applied with equal force to FDAMA. Though some aspects of FDAMA were different from the previous guidance documents, the court ultimately determined that the underlying policies in FDAMA largely duplicated those of the guidance documents and were unconstitutional for similar reasons. The FDA appealed. The U.S. Court of Appeals for the District of Columbia described the parties' briefs in this case as "confusing." The fundamental disconnect in the opposing parties' arguments became clear only at oral argument. WLF, in briefings and at oral argument, challenged the FDA's guidance documents under the theory that the FDA was banning independently the manufacturer dissemination of enduring materials on off-label uses and that proof of such dissemination would alone justify enforcement action. The FDA, however, asserted at oral argument that the FDAMA provided a "safe harbor" for the dissemination of such information, and that "the agency would draw no independent prosecutorial authority from the FDAMA to buttress any enforcement proceeding." The FDA, though reserving the right to use such promotional conduct as evidence in a misbranding or "intended use" enforcement action, claimed no independent authority to regulate speech through the FDAMA. Because both parties, at that point, agreed that there was no constitutional controversy, the court of appeals declined to rule on the constitutionality of the provisions at issue. Furthermore, since no controversy over the FDA's newly clarified interpretation existed, the court vacated the injunction that declared FDAMA to be unconstitutional and dismissed the FDA's appeal. In disposing of the case in such a manner, the court noted that it was not criticizing or overruling the reasoning of the district court on the First Amendment issue as it had been presented to the district court. The appeals court also made clear that a manufacturer may still bring suit in order to argue that the FDA's use of a manufacturer's promotion of off-label uses as evidence in an enforcement action violates the First Amendment. In the guidance document released earlier this year, the FDA appears to create a "safe harbor" similar to that which was previously in place under FDAMA. The FDA does not claim to draw independent enforcement authority from violations of the guidance. Instead, the agency said that it does not intend to consider information distributed in compliance with the guidance documents as "establishing intent that the product be used for an unapproved new use." The FDA reserves the right to consider information that is distributed outside the parameters of the guidance as evidence in establishing such intent, however. In light of this, a manufacturer (or any other plaintiff with standing to sue) may challenge under the First Amendment the FDA's use of off-label promotion as evidence in other enforcement actions. If the speech is used as evidence to establish an element of a violation which itself is a restriction on lawful commercial speech, that violation may also be challenged on First Amendment grounds. False Claims Act Issues The False Claims Act The FDA's new guidance regarding the promotion of off-label drug uses may also raise issues under the False Claims Act. Under the FCA, any person who "knowingly presents, or causes to be presented, ... a false or fraudulent claim for payment or approval" to the United States government may be subject to civil penalties. Penalties under the FCA include treble damages, plus an additional penalty of $5,500 to $11,000 for each false claim filed. Civil actions may be brought in federal district court under the False Claims Act by the Attorney General or by a whistleblower, for the person and for the U.S. Government, in what is termed a qui tam action. The ability to initiate a qui tam action has been viewed as a powerful weapon against fraud, in that it may be initiated by a private party who may have direct and independent knowledge of any wrongdoing. The popularity of qui tam actions brought under the FCA may be attributed partially to the fact that successful whistleblowers can receive between 15% and 30% of the monetary proceeds of the action or settlement that are recovered by the government. False Claims Act Cases Involving Off-Label Promotion In the context of manufacturer promotion of off-label uses of drugs, several qui tam actions have been brought in recent years using the FCA. One of the largest settlements resulted from a case brought by a whistleblower named Dr. David Franklin against his former employer, Warner-Lambert Co., a pharmaceutical company. In that case, Franklin alleged that Warner-Lambert promoted off-label uses of the drug Neurontin, and that such promotion "caused the submission of false claims to the Veterans Administration and to the federal government for Medicaid reimbursement." The court in that case explained the interaction of off-label prescribing and Medicaid reimbursement: Reimbursement under Medicaid is, in most circumstances, available only for "covered outpatient drugs." 42 U.S.C. § 1396b(i)(10). Covered outpatient drugs do not include drugs that are "used for a medical indication which is not a medically accepted indication." Id. § 1396r-8(k)(3). A medically accepted indication, in turn, includes a use "which is approved under the [FFDCA]" or which is included in a specified drug compendia. Id. § 1396r-8(k)(6). See also id. § 1396r-8(g)(1)(B)(i) (identifying compendia to be consulted). Thus, unless a particular off-label use for a drug is included in one of the identified drug compendia, a prescription for the off-label use of that drug is not eligible for reimbursement under Medicaid. Neither Neurontin, or Accupril, another drug for which Warner-Lambert's marketing practices were at issue, had off-label uses that were present in the indicated compendia. Neurontin had only been approved by the FDA for use in conjunction with other drugs "to control seizures in people with epilepsy." However, Dr. Franklin alleged that Warner-Lambert sales representatives called "medical liaisons" were trained to discuss reports of Neurontin's effectiveness as a mono-therapy to treat epilepsy, meaning the use of Neurontin without the other drugs with which its safety and effectiveness had been presented to FDA. The medical liaisons also allegedly reported that the use of the drug for bipolar disease, pain syndromes, and attention deficit disorders was effective according to clinical trials and other reports, though no such data existed. The case settled and did not go to trial. Pfizer, which merged with Warner-Lambert, paid criminal monetary penalties for its violations of the FFDCA and civil monetary penalties for its violations of the FCA totaling $430 million. Pfizer pled guilty to two felony violations of the FFDCA—one for misbranding due to a failure to give adequate directions for use and one for introducing an unapproved new drug in interstate commerce —for which it agreed to pay a $240 million criminal fine. Additionally, the company paid the United States government $83.6 million, plus interest, for its civil liability under the FCA for Medicaid reimbursement claims; $68.4 million, plus interest, to the states and the District of Columbia for state Medicaid losses; and $38 million, plus interest, "for harm caused to consumers and to fund a remediation program to address the effects of Warner-Lambert's improper marketing scheme." Finally, Pfizer agreed to a corporate integrity agreement that addresses the "training and supervising [of] its marketing and sales staff, and ensures that any future off-label marketing conduct is detected and corrected on a timely basis." The Warner-Lambert court's reasoning is similar to that presented in other FCA suits related to marketing of off-label drug uses for which Medicaid, Medicare, or a governmental entity reimbursed the claims that were false because of the off-label use. For example, in a separate FCA qui tam case, the U.S. government alleged that the pharmaceutical manufacturer Cell Therapeutics, Inc., "made false and misleading statements to treating doctors to the effect that [an acute promyelocytic leukemia drug] Trisenox was medically accepted for the off-label uses being promoted, and therefore eligible for Medicare reimbursement." The whistleblower in this case was a former sales representative who alleged that the manufacturer unlawfully marketed Trisenox for diseases such as chronic myeloid leukemia to physicians who had rarely, if ever, treated patients with the disease (acute promyelocytic leukemia) for which use of the drug was FDA-approved. The manufacturer allegedly caused false and misleading statements about the drug's indications to appear in a medical bulletin that doctors use to find answers regarding Medicare reimbursement; the manufacturer's sales representatives then distributed thousands of copies of the bulletin to doctors to "mislead physicians into mistakenly believing that off-label Trisenox prescriptions were medically accepted and reimbursable." The government alleged that the false statements resulted in Trisenox being misbranded and that the company had shipped it as an unapproved new drug in interstate commerce, both violations of the FFDCA. The Department of Justice settled the case for $10.5 million, plus interest, in April 2007, without the company admitting wrongdoing, but rather asserting that its "statements were a consequence of negligent advice provided" by an outside party. In another FCA suit, Jazz Pharmaceuticals, Inc., settled with the Department of Justice for $20 million in civil and criminal penalties and restitution in July 2007. This FCA suit was brought by a former sales representative and addressed the company's promotion of Xyrem—a drug also known as the date-rape drug or GHB (gamma-hydroxybutyrate)—for off-label uses other than the two approved medical uses related to narcolepsy. The company's subsidiary pled guilty to criminal misbranding under the FFDCA, through which it led doctors to prescribe Xyrem though such prescriptions were not reimbursable by private insurers, Medicare, or Medicaid. The Xyrem case also concerned the distribution of documents regarding unapproved new uses that did not follow FDA guidance regarding manufacturer promotion. Interaction of the FDA Guidance with the False Claims Act One question that arises in the context of promotion of off-label drug uses is whether the new FDA guidance might be used to create a safe harbor for pharmaceutical companies if they are sued under the FCA. Although the guidance document is not a statute and may not be binding, this report will first analyze it as if it created a question of statutory construction, as this may help to show how a court may view the role of the guidance document in a FCA case based on marketing or promotion by a pharmaceutical company that arguably falls within the purported safe harbor of the guidance document. Conflicts frequently arise between the operation of two federal statutes that are silent as to their relationship. In such a case, courts will try to harmonize the two so that both can be given effect. A court "must read [two allegedly conflicting] statutes to give effect to each if [it] can do so while preserving their sense and purpose." Only if provisions of two different federal statutes are "irreconcilably conflicting," or "if the later act covers the whole subject of the earlier one and is clearly intended as a substitute," will courts apply the rule that the later of the two prevails. "[R]epeals by implication are not favored, ... and will not be found unless an intent to repeal is clear and manifest." Generally, if Congress intends one statute to repeal an earlier statute or section of a statute, or intends the earlier statute to remain in effect, it usually says so directly in the repealing act. In a case that is roughly analogous to the current inquiry regarding the interaction of a guidance document and the FCA, a federal court's decision in the FCA qui tam suit United States ex rel. R.C. Taylor III v. Mario Gabelli may be instructive. In that case, the defendants argued that a remedial scheme promulgated by the Federal Communications Commission (FCC) for violations of the agency's regulations preempted the FCA and therefore the whistleblower could not apply the FCA to false statements made to the agency. The court noted that repeals by implication are disfavored, but that more detailed statutes may indicate Congress's intent to override more general ones in the area of federal claims and statutory remedies. The court further explained that courts have been 'reluctant to find pre-emption of the [FCA] even where other laws provided closely related regulation and remedies.' Indeed, the legislative history indicates that Congress specifically contemplated the use of the Act to address regulatory violations. The court found that the defendants did not show, from the legislative history or otherwise, that Congress meant to override the remedies available in the FCA when Congress delegated its authority to create a remedial scheme to the FCC. The court also examined whether the FCC's more specific remedial scheme would preempt the FCA because the agency's remedies were more detailed than those in the FCA. It held that the FCC regulations and the FCA were not in conflict, even if the FCC remedial scheme offered a more detailed remedy than the FCA. Therefore, the court concluded that Congress did not intend "to preclude FCA claims by authorizing the FCC to grant relief for violations of FCC regulations." Assuming that the FDA has the authority to issue guidance on the dissemination of reprints since the expiration of the relevant FDAMA provisions, and that a reviewing court would use reasoning similar to that in Gabelli , it appears unlikely that a court would find that Congress intended to preempt the FCA when it delegated general rulemaking authority to the FDA and enacted general statutes relating to guidance issued by the FDA, which the FDA then used to issue its guidance. Whistleblowers in qui tam cases have used the FCA to address false claims that stem from regulatory violations of misbranding, and, as the court noted above, the FCA's legislative history shows that Congress had contemplated using the FCA this way. Additionally, as a court noted in a case specifically relating to the dissemination provisions under FDAMA, "the FDA's prosecutorial power flows from its long established authority to prosecute manufacturers for misbranding, not from the newly created [now expired] FDAMA" provisions. Therefore, while the FDA's guidance may indicate how the agency intends to wield its enforcement powers with respect to pharmaceutical manufacturers—because it provides them with the FDA's "current views and recommendations" regarding dissemination of reprints regarding off-label uses—the agency itself has stated that the " FDA's legal authority to determine whether distribution of medical or scientific information constitutes promotion of an unapproved 'new use' or whether such activities cause a product to violate the [FFDCA] has not changed ." This comment echoes the position taken by the FDA in a Federal Register notice, in which the agency indicated that it could determine a manufacturer's intent on a case-by-case enforcement basis using its longstanding statutory authorities. Nor would the FDA's guidance affect the legal authority, enforcement powers, or other capabilities of outside agencies that have been involved in prosecuting FCA cases related to off-label marketing, such as the HHS Office of Inspector General, the Federal Bureau of Investigation, and the Department of Justice. With regard to cases brought under statutory provisions of the FFDCA, under the guidance, the FDA's ability to use dissemination of materials regarding off-label or new uses of a drug as evidence in establishing the manufacturer's intent that the drug be used for a new, unapproved use would not appear to change, either. The FDA could still proceed on a case-by-case basis, using the guidance as a safe harbor for manufacturers who follow it: "if a manufacturer follows the recommendations described ... FDA does not intend to consider the distribution of such medical and scientific information ... as establishing intent that the product be used for an unapproved new use," which would result in a product being misbranded. But if a manufacturer unlawfully promoted a drug, it appears that dissemination of materials regarding off-label use could be used as evidence of intent and could lead to an enforcement action. The guidance also appears to indicate that unlawful promotion of a drug would invalidate a case where the manufacturer followed the guidance recommendations but illegally promoted a drug. Furthermore, even if the manufacturer's promotion of an off-label use of a drug fell within the safe harbor of the FDA guidance document, FCA suits may still arise. The off-label use of the drug may still not be covered for reimbursement under federal programs such as Medicaid because the off-label use of the drug would not be for a medically accepted indication (i.e. an FDA-approved use or an off-label use included in a specified drug compendia).

New drugs may not be introduced or marketed without the approval of the Food and Drug Administration (FDA). When a person submits a drug application to the FDA for approval, the application includes samples of the proposed labeling. The FDA may refuse to approve an application if the drug is not safe or effective for the specific uses that are reflected in its labeling. An unapproved new use of a drug, also known as an off-label use, is a use not mentioned in the drug's approved labeling. Although a physician may prescribe a drug for off-label uses, a pharmaceutical manufacturer may not market or promote uses of a drug other than those on the label—those uses approved by the FDA in the application. In January 2009, the FDA issued a guidance document on the dissemination of medical information regarding off-label uses of drugs. The guidance seemingly creates a safe harbor for dissemination of information on off-label uses of FDA-approved drugs and medical devices. However, the agency's guidance statement does not have the force or effect of law, and the FDA still retains its legal authority under the Federal Food, Drug, and Cosmetic Act (FFDCA) and FDA regulations to determine when promotion of an unapproved new use has occurred or when a product is misbranded. Additionally, the guidance does not affect the legal authority, enforcement powers, or other capabilities of outside entities that have been involved in prosecuting False Claims Act (FCA) cases related to off-label marketing and the submission of false claims for reimbursement from the U.S. government. First, this report outlines the relevant provisions of the FFDCA and related regulations that have been used to address misbranding violations of the act that relate to pharmaceutical manufacturers' promotion of off-label use. Second, the report summarizes the FDA's previous off-label marketing provisions under the FDA Modernization Act of 1997 (FDAMA), which are no longer in effect. Third, the report details the January 2009 guidance document and its similarities to and differences from the FDAMA provisions. Fourth, the report outlines First Amendment challenges to FDAMA and older FDA guidance documents addressing off-label promotion. Fifth, the report discusses the nature of guidance documents, in contrast to rules promulgated under the Administrative Procedure Act (APA), as well as administrative law issues associated with the FDA's issuance of the guidance. Sixth, the report provides an overview of the FCA and related qui tam cases that addressed off-label marketing practices of pharmaceutical companies. Finally, the report analyzes the interaction of the new guidance document and the FCA.

Overview of the Congressional Review Act (CRA) What Is the CRA? The Congressional Review Act (CRA) is an oversight tool that Congress may use to overturn a rule issued by a federal agency. When Congress passes a law, it often grants rulemaking authority to federal agencies to implement provisions in the law. That delegation of rulemaking authority, and the rules issued by federal agencies under this authority, is a crucial component of the policy process. Congress has an interest in ensuring that, when issuing rules, federal agencies are faithful to congressional intent. To conduct proper oversight of federal agency actions, Congress has a number of tools available, including the CRA. The CRA was enacted in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA). Under the CRA, before a rule can take effect, an agency must submit the rule to Congress and the Government Accountability Office (GAO). Upon receipt of the rule by Congress, Members of Congress have a specified time period in which to submit and take action on a joint resolution disapproving the rule. If both houses pass the resolution, it is sent to the President for signature or veto. If the President were to veto the resolution, Congress could vote to override the veto. What Are Advantages of Using the CRA? Procedural The CRA establishes a special set of parliamentary procedures for considering a joint resolution disapproving an agency final rule. Supporters cite two main advantages to these procedures over the regular legislative process. First, when a joint resolution of disapproval meets certain criteria, it cannot be filibustered in the Senate. Specifically, once 20 calendar days have passed after the receipt and publication of the final rule, the Senate committee to which a joint resolution disapproving the rule has been referred can be discharged of further consideration if 30 Senators sign and file a petition. Once the committee is discharged, any Senator can make a nondebatable motion to proceed to consider the disapproval resolution. Should the Senate choose to consider the disapproval resolution, debate on it is limited and a final vote would be all but guaranteed. The second advantage of the CRA process often cited by its supporters is that if a joint resolution of disapproval is enacted, it not only invalidates the rule in question, but in most cases also bars the agency from issuing another rule in "substantially the same form" as the disapproved rule unless authorized to do so in a subsequent law. Failure of a CRA Joint Resolution of Disapproval Could Make a Major Rule Take Effect Faster than Otherwise Allowed Under the CRA In the case of some major rules, use of the CRA mechanism may make the rule go into effect more quickly than it otherwise would. Under the requirements of the CRA, agencies must delay the effective date of major rules by at least 60 days. This is essentially an extension of the Administrative Procedure Act's (APA's) requirement that agencies delay the effective date of rules by at least 30 days. Should either chamber choose to consider a joint resolution disapproving a major rule and then vote to reject it, the rule in question may go into force immediately, notwithstanding any layover period in its effective date established by the CRA. No rule may go into effect, however, until the effective date set by the agency in the rule itself has been reached. This provision of the CRA could be viewed as an advantage for Members who support a particular major rule and want it to take effect as soon as possible. Agency Oversight The CRA provides Congress with a method of conducting oversight of agency rulemaking. Not only can Congress use the CRA to overturn agency rules, but certain provisions of the CRA may help to increase congressional awareness of federal agency actions in general. The requirement for agencies to submit their rules to Congress, and the subsequent referral of each rule to the committee of jurisdiction, functions as a notification mechanism through which committees and Members can be made aware of rulemaking activity in which they may be interested. Although Members are likely to become aware of high-profile rules that are of broad interest and receive national media attention, the referral of each rule upon receipt in Congress provides an additional notification for rules that may be of a more localized or specialized interest to Members. In addition, the threat of submission or passage of a disapproval resolution may provide a mechanism through which a Member can pressure an agency for a particular outcome, either on that particular rule or on another matter. On the other hand, however, the single successful use of the CRA to overturn an agency rule in 2001 (discussed in more detail below) suggests that agencies may not consider use of the CRA to be a credible threat, and Members of Congress may be best served by exploring other options to influence agency actions. Increased Oversight of Independent Regulatory Agencies As discussed more below (see " Presidential Veto/De Facto Supermajority Requirement "), the biggest obstacle to enactment of a CRA resolution is generally considered to be the likelihood that a President would veto a joint resolution disapproving a rule issued by his own Administration. It might be expected, however, that Presidents are more likely to sign a resolution disapproving a rule that has been issued by an independent regulatory agency, a type of agency over which the President has less control. Congress created a number of federal agencies with certain characteristics to make them independent from the President, and, in some cases, from Congress itself. Those agencies are generally referred to as independent regulatory agencies or independent regulatory commissions. The President has limited ability to remove officials from those agencies, for example, and those agencies' budget requests may be submitted directly to Congress without modification by the President. In addition, some agencies may receive their funding outside the annual appropriations process. Most notably for rulemaking purposes, the independent regulatory agencies do not submit their regulations to the Office of Management and Budget (OMB) for review, unlike executive agencies such as Cabinet departments. Therefore, the independent regulatory agencies' regulations are considered to be more removed from presidential control than executive agencies', because the President—through OMB—does not have a direct influence over the content of their rules. As such, the rules issued by those agencies are more likely to be incongruent with the President's policy preferences, so that he may be more likely to sign a resolution disapproving such a rule. As one scholar states, "while still not representing much of a change from the Article I legislative process, the CRA may provide some real power in the case of political review of rulemaking by independent agencies." Drawing Attention to a Rule Another potential advantage of the CRA is that it provides a method for Members of Congress to draw attention to a particular rule or to make clear their position on a rule. The required language of a joint resolution of disapproval, which is stipulated in the CRA, provides for a relatively straightforward process through which a Member can make clear his or her opposition to a rule. In addition, the expedited procedures by which a resolution may reach the Senate floor provide an opportunity for a minority of the Senate to obtain floor consideration. Increased Transparency of Rulemaking Another benefit of the CRA, for Members of Congress as well as for the public, is that it has increased opportunities for transparency in the federal rulemaking process, primarily through a database compiled by GAO. Since the CRA's enactment, GAO has posted the rules agencies submit to GAO under the CRA to a database on its website that is publicly available. The website can be used to search for final rules that have been published by agencies, by elements such as the title, issuing agency, date of publication, type of rule (major or non-major), and effective date. The website also contains GAO's reports on major rules that are required under the CRA and discussed more below. What Are Disadvantages of Using the CRA? Procedural Use of the CRA mechanism also involves several potential procedural disadvantages: First, one might argue that the likelihood of a presidential veto (discussed in detail below) constitutes a de facto supermajority requirement to which most CRA disapproval resolutions are likely to be subject. Second, the CRA does not establish any "fast track" procedures for initial consideration of a disapproval resolution in the House of Representatives. As a result, unless the House majority party is willing to schedule the measure for consideration, it in all likelihood will not be considered. Third, unlike the regular legislative process, the CRA disapproval mechanism is available in the Senate only during certain specific time periods. Fourth, calculating the periods established by the CRA for submitting and acting on a disapproval resolution can be difficult, especially in cases where the act provides for additional submission and action periods in a subsequent session of Congress. Fifth, unlike regular legislation, each CRA disapproval resolution can only be aimed at a single agency final rule in its entirety; multiple disapproval resolutions cannot be "bundled" together and still maintain their privileged parliamentary status. Finally, as is noted above, if either chamber rejects a CRA disapproval resolution on a major rule, it could have the effect of putting a regulation in force sooner than would otherwise be the case. This provision of the CRA could be viewed as a disadvantage for Members who oppose a particular major rule and would prefer as long of a period as possible to elapse before the rule becomes effective. Disapproval of an Entire Rule Unlike under the regular legislative process, the CRA can only be used to invalidate an agency final rule in its entirety; it cannot be used to modify or restructure a rule in order to make it acceptable to Congress. If Congress were to use the regular legislative process instead of the CRA, Congress could invalidate part of a rule or instruct the agency to amend or repeal part of a rule. However, regular legislation would not be eligible for the same expedited procedures in the Senate in the same way a CRA resolution would. It would not be assured of the opportunity for floor consideration and might be subject to filibuster. Presidential Veto/De Facto Supermajority Requirement Perhaps the most widely cited reason why the CRA has been used to overturn only one rule is that a President is generally expected to veto a joint resolution of disapproval attempting to overturn a rule proposed by his own Administration. A joint resolution of disapproval requires the signature of the President to become law—a very unlikely prospect if his own Administration issued the rule. If the President were to veto the measure, Congress could attempt to override the veto. A two-thirds majority of both houses of Congress is required to override a President's veto; this creates a de facto supermajority requirement for a CRA joint resolution to be enacted. During a transition following the inauguration of a new President, however, the CRA is more likely to be used successfully. Because of the structure of the periods during which Congress can take action under the CRA, there may be a period at the beginning of each new Administration during which rules issued near the end of the previous Administration would be eligible for consideration under the CRA. The one instance in which the CRA was used to overturn a rule took place during such a period—the resolution was enacted in the early days of the George W. Bush Administration and overturned a rule that had been issued late in the Clinton Administration. See " How Many Rules Have Been Overturned Using the CRA? " for more information on this instance. How Many Rules Have Been Overturned Using the CRA? To date, the CRA has been used to overturn one rule. In November 2000, the Clinton Administration's Occupational Safety and Health Administration (OSHA) in the Department of Labor (DOL) issued a rule on ergonomics standards. The full congressional consideration period provided for in the CRA did not elapse before the second session of the 106 th Congress adjourned, so additional periods for review became available. The Senate passed the CRA resolution, S.J.Res. 6 , on March 6, 2001. The House voted on the Senate resolution and passed it the following day. On March 20, 2001, President George W. Bush signed into law P.L. 107-5 , overturning the rule. To date, OSHA has not attempted to re-issue another version of the ergonomics rule. Five CRA joint resolutions of disapproval have been vetoed since the law was enacted, all by President Obama. For a discussion of why the CRA has only been used to overturn one rule, see the section above titled " Presidential Veto/De Facto Supermajority Requirement ." Definitions Under the CRA What Is a Rule Under the CRA? The CRA adopts the definition of a "rule" that appears in Section 551 of the Administrative Procedure Act (APA) with three exceptions. Section 551 of the APA defines a rule as the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefore or of valuations, costs, or accounting, or practices bearing on any of the foregoing. The first exception in the CRA definition of a "rule" is for rules of particular applicability, including several of the types of rules specifically included in the APA definition: a rule that "approves or prescribes for the future rates, wages, prices, services, or allowances therefor, corporate or financial structures, reorganizations, mergers, or acquisitions thereof, or accounting practices or disclosures bearing on any of the foregoing." Second, the CRA's definition of a rule excludes "any rule relating to agency management or personnel ... " Finally, "any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties" is also excluded from the definition of "rule." Notably, the CRA adopts the broadest definition of "rule" contained in the APA, which is broader than the category of rules subject to notice and comment rulemaking. Therefore, some agency actions that are not subject to notice and comment rulemaking under the APA, and thus may not be published in the Federal Register , may still be considered a rule under the CRA. Does the CRA Apply to Interim Final Rules? Yes. Interim final rules are considered to be final rules and, therefore, an interim final rule that satisfies the CRA definition of a "rule" will be subject to the CRA. Interim final rules are used by agencies to promulgate rules without providing the public with notice and an opportunity to comment before publication of the final rule, while reserving the right to modify the rule following a post-promulgation comment period. Agencies must assert a valid "good cause" in order to issue any interim final rule. Interim final rules are considered final rules that carry the force and effect of law. Does the CRA Apply to Proposed Rules? It does not appear that the CRA applies to proposed rules issued by an agency. Arguably a proposed rule does not satisfy the CRA definition of a "rule." A proposed rule is not "designed to implement, interpret, or prescribe law or policy"; instead, it is generally created by the agency as a draft with which to solicit and receive public comments. Additionally, a proposed rule has no "future effect," because a rule subject to a notice of proposed rulemaking may not go into effect until comments are received and considered by the agency and a final rule is published in the Federal Register . Presumably on these grounds, GAO specifically advises agencies not to submit proposed rules to Congress or GAO under the CRA. In 2014, GAO published an opinion discussing the CRA and proposed rules. GAO limited its analysis to three questions regarding GAO's role under the CRA and its precedents analyzing whether specific agency actions are rules under the CRA. It concluded that "the terms of [the] CRA, and its supporting legislative history, clearly do not provide a role for GAO with regard to proposed rules, and do not require agencies to submit proposed rules to GAO." Furthermore, GAO stated that its prior decisions found "that an agency action constituted a rule for CRA purposes ... [if] the action imposed requirements that were both certain and final." Since proposed rules "are proposals for future agency action that are subject to change ... and do not have a binding effect on the obligations of any party," GAO concluded they are "not a triggering event for CRA purposes." GAO also noted that, because the CRA's expedited procedure for review of agency rules was enacted pursuant to Congress's constitutional authority to establish its own procedural rules, it is for "Congress to decide whether [the] CRA would apply to a resolution disapproving a proposed rule." What Is a Major Rule Under the CRA? The CRA defines a major rule as any rule that the Administrator of the Office of Information and Regulatory Affairs [OIRA] of the Office of Management and Budget [OMB] finds has resulted in or is likely to result in— (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. The term does not include any rule promulgated under the Telecommunications Act of 1996 and the amendments made by that Act. A previous CRS report provided information on the number of major rules issued in recent years, and noted that the 100 major rules issued in calendar year 2010 were considered major because of their effect on the economy, measured in other ways than just in costs for compliance. For example, 37 of the rules appeared to be major because they involved transfers of funds from one party to another (most commonly, federal funds to the recipients of those funds, such as payments to Medicare providers). Ten other rules appeared to be major because they were expected to prompt consumer spending, or because they established fees for the reimbursement of federal functions. Thirty-nine rules appeared major because they were expected to result in at least $100 million in annual compliance costs, regulatory benefits, or both. What Happens When a Rule Is Designated as Major? When a rule is designated as major pursuant to the CRA, the act subjects it to two additional requirements. The first is that the Comptroller General is required to prepare and submit to the committee of jurisdiction a report on each major rule within 15 calendar days of its submission or publication date. This report is to contain "an assessment of the agency's compliance with procedural steps" required for the rule, including any cost-benefit analysis or other analysis under certain statutes such as the Regulatory Flexibility Act and the Unfunded Mandates Reform Act. Second, the CRA contains provisions that may delay the effective dates of major rules. Specifically, if the rule is major, the statute provides that it "shall take effect on the latest of" 60 days after the date that the rule is published in the Federal Register or received by Congress, whichever is later; if Congress passes a joint resolution of disapproval and the President vetoes it, the date on which either house of Congress votes and fails to override the veto or 30 session days after the date Congress received the veto, whichever is earlier; or the date the rule would have otherwise taken effect, if not for this provision of the CRA. The delay provided for in the CRA allows Congress additional time to consider whether to overturn a major rule before it goes into effect. If the rule is not major, the CRA states that the rule "shall take effect as otherwise provided by law after submission to Congress." Who Determines Whether a Rule Is Major? Under the CRA, the Administrator of OIRA is responsible for determining whether a rule is major. However, the CRA does not specifically require agencies to submit their rules to OIRA so that such a determination can be made. A former OIRA Administrator, Cass Sunstein, stated that "[o]nce an agency has submitted a rule to Congress and the GAO under the CRA, OMB does not conduct retrospective reviews of their appropriate designation" as major or non-major rules. Executive agencies, excluding independent regulatory agencies, are required to submit "significant regulatory actions" to OIRA for its review, in accordance with Executive Order 12866. As part of that review process, agencies and OIRA make a determination as to whether a rule is "economically significant" as defined under Section 3(f)(1) of Executive Order 12866. The definitions for "economically significant" rule and major rule are not identical, but they are very similar. In most cases, a rule determined to be "economically significant" under the executive order will also be major under the CRA, and vice versa. Independent regulatory agencies do not submit their rules to OIRA for review under Executive Order 12866. However, OIRA is still tasked with determining whether an independent regulatory agency's rule is major. Accordingly, it is not clear whether and how rules issued by the independent regulatory agencies should be designated as major under the CRA. Sally Katzen, who was the OIRA Administrator when the CRA was enacted, stated in testimony to Congress that, Because OIRA does not review the regulations issued by the independent regulatory agencies under Executive Order 12866, we had to design a process for us to determine whether the final rule of an independent regulatory agency is "major" within the meaning of the statute. Therefore, we invited regulatory contacts from the independent regulatory agencies... to a meeting on April 12, 1996, to discuss my April 2 memorandum [on the CRA] and how they could best coordinate with us on our determination of "major." After this meeting, the independent regulatory agencies began sending OIRA summaries of their upcoming final regulations for us to decide whether or not these rules were "major." Initially, there was a flurry of staff discussions; this process for the "independents" has now become routine. More recent accounts suggest, however, that at least some of the independent regulatory agencies no longer appear to be acknowledging a role for OIRA in the determination of rules as major. Rather, these agencies appear to be making the determination themselves. A December 2013 GAO report stated that the independent regulatory agencies were inconsistent in how they determined whether a rule was major, which could "raise the risk of some rules not being properly classified as major, limiting Congress's ability to review these rules before they become effective." Does the CRA Apply to Non-Major Rules? Yes. The CRA can be used to overturn any final rule, regardless of whether the rule is major. Agency Submission of Rules When Does an Agency Have to Submit a Rule to Congress and GAO? The CRA does not specify when an agency must submit a rule. However, a rule cannot become effective until after it is submitted. In practice, agencies generally submit rules around the time the rule is finalized and published. How Do I Check if a Rule Has Been Submitted Under the CRA? Submissions to Congress When final rules are submitted to Congress pursuant to the CRA, notice of each chamber's receipt and referral appears in the respective House and Senate sections of the daily Congressional Record devoted to "Executive Communications." They are also entered into a database which can be searched using the Legislative Information System of the U.S. Congress (LIS). House communications can be accessed at the House LIS Database. Senate communications can be viewed in the Senate LIS Database. Submissions to GAO As mentioned above, GAO has a database on its website that tracks rules submitted to GAO under the CRA. The database can be accessed at http://gao.gov/legal/congressional-review-act/overview . The GAO database also contains links to the reports that GAO produces on major rules. It is important to note that the date of receipt of a final rule listed in the GAO database represents the date that the final rule was received by GAO; this date may or may not be the same date that the rule was received by the House and Senate, the latter being the date used for calculating the various CRA time periods for review and action. See " How Do I Introduce a Joint Resolution of Disapproval? " for a discussion of how "receipt by Congress" is determined for purposes of estimating the time periods governing the CRA disapproval mechanism. What Happens If an Agency Does Not Submit a Rule to Congress? In some instances, an agency has considered an action not to be a rule under the CRA and has declined to submit it to Congress. Although the disapproval procedures established in the CRA seem to be triggered by agency submission of a rule to Congress, it appears that Congress may still be able to utilize the CRA even if an agency fails to submit a rule. In the past, when a Member of Congress has thought an agency action is a rule under the CRA, the Member has sometimes asked GAO for a formal opinion on whether the specific action satisfies the CRA definition of a "rule" such that it would be subject to the CRA's disapproval procedures. GAO has issued 11 opinions of this type at the request of Members of Congress. In seven opinions, GAO has determined that the agency action satisfied the CRA definition of a "rule." After receiving these opinions, some Members have submitted CRA resolutions of disapproval for the "rule" that was never submitted. In four opinions, GAO has determined that the agency action does not satisfy the CRA definition of "rule," either because it falls under one of the exceptions or is outside the scope of the statute altogether. Members have had varying degrees of success in getting resolutions recognized as privileged under the CRA even if the agency never submitted the rule to Congress. It appears from recent practice that, in these cases, the Senate has considered the publication in the Congressional Record of the official GAO opinions discussed above as the trigger date for the initiation period to submit a disapproval resolution and for the action period during which such a resolution qualifies for expedited consideration in the Senate. (For a discussion of these periods and their triggers, see " How Do I Introduce a Joint Resolution of Disapproval? " and " What Are the CRA "Fast Track" Procedures? " below.) It is important to note that it is unlikely that an affected party would be able to challenge in court an agency's failure to submit a rule to Congress pursuant to the CRA, because the statute explicitly states that "no determination, finding, action, or omission under [the CRA] shall be subject to judicial review." See " Is There Judicial Review Under the CRA? " below. Congressional Procedures Under the CRA How Do I Introduce a Joint Resolution of Disapproval? In most respects, submitting (introducing) a CRA joint resolution of disapproval is the same as initiating any other House or Senate bill. There is, however, a very specific time period during which a qualifying joint resolution can be submitted, and its text must read exactly as laid out in the law. The receipt of a final rule by Congress begins a period of 60 "days-of-continuous-session" during which any Member of either chamber may submit a joint resolution disapproving the rule under the CRA. For purposes of the act, a rule is considered to have been "received by Congress" on the later date of its receipt in the Office of the Speaker of the House or its referral to Senate committee. In calculating "days of continuous session" every calendar day is counted, including weekends and holidays, and the count is only paused for periods where either chamber (or both) is gone for more than three days, that is, pursuant to an adjournment resolution. In order to qualify for the special parliamentary procedures of the CRA, a joint disapproval resolution must be submitted during this 60-day period, not before, and not after. Under Section 802(a) of the act, the text of a CRA joint disapproval resolution is also stipulated. It states the matter after the resolving clause must read, "That Congress disapproves the rule submitted by the ____ relating to ____, and such rule shall have no force or effect." (The blank spaces being appropriately filled in). The first blank would identify the agency promulgating the final rule and the second the name of the rule itself. Can a Joint Resolution of Disapproval Contain a Preamble?64 It is unclear. While the CRA procedure does not specifically bar a joint disapproval resolution from having a preamble, including one raises a number of unanswered questions about House and Senate consideration of the measure. For example, does the inclusion of a preamble destroy the privileged status of the measure in the eyes of either chamber? In the Senate, the preamble to a joint resolution is voted on after the passage of the resolution itself, and is separately amendable. Would the consideration of a preamble fall under the "fast track" Senate procedures banning amendments and limiting debate? Because of these and other ambiguities, Members considering including a preamble in a CRA joint disapproval resolution are advised to consult with the House and Senate Parliamentarians to obtain their definitive guidance on the question prior to submission. How Is a Joint Resolution of Disapproval Different from a Bill? Bills and joint resolutions each have traditional uses, but for purposes of the legislative process, the two are generally interchangeable. In order to be enacted, a bill or joint resolution has to pass the House and Senate with precisely identical text and be presented to the President for his signature, enacted over his veto, or become law without his signature. Can a Joint Resolution of Disapproval Be Used to Invalidate Part of a Rule or More than One Rule? No. Each CRA joint resolution of disapproval can only be used to invalidate one final rule in its entirety. What Are the CRA "Fast Track" Procedures? The CRA contains "fast track" procedures (sometimes called "expedited parliamentary procedures") for both committee consideration and floor consideration of a CRA disapproval resolution in the Senate. The CRA does not contain "fast track" procedures for initial consideration in the House. A CRA disapproval resolution would likely be considered in the House under the terms of a special rule reported by the Rules Committee and adopted by the House. The CRA also provides expedited procedures which govern the consideration by either the House or Senate of a disapproval resolution received from the other chamber. What Are the CRA "Fast Track" Procedures for Senate Committee Consideration? Any time after the expiration of a 20-calendar-day period which begins after a final rule is received by Congress and published in the Federal Register , a Senate committee can be discharged from the further consideration of a CRA joint resolution disapproving the rule. This discharge occurs upon the filing on the Senate floor of a petition signed by at least 30 Senators. While the act does not specify the text of a CRA discharge petition, those that have been used in the past resemble a cloture petition. For example, We, the undersigned Senators, in accordance with chapter 8 of title 5, United States Code, hereby direct that the Senate Committee on Commerce, Science, and Transportation be discharged of further consideration of S.J. Res. 6, a resolution on providing for congressional disapproval of a rule submitted by the Federal Communications Commission relating to the matter of preserving the open Internet and broadband industry practices, and, further, that the resolution be immediately placed upon the Legislative Calendar under General Orders. What Are the CRA "Fast Track" Procedures for Senate Floor Consideration? Once a CRA joint resolution of disapproval is reported or discharged from Senate committee, any Senator may make a nondebatable motion to proceed to consider the disapproval resolution. This motion to proceed requires a simple majority for adoption. If the motion to proceed is successful, the CRA disapproval resolution would be subject to up to 10 hours of debate, and then voted upon. A nondebatable motion to limit debate below 10 hours is in order. No amendments are permitted. A CRA disapproval resolution requires a simple majority in order to pass. For How Long Are the "Fast Track" Procedures Available? In order to be eligible for the "fast track" procedures for Senate consideration, that body has to act on a disapproval resolution during a period of 60 days of Senate session which begins when the rule is received by Congress and published in the Federal Register . After that period, the measure would have to be considered under normal Senate rules. There is no deadline on House consideration except the life of the two-year Congress. Do Disapproval Resolutions Have to Be Submitted in Both Chambers of Congress? No. The CRA does not require that "companion" disapproval resolutions be submitted in both the House and Senate. Under certain circumstances, however, doing so may be advisable. Under the terms of the CRA "fast track" procedure, if one chamber receives a disapproval resolution passed by the other chamber, the receiving chamber may take up and debate its own disapproval resolution, but at the point of disposition, is to take the final vote not on its own measure, but on the disapproval resolution received from the other house. This automatic "hookup" provision guarantees that both chambers are acting on the same joint resolution, and as such, it can be sent directly to the President following second-chamber passage. The mechanism also ensures that there will be no need to resolve legislative differences between the chambers even in cases where the House and Senate disapproval resolutions have slightly different texts. If the House passes a joint resolution of disapproval, for example, and messages it to the Senate, the Senate would apparently be able to consider the House measure under the fast track procedures only by first taking up its own disapproval resolution. If there is no Senate companion resolution, taking up the House measure could potentially require unanimous consent. As such, House sponsors who want the Senate to be able to consider the House resolution under the CRA "fast track" procedures should ensure that a companion Senate disapproval resolution is submitted during the 60-day initiation period. If the Senate acts first, the House can take up the measure, should it choose to do so, under its normal parliamentary mechanisms without having a companion resolution submitted in the House. What Happens if Congress Adjourns Before the CRA Initiation or Action Periods Conclude? If, within 60 days of session in the Senate or 60 legislative days in the House after the receipt by Congress of a rule, Congress adjourns its session sine die , the periods to submit and act on a disapproval resolution "reset" in their entirety in the next session of Congress. In the new session, the reset periods begin on the 15 th day of session in the Senate and the 15 th legislative day in the House. If these two dates do not coincide, it appears that both houses would regard the reset period of 60 days of continuous session for submitting a disapproval resolution as beginning on the later of the two, similarly to the way in which the date of initial receipt by Congress is calculated, so that the new initiation period will be the same for both chambers. If the new session is the second session of the same Congress, a disapproval resolution submitted in the first session remains available for expedited action in the Senate during its new action period of 60 days of session. This "carryover" provision is intended to ensure that Congress will have the full periods contemplated by the act to disapprove a rule regardless of when it is received. Is it Possible to Ascertain When the Periods for Submission, Discharge, and Action on a Resolution to Disapprove a Given Rule Begin and End? Yes. CRS can provide congressional clients with unofficial estimates of the periods to submit, discharge, and act on a joint resolution of disapproval under the CRA once a given rule has been received by Congress and published in the Federal Register . It is important to note, however, that CRS estimates are unofficial and nonbinding. The House and Senate Parliamentarians are the sole definitive arbiter of the CRA parliamentary mechanism, including day count calculations, and should be consulted for authoritative guidance on its operation. Effect of a Resolution of Disapproval What Is the Effect of Enacting a CRA Joint Resolution of Disapproval? Enactment of a CRA joint resolution disapproving a rule has two primary effects. First, a rule subject to a disapproval resolution would not take effect. If a rule has previously taken effect, it is not to continue in effect and "shall be treated as though such rule had never taken effect." Second, the agency may not reissue the rule in "substantially the same form" or issue a "new rule that is substantially the same" as the disapproved rule, "unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule." When Is a New Rule "Substantially the Same" as a Disapproved Rule? The CRA does not define the meaning or scope of "substantially the same," what criteria should be considered, or who should make such a determination. Since the CRA does not define "substantially the same," sameness could be determined by scope, penalty level, textual similarity, or administrative policy, among other factors. For example, if Congress objected to a specific section of language in a rule that was ultimately disapproved, would a rule that only removed that language be considered "substantially the same" as the original? If the agency reissued a rule in which it changed one standard listed in the original regulation, would that be substantially similar? If it changed the number of categories to which a standard applied would the rule still be "substantially the same"? These questions, for which no definitive answer is available, highlight the ambiguity in the meaning of "substantially the same." The statute is also silent on the question of who would make the determination as to whether an amended rule or new rule is "substantially the same" as a disapproved rule. It appears that Congress could take action if it determined that a reissued or new rule was substantially the same as a disapproved rule, given that any reissued or new rule would also be subject to the CRA. Given that the statute precludes judicial review of any "determination, finding, action, or omission" under the CRA, one could argue that evaluating whether the "substantially the same" prohibition has been violated may be a matter for Congress alone to decide. See " Is There Judicial Review Under the CRA? " below. What Is the Effect of a CRA Joint Resolution Disapproving an Amendment to a Previously Issued Rule? Agencies often promulgate rules that substantively amend or make technical corrections to a previously issued rule. An amendment to a rule, if substantive or even if simply a technical correction, is considered to be a "rule" under the APA and the CRA. If a CRA joint resolution of disapproval were enacted regarding such an amendment, it would prevent the amendment from going into effect or continuing in effect. However, this CRA joint resolution of disapproval would have no effect on the previously existing rule that was being amended. How Does the CRA Affect the Effective Date of a Rule? As the first step in the congressional disapproval process, the CRA generally requires federal agencies to submit their covered rules to both houses of Congress and GAO "before a rule can take effect." Currently, the APA requires that agencies generally wait at least 30 days after issuance in the Federal Register before a rule can become effective. As explained above (see " What Happens When a Rule Is Designated as Major? "), the CRA extends that required period for major rules, providing that major rules "shall take effect on the latest of" three dates: 60 days after the date that the rule is published in the Federal Register or submitted to Congress, whichever is later; if Congress passes a joint resolution of disapproval and the President vetoes it, the date on which either house of Congress votes and fails to override the veto or 30 session days after the date Congress received the veto, whichever is earlier; or the date the rule would have otherwise taken effect, unless a joint resolution of disapproval is enacted. Non-major rules "shall take effect as otherwise provided by law after submission to Congress." For certain types of rules, these effective date requirements may not apply. The CRA contains a provision stating that the following rules will take effect on the date the promulgating agency chooses: (1) any rule that establishes, modifies, opens, closes, or conducts a regulatory program for a commercial, recreational, or subsistence activity related to hunting, fishing, or camping, or (2) any rule which an agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rule issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest ... What Happens if a Rule that Is Already Effective Is Overturned? If a rule has already taken effect, the CRA provides that the rule shall not continue in effect and "shall be treated as though such rule had never taken effect." Is There Judicial Review Under the CRA? Section 805 of the CRA states that "[n]o determination, finding, action, or omission under this chapter shall be subject to judicial review." Two federal appeals courts and several federal district courts have examined this section and determined that it unambiguously prohibits judicial review of any question arising under the CRA. One court, a federal district court, has reached the contrary conclusion, ruling that it could review a claim based on noncompliance with the CRA. In the first case to consider the CRA's judicial review provision, a federal district court in Texas Savings & Community Bankers Association v. Federal Housing Finance Board rejected the plaintiff's argument that "§ 805 only forecloses review of any 'determination, finding, action, or omission' by Congress." Instead, it concluded that the "[c]ourt must follow the plain English" of the statute, which barred review of actions "' under this chapter ' not ' by Congress under this chapter .'" In the court's words, "the language could not be plainer" and the alleged failure to comply with the CRA "is not subject to review by this [c]ourt." The D.C. Circuit Court of Appeals, in Montanans for Multiple Use v. Barbouletos , confronted a similar assertion that an agency action should be invalidated because of the agency's failure to comply with the submission requirements in the CRA. The court ruled that the CRA judicial review provision "denies courts the power to void rules on the basis of agency noncompliance with the [CRA]." Therefore, "the language in § 805 is unequivocal and precludes review of this claim ... " It appears that only one court, a federal district court in Indiana, has ruled that the Section 805 language is ambiguous and may allow a court to adjudicate claims arising from the CRA. In United States v. Southern Indiana Gas and Electric Company , the court concluded that the statute could be reasonably interpreted two ways. First, the statute could prohibit any judicial review of an agency's compliance with the CRA. This interpretation was adopted in the cases discussed above. Second, the statute could "preclude judicial review of Congress' own determinations, findings, actions, or omissions made under the CRA after a rule has been submitted to it for review." Under this interpretation, the bar on judicial review would not extend to claims challenging an agency's action, such as whether an agency should have submitted a rule to Congress under the CRA. Ultimately, the court rejected the first interpretation because it would allow agencies to "evade the strictures of the CRA by simply not reporting new rules," which it argued was at odds with the statute's purpose to prevent agencies from "essentially legislating without Congressional oversight." It adopted the second interpretation and concluded "that it has jurisdiction to review whether an agency rule is in effect that should have been reported to Congress pursuant to the CRA." This conclusion appears to be a minority view among the federal courts. Concluding Questions What Other Tools Are Available To Congress for Conducting Oversight of Federal Regulations? Although the CRA offers a number of advantages to Congress, as discussed above, Congress also has a number of other tools available to conduct oversight of federal agency rulemaking. These tools include general legislative powers, oversight hearings, meetings with agency officials, and appropriations language. Each of these is briefly discussed below. Every rule issued by a federal agency must be based upon a grant of authority given to that agency by Congress in statute, and it is Congress's prerogative to ensure that agencies issue rules in a manner consistent with congressional intent. As such, Congress can use its legislative power to oversee the issuance and implementation of rules, or even require that an agency repeal a rule. For example, Congress can make a change to the underlying statute authorizing a rule or enact legislation that simply overrides the rule. Such a change could remove or change the agency's authority to issue the rule, or it could prescribe more specifically in law what the rule should contain. The advantage of using the CRA is that the procedures it provides for, particularly in the Senate, can make it easier to pass a joint resolution of disapproval than to pass a regular bill. However, as discussed in detail below, Members must submit and act on a CRA resolution within a particular time period following issuance of a rule, whereas Congress can use its general legislative power to act on a rule at any time. Hearings are another method of conducting oversight of federal rules. Congressional committees can hold oversight hearings at any time that focus on the development or implementation of a particular rule or set of rules that fall under their jurisdiction. Oversight hearings can give Members a chance to ask agency officials questions about rules and communicate their views to agency officials. A Member of Congress also can request a meeting with the rulemaking agency while a rule is under development to communicate his or her views to the agency. In addition, a Member can request to meet with the Office of Information and Regulatory Affairs (OIRA), the entity within OMB that reviews most agency regulations prior to their publication. Such meetings are sometimes referred to as "12866 meetings," a reference to Executive Order 12866, which governs OIRA review of agency rulemaking. During the review process, OIRA can play a significant role in the content of a proposed or final rule. Therefore, Members may want to make their views known to OIRA while the rule is under review. Finally, Congress has frequently used appropriations legislation to restrict an agency's use of funds to promulgate or implement particular regulations. However, unlike CRA joint resolutions of disapproval, provisions of this type do not nullify an existing regulation, nor do they remove the agency's underlying statutory authority to issue a regulation. Therefore, any final rule that has taken effect will continue to be binding law—even if an appropriations restriction prohibits the agency from using funds to enforce the rule. In addition, restrictions on the use of funds in appropriations acts, unless otherwise specified, are binding only for the period of time covered by the measure (i.e., a fiscal year or a portion of a fiscal year). In these instances, any restriction that is not repeated in the next relevant appropriations act or enacted as part of another measure no longer binds the relevant agency or agencies. Has Legislation Been Proposed to Amend the CRA? The Regulations from the Executive In Need of Scrutiny (REINS) Act ( H.R. 427 and S. 226 in the 114 th Congress) is one legislative proposal that would amend the CRA. The REINS Act would keep the current requirements of the CRA in place for non-major rules, but for any rule deemed to be major, it would require Congress to vote to approve the rule before it can take effect. As is currently the case under the CRA for a resolution of disapproval, the REINS Act provides a certain set of procedures under which a resolution of approval would be considered in each chamber. Earlier versions of the REINS Act passed the House in the 113 th and the 112 th Congresses ( H.R. 367 and H.R. 10 , respectively). Another legislative proposal that would amend the CRA is H.R. 5982 , the Midnight Rules Relief Act. If enacted, H.R. 5982 would make it easier for a new Congress to disapprove multiple rules issued in the final months of an outgoing President's Administration. Currently, as described above, Congress can overturn a single final rule through enactment of a joint resolution of disapproval—a disapproval resolution cannot be used to overturn more than one rule. In addition, if a rule is submitted late enough in a session of Congress, there may be additional time periods for consideration available in the next session. H.R. 5982 would amend the CRA to allow a disapproval resolution to contain more than one rule for those late-issued rules finalized by an outgoing Administration—that is, for rules submitted to Congress during the final 60 days of session in the Senate or 60 legislative days in the House of Representatives before sine die adjournment. Appendix. Government Accountability Office (GAO) Opinions on Whether Certain Agency Actions Are "Rules" Under the CRA

The Congressional Review Act (CRA) is an oversight tool that Congress may use to overturn a rule issued by a federal agency. The CRA was included as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA), which was signed into law on March 29, 1996. The CRA requires agencies to report on their rulemaking activities to Congress and provides Congress with a special set of procedures under which to consider legislation to overturn those rules. Under the CRA, before a rule can take effect, an agency must submit a report to each house of Congress and the Comptroller General containing a copy of the rule; a concise general statement relating to the rule, including whether it is a major rule; and the proposed effective date of the rule. Upon receipt of the report in Congress, Members of Congress have specified time periods in which to submit and take action on a joint resolution of disapproval. If both houses pass the resolution, it is sent to the President for signature or veto. If the President were to veto the resolution, Congress could vote to override the veto. If a joint resolution of disapproval is submitted within the CRA-specified deadline, passed by Congress, and signed by the President, the CRA states that the "rule shall not take effect (or continue)." That is, the rule would be deemed not to have had any effect at any time. Even provisions that had become effective would be retroactively negated. Furthermore, if a joint resolution of disapproval were enacted, the CRA provides that a rule may not be issued in "substantially the same form" as the disapproved rule unless it is specifically authorized by a subsequent law. The CRA does not define what would constitute a rule that is "substantially the same" as a nullified rule. Additionally, the CRA prohibits judicial review of any "determination, finding, action, or omission under this chapter." This report discusses the most frequently asked questions received by the Congressional Research Service about the CRA. It addresses questions relating to the applicability of the act; the submission requirements with which agencies must comply; the procedural requirements that must be met in order to file and act upon a CRA joint resolution of disapproval; and the legal effect of a successful CRA joint resolution of disapproval. This report also discusses potential advantages and disadvantages of using the CRA to disapprove rules, as well as other options available to Congress to conduct oversight of agency rulemaking. For further questions not addressed here, please contact one of the authors: [author name scrubbed] (questions regarding history of and agency compliance with the CRA); [author name scrubbed] (questions regarding congressional procedures and day counts under the CRA); or [author name scrubbed] (questions regarding legal issues under the CRA).

Reclamation's Water Reuse (Title XVI) Program To address growing challenges in western water management, in 1992, Congress directed the Secretary of the Interior to establish a federal water reclamation, recycling, and reuse program to share project costs in the West (Title XVI of P.L. 102-575 , as amended (43 U.S.C. §390h)). Commonly referred to as Title XVI, the program is administered by the Department of the Interior's (DOI's) Bureau of Reclamation and provides funding for projects in several western states and Hawaii. As reuse and desalination have become more cost-competitive and technically viable, interest in the program has increased. Program implementation has at times been contentious, with various stakeholders having widely different views of the program and its performance. DOI has taken action in recent years to improve program implementation. At issue for Congress is the degree to which DOI actions are consistent with congressional priorities, whether legislative attention is needed to improve the program, and if so, how it should be changed. One question is whether to authorize additional Title XVI projects; several bills pending before the 111 th Congress (e.g., H.R. 2442 , H.R. 2522 ) would authorize additional Title XVI projects or amend existing project authorities. Another question is how to tackle the set of authorized activities: whether a funding priority system proposed by Reclamation should be used to allocate funding among authorized projects, whether there needs to be a statutorily based priority system, or whether the status quo of decision making during the annual appropriations process should be continued. The 111 th Congress has not legislatively responded to Reclamation's funding criteria proposal, nor has legislation to change the overall program been introduced. No programmatic legislation has been enacted since amendments in 1996, although legislation in recent Congresses contemplated programmatic changes. Recent Congresses have also held several oversight hearings on the program, its projects, and their funding. The rate of Title XVI project authorizations has outpaced annual appropriations. The program has a $630 million "backlog" of authorized projects awaiting appropriations. The Obama Administration has opposed the authorization of additional Title XVI projects, including projects with agency-approved feasibility studies, citing the outstanding authorized funding and oversubscription of the program. At the same time, the Obama Administration has demonstrated support for the program. It broke with policies of the G. W. Bush Administration by declaring water reuse as an appropriate part of Reclamation's mission, and was supportive of Title XVI implementation under the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). The DOI has issued three documents to guide the program's implementation: (1) agency guidelines for preparing, reviewing, and processing Title XVI project proposals, (2) internal "Directives and Standards" to increase the consistency and effectiveness of the program by establishing feasibility study requirements for prospective Title XVI projects, and (3) funding criteria to prioritize project funding. The latter document was developed following legislative consideration of programmatic changes to the program, including streamlining the feasibility process and establishing project evaluation criteria. This report presents a brief description of the Title XVI program, the current status of the program, and information on program funding and implementation. It also discusses Title XVI legislative and administrative issues. Table A-1 in the Appendix provides details on the status of individual Title XVI projects, as well as additional program information. Title XVI Status: Accomplishments and Challenges The Bureau of Reclamation's water reuse program was first authorized in 1992 in Title XVI of P.L. 102-575 , the Reclamation Wastewater and Groundwater Studies and Facilities Act. The act directs the Secretary to "investigate and identify" opportunities for water reclamation and reuse in the West and authorizes financial and technical support for the design and construction of demonstration and permanent facilities to reclaim and reuse wastewater or other impaired waters (including saline groundwater and seawater). It also authorizes research on technologies for treating these impaired waters. Title XVI assistance, to date, has been limited to projects in the 17 western states and Hawaii. Each permanent Title XVI project requires congressional authorization for construction. However, demonstration projects may be constructed under general authority provided in § 1605 of P.L. 102-575 . The initial legislation authorized five individual projects, including one specifically identified demonstration project. Congress has authorized more than 50 permanent projects as of November 2010. Geographic Distribution of Projects Figure 1 shows authorized Title XVI projects in the 17 traditional reclamation states. These projects are overlain on a "hot-spots" illustration, created by DOI to depict where water conflicts are especially prevalent in the western United States. To date, Title XVI projects have been authorized in eight traditional reclamation states: Arizona, California, Nevada, New Mexico, Oregon, Texas, Utah, and Washington. Three projects have also been authorized in Hawaii. As seen from the overlay, many of the authorized Title XVI projects are located in areas prone to water conflict. However, not all such areas have Title XVI projects. Figure 2 lists projects depicted in Figure 1 . As shown in Figure 1 , more than two-thirds of the 53 authorized projects are located in California. This concentration reflects the early focus of the program on the Southern California and Colorado River hydrologic region in the original authorization as well as interest in the program in the California. The states with Title XVI projects represent many of the states especially active in applying reuse technologies and practices, but not all; two active reuse states, Florida and Colorado, do not have Title XVI projects. A Growing Program Backlog A total of 53 projects have been authorized as of November 5, 2010. Total authorized federal funding for these projects is estimated to be nearly $1.2 billion. The backlog of authorized projects in 2006 was $354 million; today it is approximately $630 million. Even with stimulus spending discussed below, the Title XVI backlog has grown with the authorization of several new projects in the 111 th Congress. (See Table A-1 in the Appendix for a listing of projects and funding status.) Congress to date has funded 42 of the 53 authorized Title XVI projects. That is double the number that had been funded as of FY2006, and leaves 11 completely unfunded. Reclamation has completed its funding obligations for 16 projects—up from three completed projects at the end of FY2005. Title XVI federal funding obligations are nearly complete (80% or more) for three more projects, for a total of 19 projects for which federal funding is complete or nearly compete—up from six projects in FY2006. As shown in Figure 1 , nearly 80% of the 53 Title XVI projects have received some Title XVI funding. These projects are depicted in Figure 1 by the darkest blue circles (completed projects) and the grayish blue circles (other projects receiving some Title XVI funding). The light blue circles represent authorized projects that had not received Title XVI funding by the end of FY2010. Title XVI funding via the annual Energy and Water Development Appropriations bill for FY2010 is $13.6 million. This appropriation is lower than in recent years, presumably due to the large amount of ARRA funding that was to be obligated in FY2010. Reclamation estimates the amount of water actually produced by operating Title XVI projects in FY2009 was 245,111 acre-feet. Reclamation estimated a total maximum design capacity of 747,558 acre-feet of water annually for all Title XVI authorized projects as of 2006. Since that time several more projects have been added; however, a revised total capacity estimate was not available for this report. Because authorizations of projects have consistently outpaced project funding, the Title XVI backlog continues to grow. For example, as of May 25, 2010, total Title XVI funding had reached an estimated $531 million, including $135 million in ARRA funding. ARRA funds significantly reduced the number of unfunded projects and contributed to the completion of the federal share of multiple projects; however, outstanding authorizations grew to $630 million. Title XVI Issues for Congress Congress continues to authorize Title XVI projects and has done so more frequently in recent years. Some Members of Congress continue to voice concern over the program's goals and implementation, including costs. A frequent concern is how much the program costs and its impact on available funding for more traditional Bureau of Reclamation activities and aging infrastructure. Some have also questioned the cost of water produced and whether the program is cost-effective. In general, Title XVI issues fall into two categories: (1) issues specific to the program's implementation and structure (legislatively and administratively), and (2) broad policy issues. Reclamation has developed more detailed evaluation criteria over the years, such as Reclamation guidelines for project evaluation, Directives and Standards (D&S) for the Title XVI program, and most recently, funding criteria. However, none of these documents have been promulgated as official rules or regulations; nor do they appear to be binding. For example, the evaluation procedures do not include criteria for competitively ranking projects or selecting projects. Both the D&S and guidelines provide more explicit evaluation and feasibility criteria than are provided in statute; however, the criteria are referred to as factors to be "considered" and are not ranking or decision-making criteria. With the Administration's FY2011 budget request for a lump sum of $20 million to be allocated using proposed funding criteria, the Administration seems to be trying to accomplish administratively what some programs (e.g., EPA water quality programs) have in statute. Other overarching issues include the scope of the program and the degree to which project assistance should be targeted to certain types of projects or broadened to include more projects in more areas. Different stakeholder views on these overarching issues will ultimately affect specific decisions to address broad policy issues, as well as program criteria, project evaluation, and funding issues discussed below. Managing Title XVI as a Program While between $1 million and $3 million is devoted to Title XVI program administration annually, there are no programmatic funds to be allocated to each project. Instead, the bulk of Title XVI funding is allocated annually to each project by Congress via a separate line item in Reclamation's Water and Related Resources budget account. This process is consistent with most water resource project funding (e.g., Corps of Engineers and traditional Reclamation project funding); however as discussed below, it is markedly different from other federally supported water treatment programs. In recent years such line item funding has come under fire and become part of the "earmark" debate before Congress. Under the present system, Title XVI projects are listed as "earmarks," which adds an element of controversy to them. In response to interest in changing the current budgeting practices and to concerns over managing the demand on limited Title XVI funding, Reclamation published criteria for prioritizing projects for funding (see text box below for more details on the proposal). The Administration's FY2011 budget request included a lump sum of $20 million that would be used to restructure Title XVI funding to be more similar to other federal programs. The Administration is proposing that Congress provide it the lump sum for new Title XVI construction activities and that Reclamation would use the criteria to prioritize project funding. Funding for Title XVI has been somewhat controversial over the years, largely because of differences in congressional and administrative priorities. For example, Reclamation has consistently limited its budget requests to projects that have received prior federal funding, while Congress has typically provided funding for a broader set of projects. At the same time, some Members of Congress have repeatedly questioned program costs. Administration Proposal to Prioritize Title XVI Funding For FY2011, the Title XVI budget request is $29.0 million. Roughly $9.0 million is requested for six specific projects, while $20 million is requested for Reclamation's allocation to specific projects "using criteria focused on reducing existing diversions or addressing specific water supply issues in a cost-effective manner" and meeting other priorities spelled out in Reclamation's proposed funding criteria. Congress typically includes funding for more projects than requested by the Administration. However, it is unclear whether appropriators will grant the lump sum program funding to be allocated by Reclamation or whether the authorizing committees will sanction the proposal. Issues Raised by the Proposal These criteria would push Title XVI toward being managed as a program, instead of a set of individually authorized and funded projects. Other federal water assistance programs, such as state revolving loan funds for wastewater and drinking water administered by the U.S. Environmental Protection Agency (EPA) and rural water and wastewater disposal programs administered by the U.S. Department of Agriculture (USDA), have criteria, regulations, and competitive processes for selecting projects and allocating funding. For many of these programs, the formulae and criteria are set out in statute. Congress appropriates money annually for these programs; however, except for some congressionally designated projects, project funding is not regularly appropriated for each project, as it is for Reclamation and Corps projects. Instead, depending on the program, states or federal agencies select projects based on eligibility and/or selection criteria, and then allocate program funding based on these criteria. (For more information on other federal water programs, see CRS Report RL30478, Federally Supported Water Supply and Wastewater Treatment Programs , coordinated by [author name scrubbed].) The proposed criteria may assist in managing nonfederal project sponsors' expectations for funding, improve transparency of how projects are selected for funding, and bring the Title XVI program more in line with other federal programs. Criteria would potentially reduce the active role of Congress in annually deciding the level of appropriations for each authorized project and potentially minimize concerns over "earmarks." While the approach may be a priority for OMB and the Administration, Congress may not accept leaving prioritization of project funding to the Administration, especially without statutorily directed project evaluation, funding, or ranking criteria. The Administration's proposal raises several questions: Input and Process : Is new or revised program guidance needed, via a formal rule-making process, congressional action, or both? Or, will the Administration's new funding criteria, combined with D&S and Reclamation guidelines suffice for project evaluation and funding prioritization? Equity : How should different phases of projects be funded? Should funding of a new phase of an existing project have priority over funding of a new project? For cost-share purposes, when does one phase end and another begin? Is it fair or desirable that some projects get multiple allocations of federal funding by staging construction in phases? Should projects that have successfully completed projects without Title XVI assistance still be eligible for the authorized federal cost-share (as indicated in the proposal)? Basis for Title XVI Authorization Another issue is the basis for congressional authorizations of a Title XVI project. Several authorization bills introduced in the 111 th Congress are for projects that do not have completed feasibility studies or completed environmental reviews. The Obama Administration, like its predecessor, has consistently testified in opposition to authorization of new projects that have not met these basic tests. For example, in April 2010 the Administration testified against S. 1138 , the Bay Area Regional Water Recycling Program (BARWRP) Expansion Act, stating that the projects would compete for funding with other Reclamation program needs, including existing Title XVI projects and noted that several of the BARWRP projects lacked approved feasibility studies and environmental reviews. A question for Congress, as a policy matter, is whether to move forward project authorizations that do not have completed feasibility studies and environmental reviews. In the past, project sponsors argued that such prior authorization was necessary because the Administration was not acting on pending feasibility studies. It is not clear if that continues to be an issue. For example, the ARRA funding was only available for projects that could be implemented quickly—presumably projects that had feasibility and environmental reviews. Regardless, historically, the House Natural Resources Committee and Senate Energy and Natural Resources Committee rarely authorized traditional water resource projects prior to completed feasibility studies. These issues also raise several questions: Effect of Administration efforts : Has Reclamation's implementation of D&S reduced the delay in approval of project feasibility studies? Do the guidelines and D&S provide decision makers with adequate knowledge about the project? Are these measures too cumbersome for project sponsors? What is the appropriate balance between sponsor's desire for a streamlined process and protection of taxpayer interests in ensuring viable and cost-effective projects? A uthorization process : Is authorization prior to feasibility study completion a problem (e.g., has it resulted in authorized projects that are infeasible, not cost-effective, or unproductive)? If so, would new or revised guidance forestall the issue of projects being authorized by Congress prior to undergoing the Title XVI project evaluation process? What is the appropriate balance between easing burdens on congressional committees for project evaluation and delegating project selection solely to the executive branch? Federal Role in Reuse A broad policy issue related to Title XVI, but not frequently discussed in recent years, is the question of the appropriate federal role in water supply development, particularly for municipal and industrial (M&I) purposes, and particularly the role of Reclamation in this regard. Because Title XVI projects are largely municipal water development projects and the most recent articulated congressional policy on these types of projects is half a century old (under the Water Supply Act of 1958), debate remains in some circles over whether, and if so how, the federal government should fund these activities. Congress has repeatedly continued to authorize and fund these projects, seemingly making the issue moot. Yet, historically, federal water resource agencies' involvement in water supply was limited to developing irrigation projects and multiple use projects. Unlike other areas of water resources management in which the federal role is more prominent (e.g., irrigation water supply, flood damage reduction, and navigation; or supporting wastewater and drinking water treatment investments through revolving loan programs), the federal role in water supply development for M&I largely has been secondary to the primary role of state and local governments. Water supply development for M&I generally has been incidental to the primary project purposes of large, multi-purpose irrigation, flood reduction, hydro power, and navigation projects, pursuant to congressional policy established in the Water Supply Act of 1958. While as a general matter, local, regional, or state agencies have been responsible for water supply development and wary of federal involvement in allocating water, Congress occasionally has deviated from this policy. Examples of federal funding via grants and loans for M&I infrastructure often are tied to meeting federal water quality standards or broad social purposes, such as assisting rural or economically distressed areas or protecting public health and safety. In the case of Title XVI, an original rationale for the program was to help Southern California reduce its reliance on Colorado River water. Moreover, over the last two decades, Congress has increasingly, and incrementally, authorized DOI participation in water supply projects for small and rural communities. Although Congress has increasingly passed bills for site-specific projects and established the Title XVI program, it has not re-articulated long-standing congressional policy regarding the federal role in M&I water supply development since the 1958 Water Supply Act. Related to this policy issue is the question of what is a Title XVI project? For example, should the program be used to fund projects for which the primary purpose is to meet local obligations to reduce point- or non-point source pollution under the federal Clean Water Act, for which federal funding already exists? Increasing demand for already scarce water supplies, including water to support new energy development, in many areas of the West is contributing to water management conflicts. For example, several of the country's fastest-growing states are among the 17 western "reclamation" states ─ states where the Bureau of Reclamation typically operates, as defined in the 1902 Reclamation Act. Pressures to reconsider federal support for water supply projects is mounting. The nation is experiencing increased local pressure on and conflicts over existing water supplies. Although the specifics vary by location, most challenges to existing water management practices are shaped by: (1) demand factors, such as growing population, instream species and ecosystem needs, agricultural water demand, energy needs, water pricing, and changed public interest (such as increased interest in water-based recreation and scenic amenities); and (2) supply factors, such as water source contamination, environmental regulation, aging infrastructure, and long-term natural variations or other changes in the hydrologic cycle. These factors, coupled with drought conditions and climate change concerns in many areas and the current fiscal climates in many states, have fostered interest in new water supply development, supply augmentation, and diversification and security of water supplies. Growing pressure on water supplies in the West make it likely that the demand for Title XVI projects and requests for federal assistance, and hence pressure on Congress to approve more projects, will increase. At the same time, the potential for future requests to escalate and create an entirely new class of water supply assistance appears to have increased congressional, Administration, and traditional Reclamation stakeholder concerns over water reuse as a draw on limited federal water resources funds. Next Steps and Remaining Issues Under the status quo, the prospect for the Title XVI program is a growing list of authorized projects competing for limited appropriations and Administration support. The 111 th Congress thus far has not addressed Title XVI program management via legislation. Instead, legislative activity has been limited to individual project authorizations and oversight. If Congress were to consider programmatic changes, it would face several broad questions in addition to those already raised, including: How urgent is the problem of water scarcity in West? If urgent, what is the federal interest in the problem? Is funding Title XVI projects an efficient or appropriate response? How important is the problem and what is the right approach ? While the problem may be acute in some areas, it may be less so in others—should an adjustment to the program acknowledge such differences and focus federal resources in certain areas? Or is that already happening as a function of which local governments and sponsors are seeking legislation? What are other options to address the problem and are they more cost-effective? Should it be a federal responsibility to promote water reuse in the West? If so, why, or why not nationwide? How does reuse contribute to national well-being? How does promoting or facilitating reuse in the West facilitate other federal goals, objectives, and legal obligations (e.g., tribal trust obligations or protection of threatened and endangered species)? Why are some states already embracing the reuse program, but not others? For example, are there important differences in state water laws that make reclamation and reuse feasible in some areas but not others? Is it access to capital, or other reasons? Congress also would face numerous questions related to the specifics of the programmatic changes: Should Congress continue to subsidize water reuse in the West through this de facto grant process, or are there other priorities for limited federal funding? Is there a more efficient way to encourage reuse? Should Title XVI funding be subject to Reclamation reimbursement policies for the federal cost-share, as is generally the case for more traditional Reclamation projects? How does, or could, the Title XVI program mesh with other federal activities (e.g., Interior's Water Smart grant initiative or water reuse and storage activities under CALFED or the California water plan)? Should the program be tied to alleviating demand or reducing existing diversions where endangered species or other fish and wildlife or water quality concerns are at issue? Should reuse be used to help communities "drought-proof" their supplies, or to slow pressure on agricultural water supplies, by possibly slowing conversion of "agriculture-to-urban" water transfers? Will promoting water reclamation and reuse simply encourage more growth in already water scarce areas? Will growth or development come at the expense of federal investment in other economically depressed areas with plentiful water resources, or in other projects that might produce more water? These questions are just a few that arise when discussing the future of Title XVI. Reclamation's new funding criteria and other programmatic actions attempt to answer some of these questions; whether Congress agrees with Reclamation's approach and appropriates the lump sum funding for the Administration to allocate has yet to be decided. Growing demands on water resources in the West and elsewhere make it likely that interest in federal assistance for water reuse projects will continue. Depending on perceptions of problems with the Title XVI program, different solutions to resolving program issues will be sought. Different stakeholders will have different opinions on the magnitude, importance, and scope of the broad policy, program criteria, project evaluation, and funding issues identified in this report. Resolution of Title XVI issues will depend on many factors, including to what degree congressional and Administration priorities for the program can be articulated and balanced. Appendix. Title XVI Projects Title XVI has been amended multiple times since 1992, resulting in a total of 53 authorized projects. (See Table A-1 . ) Active Projects As noted earlier, Title XVI funding obligations for 16 projects are complete, and nearly complete for 3 additional projects. Title XVI projects were yielding an estimated 245,111 acre-feet of water annually as of FY2009 – double the production of 121,678 acre-feet annually as of September 20, 2005. Because water yield figures are based on total design capacity, actual water yield at full build out will likely be slightly less than depicted in the last column of Table A-1 . Unfunded Projects Eleven projects have not received funding to date and appear to be inactive; however, to clarify this situation, Reclamation is surveying sponsors of authorized projects to determine the status of each project. Results from the survey and an analysis of new data are expected in early 2011. Projects unfunded by Reclamation are shown in bold in Table A-1 . The other Title XVI projects are considered active. The eleven projects that have not received funding from Reclamation include at least one project that has received other federal funding, including funding from EPA and the Bureau of Indian Affairs. It is not clear how many projects may ultimately seek multiple sources of federal funding or already have done so. Title XVI Federal Contribution Title XVI projects authorized prior to 1996 ranged in total costs from $152 million ($38 million for Reclamation's share), to $690 million ($172 million for Reclamation's share), with 25% of the total project costs eligible for Title XVI funding. In 1996, the program's authorization was amended to limit the federal share to no more than $20 million per project. The three costliest Title XVI projects were authorized in 1992, before federal contributions were capped at $20 million. Post-1996 projects have been smaller in scale, ranging from $700,000 for Reclamation's share to the authorized federal cost-share cap of $20 million.

Congress authorized the Department of the Interior (DOI) to undertake a program to provide federal financing for water reuse (i.e., planned beneficial use of treated wastewater and impaired surface and groundwater) with passage of the Reclamation Wastewater and Groundwater Studies Feasibility Act of 1992 (Title XVI of P.L. 102-575). The Department of the Interior's implementation of the program by the Bureau of Reclamation at times has been contentious. Many Members of Congress, particularly from water-scarce western states, have supported the program and specific projects. However, with a funding backlog of more than $630 million to complete already authorized projects, several pending authorizations, and ongoing concerns about the appropriate federal role in funding Title XVI facilities, it is not clear what action the 111th Congress will take in its remaining days. Similarly, it is not clear what approach the 112th Congress will take toward the Title XVI program. Approximately $531 million has been appropriated for Title XVI projects in the West, mostly in California. Of the 53 authorized projects, 42 have received some appropriation. From FY2009 to FY2010, the number of projects that are either complete or have exhausted their authorized federal cost-share rose from 10 to 16. However, the rate of Title XVI project authorizations has outpaced annual appropriations. For example, recent stimulus funding combined with regular appropriations resulted in fewer "unfunded" projects on the books, but the overall funding backlog has grown to approximately $630 million. At issue for Congress in the short term is whether to authorize new projects and at what level to fund already authorized projects (e.g., H.R. 2442 and H.R. 2522). At issue for the longer term is whether legislative action and oversight is needed to address Title XVI implementation issues, and if so, how to change the program. The Department of the Interior has taken action in recent years to improve the program's implementation. To what degree these actions are consistent with congressional priorities for the program will significantly shape perspectives on whether the program warrants legislative attention in the 112th Congress. Other issues include the future of new project authorizations, given the backlog of authorized projects awaiting appropriations and competing budget priorities, and whether Congress should appropriate lump sum funding to be allocated to projects by the Administration under new funding criteria. A challenge for Congress is that stakeholders' perspectives on how to manage and improve the program can be fundamentally different. Title XVI authorizations and appropriations have been pursued by many water utilities seeking access to federal funds, which can be leveraged to obtain additional financing. Project sponsors generally are seeking a more streamlined project development process and expanded program appropriations. The Administration appears to support a smaller, more focused program with long-term objectives tied to federal interests, as indicated by funding criteria released by the Administration in October 2010. Others fear the program will overwhelm Reclamation's budget and compete with the upkeep and new authorizations for traditional Reclamation projects. Views on the Title XVI program and its future also vary based on perspectives on the proper federal role in water supply development, the appropriate priority for the program in the current federal and state fiscal environments, the history and mission of the program, and the urgency and need for investment and promotion of water reuse technologies. The justification for federal involvement in these projects, which expand municipal water supply, and the long-term goals and planning for the program have come under scrutiny and may be at issue in the 112th Congress.

Introduction Concerns about the safety of Presidents have existed throughout the history of the Republic, beginning with George Washington in 1794, when he led troops against the Whiskey Rebellion in Pennsylvania. The intervening years have witnessed a variety of incidents of actual and potential harm to Presidents (as well as immediate family members and other high-ranking officials). These situations extend to illegal entries onto the White House grounds and the White House itself; violence and conflict near the President's residence or where he was visiting; unauthorized aircraft flying near the White House and, in one instance, a plane crashing into the building; schemes to use airplanes to attack the White House; other threats of attack, including bombings and armed assaults; feared kidnapping and hostage-taking; assassination plots; as well as immediate, direct assaults against Presidents. In addition to incumbents, Presidents-elect and candidates for the office have been subject to assaults or threats. General Findings This report identifies assassinations of and other direct assaults against Presidents, Presidents-elect, and candidates for the office of President. There have been 15 such attacks (against 14 individuals), with five resulting in death. The first incident occurred in 1835, involving President Andrew Jackson, when an attacker's pistol misfired. The most recent occurred in 2005, when a would-be assassin in Tbilisi, Republic of Georgia, tossed a grenade (which did not explode) at the platform where President George W. Bush and the Georgian President were speaking. The tally of victims reveals the following: Of the 43 individuals serving as President, 10 (or about 23%) have been subject to actual or attempted assassinations. Four of these 10 incumbents—Abraham Lincoln, James A. Garfield, William McKinley, and John F. Kennedy—were slain. Four of the seven most recent Presidents have been targets of assaults: Gerald R. Ford (twice in 1975), Ronald W. Reagan (in a near-fatal shooting in 1981), William J. Clinton (when the White House was fired upon in 1994), and George W. Bush (when an attacker tossed a grenade, which did not explode, towards him and the President of Georgia at a public gathering in Tbilisi in 2005). Two others who served as President were attacked, either as a President-elect (Franklin D. Roosevelt in 1933) or as a presidential candidate (Theodore Roosevelt in 1912, when he was seeking the presidency after being out of office for nearly four years). Two other presidential candidates—Robert F. Kennedy, who was killed in 1968, and George C. Wallace, who was seriously wounded in 1972—were also victims, during the primaries. In only one of these 15 incidents (the Lincoln assassination) was a broad conspiracy proven, although such contentions have arisen on other occasions. Only one other incident involved more than one participant (the 1950 assault on Blair House, the temporary residence of President Harry S Truman); but no evidence of other conspirators emerged from the subsequent investigation or prosecution. Of the 15 direct assaults, 11 relied upon pistols, two on automatic weapons, one on a rifle, and one on a grenade. All but two of the attacks (both against Gerald Ford) were committed by men. All but one of the 15 assaults occurred within the United States. Specific Incidents The following table identifies the direct assaults on Presidents, Presidents-elect, and candidates for the office of President. It specifies the date when the assault occurred, the victim, his political party affiliation, the length of his administration at the time of the attack or whether he was then a candidate or President-elect, the location of the attack, its method and result, and the name of the assailant, along with the professed or alleged reason for the attack (if known).

Direct assaults against Presidents, Presidents-elect, and candidates have occurred on 15 separate occasions, with five resulting in death. Ten incumbents (about 23% of the 43 individuals to serve in the office), including four of the seven most recent Presidents, have been victims or targets. Four of the 10 (and one candidate) died as a result of the attacks. This report identifies these incidents and provides information about what happened, when, where, and, if known, why. The report will be updated and revised if developments require.

Introduction Federal executive branch agencies hold an extensive real property portfolio that includes more than 871,000 buildings and structures, and 40 million acres of land worldwide. These assets have been acquired over a period of decades to help agencies fulfill their diverse missions. Agencies hold properties with a range of uses, including barracks, health clinics, warehouses, laboratories, national parks, boat docks, and offices. As agencies' missions change over time, so, too, do their real property needs, thereby rendering some assets less useful or unneeded altogether. Healthcare provided by the Department of Veterans Affairs (VA), for example, has shifted in recent decades from predominately hospital-based inpatient care to a greater reliance on clinics and outpatient care, with a resulting change in space needs. Similarly, the Department of Defense (DOD) reduced its force structure by 36% after the Cold War ended, and has engaged in several rounds of base realignments and installation closures. Real property disposition is the process by which federal agencies identify and then transfer, donate, or sell facilities and land they no longer need. Disposition is an important asset-management function because the costs of maintaining unneeded properties can be substantial. In FY2013, for example, the government disposed of 21,464 unneeded properties with annual operating costs of $411 million. Savings generated by the disposal of unneeded properties might be applied to pressing real property needs, such as improving building security or repairing existing facilities, or towards other pressing policy issues, such as reducing the national debt. Disposition is also important because it is a mechanism by which state and local governments, nonprofit organizations, and businesses may acquire federal property. In the hands of nonfederal entities, the previously underutilized properties may be used to provide services to the public, such as temporary housing, or contribute to economic development. This report begins with an explanation of the central role played by the General Services Administration (GSA) in the disposal of federal real property at most agencies. It then provides a discussion of the unique disposal processes at DOD and the U.S. Postal Service (USPS), which each have independent statutory authority to dispose of their own properties. It concludes with an overview of the environmental and historic preservation requirements that apply to the disposal of properties at all federal agencies. Centralized Disposal Through the General Services Administration5 The Federal Real Property and Administrative Services Act of 1949 (Property Act) applies to real property held by most federal agencies. The Property Act gives GSA the authority to dispose of real property that federal agencies no longer need, although some agencies have been granted the authority to dispose of some or all of their own property. Under the provisions of the Property Act, GSA disposes of federal real property for federal agencies that lack independent statutory authority to do so themselves. Agencies without independent disposal authority generally follow the process described in this section. The disposal processes at two landholding agencies with broad independent disposal authority, DOD and USPS, are also discussed in this report. Federal Transfer In order to identify properties that agencies no longer need, each agency is required to conduct an annual survey of its real property holdings. Properties that are no longer needed are reported to GSA as "excess." GSA then physically inspects each excess property and hires a licensed appraiser to evaluate its fair market value. Next, GSA sends a written Notice of Availability describing the property to other federal agencies and posts information about the property on its Property Disposal Resource Center website. Agencies may also identify unneeded assets available for transfer through the Federal Real Property Profile (FRPP), a database of the buildings, structures, and land held by federal agencies. If an agency wants to acquire an excess property, it must respond to the Notice of Availability within 30 days and then submit a formal request for the property to be transferred within 60 days from the date the notice expires. Agencies are required to pay fair market value to acquire excess property, although there are a number of circumstances under which an exception to this requirement may be approved. Public Benefit Conveyance If no federal agency wants an unneeded property, it is declared "surplus" and made available to state and local governments, and nonprofits. These entities may have surplus property transferred to them for a discount of up to 100% of fair market value, provided they use the property for a public benefit. This type of transfer is called a public benefit conveyance, and to qualify, the property must be used for one of the following purposes: Homeless services Corrections Law enforcement Public health Drug rehabilitation Education Parks and recreation Seaport facilities Wildlife conservation Highways Emergency Management Response Historic monuments Public airports Housing Each public benefit category has a federal agency, called a sponsor, that oversees conveyances for that purpose. Generally, sponsoring agencies have expertise in the policy areas they sponsor. The Federal Aviation Administration, for example, is the sponsoring agency for public airport conveyances. Pursuant to Title V of the McKinney-Vento Homeless Assistance Act, surplus properties must be made available for serving the homeless before being made available for other public benefit uses. The Department of Housing and Urban Development (HUD) is responsible for reviewing surplus property to determine if it is suitable for homeless use. If a property is determined to be unsuitable for homeless use, then it becomes available for other public uses at that time. If HUD determines a surplus property is suitable, however, it publishes a notice to that effect in the Federal Register . State and local governments, and nonprofits, are given 60 days to notify the sponsoring agency, the Department of Health and Human Services (HHS), that they are interested in using the property for serving the homeless. If HHS receives an expression of interest within the 60-day window, the property may not be made available for any other purpose until action on the request is complete. If no interest is expressed, then the property becomes available for other public benefit uses. GSA advertises its availability by contacting state and local officials and known nonprofits with an interest in the property. GSA may also post notices in city halls, state capitols, and other appropriate locations. The sponsoring agency is generally responsible for distributing, reviewing, and approving applications; conveying the property to the recipient; and monitoring the use of the property after it has been transferred, although GSA assists some agencies with these duties. If the recipient of a conveyed property fails to use the property as agreed—by building a retail center on property conveyed for a public park, for example—then the property may revert back to the federal government. Negotiated Sale Surplus property that is not disposed of through the public benefit conveyance process may be sold to state and local governments at fair market value. In essence, state and local governments are given the right of first refusal—they are allowed an opportunity to purchase surplus property before the property is offered for sale to the general public. Federal real property regulations permit negotiated sales when "a public benefit, which would not be realized from a competitive sale, will result from the negotiated sale." The regulations do not specify what types of activities would qualify, but GSA guidance notes that a state or local government can use property "according to its own redevelopment needs," including economic development. Public Sale Surplus properties that are still available after screening for public benefit conveyance and negotiated sale may be offered for public sale. The property is advertised in local newspapers, regional or national publications, and the U.S. Real Estate Sales list, and may also be found on GSA's website. The appraised value of a property is used as a guideline for initial pricing, and properties are sold through sealed bids, physical auctions, and Internet auctions. Real Property Disposal at USPS and DOD DOD and USPS are two of the three largest federal landholding agencies, as measured by owned square feet. DOD is the largest, with more than 1.7 billion square feet of owned space in its inventory, while USPS is the third largest with 197 million square feet of owned space. Both DOD and USPS have independent statutory authority to dispose of unneeded real property, although the scope of that authority differs. While USPS has been given autonomy in disposing of all of its properties, DOD's disposal authorities are more limited and more complicated. The remainder of this section discusses the disposal process at each agency. U.S. Postal Service27 Congress has given USPS independent statutory authority to dispose of its real estate as it deems proper. USPS may acquire, in any lawful manner, such personal or real property, or any interest therein, as it deems necessary or convenient in the transaction of its business; to hold, maintain, sell, lease, or otherwise dispose of such property or any interest therein; and to provide services in connection therewith and charges therefor. Allowing USPS to make decisions over its real estate and property holdings has been viewed as integral to the concept of the USPS as encapsulated in the Postal Reorganization Act (PRA). This 1970 statute replaced the Post Office Department (an appropriations-dependent agency) with the U.S. Postal Service (a financially self-supporting "independent establishment of the executive branch." The PRA assigned USPS the "general duty" to "maintain an efficient system of collection, sorting, and delivery of the mail nationwide." In order to carry out this obligation, Congress provided USPS with a number of powers to generate revenue and control its operational costs, including the authority to "determine the need for post offices, postal and training facilities and equipment, and ... provide such offices, facilities, and equipment as it determines are needed." This authority over real property has helped USPS respond to shifts in population by expanding its presence in areas where the number of people and businesses was growing, and scaling back USPS's operational footprint in places where population was decreasing. This authority over its property and facilities also permits USPS to alter its logistical (mail-moving) network to accommodate mail volume changes and technological developments in mail processing. Disposal of Postal Properties USPS policy is to dispose of excess real property under the terms and conditions that provide the greatest value to the Postal Service. Disposition may be by sale, exchange, outlease, sublease, or by other means determined to be in the best interest of the Postal Service. In addition, USPS has employed private real estate companies to sell some of its excess or unneeded properties. The agency also has auctioned some of its properties, including the Chicago Main Post Office, a 14-story property of 3 million square feet. Both federal law and the USPS's rules prescribe a post office closure process, which takes at least 120 days. The USPS must notify members of the public who may be affected by the closure, and hold a 60-day comment period prior to closing a post office. Should the USPS decide to close a post office, the public has 30 days to appeal the decision to the Postal Regulatory Commission (PRC). Sixty days after USPS has made a closure decision, the agency may shut down a post office, regardless of the outcome of the PRC's review. Federal statute does not require USPS to take public comment when it disposes of properties that are not post offices, such as properties utilized as office space. Department of Defense41 DOD comprises the Office of the Secretary of Defense (which includes all defense agencies and field activities); the Joint Chiefs of Staff; the Combatant Commands (such as Central Command, Northern Command, and Strategic Command); and the military departments of the Army, Navy, and Air Force. All real property is placed under the jurisdiction of one of the military departments. Individual defense facilities fall under the immediate responsibility of a local installation military officer who could be referred to as the garrison commander, the base wing commander, the base commander, or the station commander, depending on the service administering the site. The following sections will first describe the identification and disposal of military real property under routine practice, then the special procedures that were authorized under the Defense Base Closure and Realignment Act of 1990, as amended. The latter process is commonly known as a Base Realignment and Closure (BRAC) round. Routine Disposal of Real Property The officers entrusted with administration of a defense site are required to periodically review the current and anticipated utilization of its land and facilities. A change in military strategy or doctrine, mission, operations, military equipment, or units based at a given facility could similarly change the need for site infrastructure. If the officer in charge determines that certain real property is no longer needed, he or she forwards a recommendation to "excess" the property up the appropriate chain of command. The final authority for declaring real property to be excess rests with the Secretary of the relevant military department, though the responsibility for managing real property inventory is usually delegated to an Assistant Secretary. Once defense property is identified as excess, the administering military service submits a report to GSA. Other defense organizations, both active and reserve, may request that all or part of it be transferred to them. GSA then screens the property for potential use by other federal agencies. If no agency expresses interest within a reasonable period, the property is considered surplus, and GSA then directs and supervises the disposal process discussed elsewhere in this report. Congress has imposed several statutory disposal restrictions and reporting requirements on DOD and codified them in a number of sections within Title 10 (Armed Forces) of the United States Code. Included among them are 10 U.S.C. 2662, which requires that, for real property with an estimated value in excess of $750,000, the Secretary concerned report to the House and Senate Committees on Armed Services any (1) transfer of real property to another federal agency or another military department or to a State, or (2) report of excess real property to a disposal agency (such as GSA), wait 30 days (14 days if the report is made by electronic medium) before undertaking the transaction, and report again within 30 days of entering into the transaction; 10 U.S.C. 2694a, a section that authorizes a Secretary to convey to a State, one of its political subdivisions, or a nonprofit organization any surplus real property under his jurisdiction that is suitable for conservation purposes, has been made available for a public benefit conveyance, and is not subject to a pending request for transfer to another federal agency, after notification of the relevant congressional committees and waiting 21 days; 10 U.S.C. 2696, which both allows military department secretaries to transfer real property under their jurisdiction between themselves without compensation and requires the GSA Administrator to screen all defense real property for further federal use before a Secretary conveys it under any provision of law enacted after December 31, 1997, though there are some exceptions and special provisions for land intended for use as a correctional facility. BRAC: Special Temporary Disposal Authorities and Procedures The cessation of operations and closing of a major military installation will often entail a significant impact on the economy and social structure of the communities in its vicinity. Therefore, successive Secretaries of Defense have found over the past several decades that a number of statutory and political constraints have rendered the process, and prospects, of significantly reducing the defense real property "footprint" problematic. Since the waning days of the Cold War, Congress has from time to time granted special temporary authority to the Secretary of Defense to carry out wholesale reviews of domestic defense real property with the intention of evaluating and reducing the inventory deemed excess to defense needs and surplus to federal requirements. All told, five defense real property disposal series have thus far been authorized. Though created under different laws, each series has become commonly referred to as a Base Realignment and Closure, or BRAC, round. The most recent authorization for a BRAC round expired on April 15, 2006, so any new effort would have to be authorized by the enactment of a new provision of law. While BRAC rounds have not seen an alteration of the general three-step process (identification, screening, and disposal), the temporary statutes creating them have added a number of features that enhanced oversight of DOD, offered assistance to the communities affected, and increased the transparency of the mechanism by which garrisons are reconfigured and installations are realigned to new missions or shuttered. In addition, many of the provisions of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11301 et seq.) and the National Environmental Policy Act (42 U.S.C. § 4321 et seq.) have been applied to property closed under BRAC much as they do to other federal surplus property. The differences between the normal real property disposal process carried out by GSA and that initiated by DOD during a BRAC round can be summarized around their three general phases, identification, screening, and disposal. The details following pertain to the processes used during the most recent (2005) BRAC round carried out under the FY2002 reauthorization of the Defense Base Closure and Realignment Act of 1990. Identification of Property under BRAC During the 2005 BRAC round, the Secretary of Defense was required to draw up and submit to Congress a "force-structure plan," based on an assessment by the Secretary of the probable threats to the national security during the 20-year period beginning with FY2005, the probable end-strength levels and major military force units (including land force divisions, carrier and other major combatant vessels, air wings, and other comparable units) needed to meet these threats, and the anticipated levels of funding that will be available for national defense purposes during such period and a comprehensive world-wide inventory of military installations for each military department, with specifications of the number and type of facilities in the active and reserve forces of each military department. DOD was required in the statute to use a set of eight "final selection criteria," divided into "military value criteria" and "other criteria," in making recommendations for closure or realignment. Roughly paraphrased, the four military value criteria for each installation centered on (1) mission capabilities and readiness, (2) availability of facilities, (3) capacity to absorb mobilization surges, and (4) the cost of operations. Other criteria included (1) timing of potential savings, (2) economic impact on surrounding communities, (3) ability of communities to support the installation, and (4) environmental impact. The statute required that only these criteria be used and that priority consideration be given to the military value criteria. Once identified by DOD, the Secretary of Defense submitted his list of recommended closures or realignments to an independent nine-member commission for further consideration. Appointed by the President, with congressional input, and confirmed by the Senate, the commission and its staff were required to hold public hearings on the Secretary's recommendations. During its deliberations, the statute allowed the commission to add a new installation to the closure or realignment lists or increase the extent of a realignment only if it determined "that the Secretary deviated substantially from the force-structure plan and final criteria" specified earlier and concluded that its amendment was consistent with both. The statute required the commission to submit its own report to the President by a date certain. Approval and Implementation of Closures and Realignments After receiving the commission's report, the President was given a finite period of time to submit to Congress and the commission his approval or disapproval of the commission's recommendations. If he disapproved, in whole or in part, the commission's list of recommendations, he was instructed to state his reasons for doing so. The commission then had approximately one month in which to revise and resubmit its list. A second disapproval would have halted the process. Once having received the President's certification of approval, Congress gave itself a period of 45 days during which it could pass a joint resolution of disapproval using an expedited procedure laid out in the governing statute. If enacted, such a joint resolution would prevent the Secretary of Defense from carrying out any recommended closure or realignment. If not thereby halted, the statute required the Secretary of Defense to initiate all closures and realignments within two years and complete them within six years of the date that the President recorded his approval. Disposal of Real Property The statute provided the Secretary of Defense with authority to offer economic adjustment assistance to any community near a closing or realigning military installation and community planning assistance to communities whose local installations absorb functions during the process. This assistance has usually been channeled through "local redevelopment authorities" (LRA) nominated by the affected communities and so designated by the Secretary of Defense. It is to these LRAs that title to surplus property is usually conveyed. The base closure acts have also provided other special authorities. Their provisions have directed the GSA Administrator to delegate to the Secretary of Defense his or her authorities to utilize excess properties and dispose of surplus properties for installations being closed or realigned. In addition to being able to dispose of surplus property at below market value through public benefit conveyances, the Secretary has been able to do the same if the LRA has agreed to apply proceeds from the sale or lease of property to the economic redevelopment of the site. While DOD retains responsibility for the remediation of environmental contamination at former defense sites, the statute places no time limit on either remediation or on the conveyance of the property from the federal government. Environmental Requirements and Historic Preservation The transfer of surplus federal property may be subject to an array of environmental requirements intended to protect human health and safety, natural resources, and cultural resources. Which requirements may apply to the transfer of a property would depend upon the site-specific conditions, such as the presence of wastes, contamination, and other potential hazards. For example, federal facilities that manage hazardous wastes or underground storage tanks are subject to closure requirements similar to private industrial facilities. If contamination is present, remediation may be required to prevent potentially harmful exposures subsequent to transfer. Some federal facilities also may contain more unique hazards, such as unexploded ordnance on DOD installations or radiological wastes from the past production of nuclear weapons at Department of Energy (DOE) facilities. Federal facilities not involved in industrial operations still may contain hazardous substances from other sources that could present challenges for transfer and reuse, such as asbestos or lead-based paint in buildings. In addition to human health and safety hazards, the potential impacts of a transfer on certain natural or cultural resources (such as historic buildings) also must be assessed. How such resources would be protected by the recipient of a federal property subsequent to transfer may be a potential issue. The time and resources necessary for compliance with environmental and historical requirements may vary considerably among individual properties depending on applicability. The process of determining which federal requirements may apply and how compliance must be demonstrated is sometimes referred to as the environmental review process (or environmental and historical review). Actions necessary to complete the review process are generally integrated into the broader due diligence process established in federal regulation, during which the landholding agency would be required to assess and determine various details about the property, such as any past activities or present conditions at the site that could pose a human health or safety hazard—the existence of mold hazards, radon hazards, asbestos-containing materials, or lead-based paint in any building; whether pesticides have been applied in the management of the property; or whether past activities at the site resulted in the release of hazardous substances that must be remediated; the property's location—in a federally designated floodplain, wetland, or coastal zone; or in an area that contains federally threatened or endangered species; and the property's historical significance—a site, buildings or fixtures on the site that are historically, architecturally, or culturally significant. For each criterion, at a minimum, the landholding agency would be required to evaluate the property to determine whether or not such conditions or issues exist. Depending on that evaluation, the agency may be required to comply with certain environmental laws, regulations, or executive orders before they can make a final decision regarding the disposition of the property. Certain federal requirements may apply specifically because the property disposition would involve a transfer from federal ownership. That is, the disposition may be subject to certain requirements that generally would not apply (or could apply differently) to property transfers between nonfederal agencies or private entities. The principal federal statutes that govern the environmental review process, identification and remediation of hazardous substances, and historic preservation are outlined below, followed by a summary of the requirements of each statute. Other federal and state laws also may apply to a property transfer depending on the site-specific conditions. The National Environmental Protection Act (NEPA; 42 U.S.C. §§4321 et seq.). Under NEPA, federal agencies must consider the environmental impacts of an action before making a final decision about that action. With regard to surplus property disposal, the responsible federal agency would be required to identify impacts associated with both reporting the property as excess and disposal of the property, but not necessarily its future development that would not constitute a federal action itself. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA; 42 U.S.C. §§9601 et seq.). Section 120(h) of CERCLA generally requires federal agencies to clean up contaminated federal property prior to transferring the property out of federal ownership, unless assurances are provided that the cleanup will be carried out subsequent to transfer and certain conditions are satisfied. To ensure compliance with CERCLA, a federal agency would be required to certify whether or not hazardous substance activity took place during the period of federal ownership and whether, as a result, hazardous substances were released that may warrant remediation. The National Historic Preservation Act (NHPA; 16 U.S.C. §§470 et seq.). Section 106 of NHPA requires any federal agency with jurisdiction over a proposed federal undertaking to take into account the effect that the undertaking will have on any district, site, building, structure, or object that is included in or eligible for inclusion in the National Register of Historic Places (i.e., a property significant in American history, architecture, archaeology, engineering, or culture). Some level of compliance with NEPA and CERCLA generally would be required for all federal agency actions related to the closure and disposal of federal surplus property, at least to document whether there would be any significant environmental impacts with respect to NEPA and whether hazardous substances may be present with respect to CERCLA. Compliance with NHPA would be required if the property being disposed is included or eligible for inclusion in the National Register or if its disposal would affect such a property. Within the framework of documenting any environmental impacts associated with the property disposal, under NEPA, the responsible agency would incorporate information on how compliance with CERCLA would be demonstrated and whether compliance with any other laws, such as NHPA, would be required. The National Environmental Policy Act53 Signed into law in 1970, NEPA has been interpreted as having two primary goals—to ensure that federal agencies consider the environmental impacts of their actions before a final decision is made about the action, and to require those agencies to inform the public of those impacts. As a procedural statute, NEPA is intended to inform a federal agency's decision-making process, but does not require that agency to elevate environmental concerns above others. Regulations implementing NEPA were promulgated by the Council on Environmental Quality (CEQ). Those regulations identify actions subject to NEPA to include those over which a federal agency has some control or responsibility. For example, NEPA may apply to federal agency decisions on the adoption of agency plans and the approval of specific projects. That is, any planning decision or approval that must be made by the landholding agency regarding surplus property disposal may be subject to some level of review under NEPA. For non-BRAC properties, agency actions subject to NEPA generally include those related to decisions regarding the (1) closure of the facility and reporting it as excess; and (2) disposition of the property. After it accepts a property for disposal from another federal agency, GSA takes responsibility for completing the NEPA process for any subsequent disposal-related activities. However, the landholding agency would be required to complete any necessary NEPA review for actions that pertain to its decision to report the property as excess. While multiple actions related to surplus property disposal may be subject to NEPA, the analysis required to document compliance is usually limited. The most extensive level of analysis, the preparation of an environmental impact statement (EIS), is rarely required for surplus property disposal. An EIS is required for actions that will significantly affect the quality of the human environment. Among other requirements, it must identify and analyze any impacts of the proposal and identify all reasonable alternatives to the proposal, as well as the impacts of those alternatives. With the exception of federal actions undertaken as part of the BRAC process, federal real property disposal rarely involves significant environmental impacts. For federal real estate transactions, significant impacts generally occur (i.e., the preparation of an EIS may be required) when the action is likely to involve major new construction. That may be the case when a federal agency is buying property for development, but not generally when disposing of a property. While a property transferred from federal ownership may be further developed, the landholding agency is not required to determine how a potential buyer may use the property before making a decision to dispose of it. Often property disposal involves the disposition of a property that has already been developed. Implementing the BRAC process, however, involves the closure of one military property and the potential expansion of another. As a result, decisions implementing the BRAC process have been those most likely to require the preparation of an EIS. Regardless of whether an EIS would be required, agencies are obligated to identify the potential impacts of the disposition to ensure that it would not have significant impacts. If the impact of the proposed disposition is uncertain, an agency may ensure compliance with NEPA by preparing an environmental assessment (EA). The result would be either a decision to prepare an EIS or to issue a finding of no significant impacts (FONSI). NEPA compliance may also be documented as part of a categorical exclusion (CATEX) determination. A CATEX is applied to actions that individual agencies have determined, based on their experiences with similar actions in the past, have no individually or cumulatively significant effect on the environment. CEQ allows an action to be processed as a CATEX as long as it involves no extraordinary circumstances that could result in significant impacts. Each federal agency's procedures to implement NEPA explicitly list actions likely to be approved as a CE or, under certain conditions, an EA. For example GSA's NEPA procedures identify specific actions that can demonstrate compliance with NEPA by completing a "CATEX checklist." That checklist is used to ensure that a given action would involve no extraordinary circumstances that would result in significant environmental impacts. Included among such action, GSA explicitly identifies property disposal actions undertaken for another federal agency, where that agency has already documented compliance with applicable legal requirements such as NEPA, NHPA, and CERCLA; and disposal of real property required by public law wherein Congress has not specifically exempted the action from the requirements of NEPA. A determination that the disposal of surplus federal property would result in no significant impacts, under NEPA, is not equivalent to determining that the disposition would result in no regulated impacts. For example, if a federal property is listed on the National Register of Historic Places, the impact of its disposition may be deemed insignificant, but only if there are certain restrictions placed on the future use or development of the property. Within the context of ensuring compliance with NEPA, the landholding agency may be required to identify measures necessary to ensure future protection of the resource. In this instance, the requirement to protect that resource could originate with the NHPA (or any other applicable law intended to protect cultural, archaeological, or historical resources), not NEPA. Still, the NEPA compliance process may not be complete until decisions have been made regarding how the landholding agency will ensure compliance with those other applicable laws. As noted above, one of NEPA's primary goals is to inform the public of the environmental impacts of a proposed action. CEQ regulations implementing NEPA specify public involvement requirements that apply primarily to actions that require an EIS. However, individual agencies have determined that public participation may also be appropriate in the preparation of an EA/FONSI or when determining whether the action may involve some exceptional circumstances that would prevent the application of a CATEX. Each agency has discretion in determining the level and kind of public participation required for such actions. For surplus property disposal, the level of public participation will likely depend on the nature of property itself and the potential public interest in that property's potential closure and disposition. There may be public opposition to the closure and disposition of surplus federal property. The reasons for such opposition will be unique to that property. However, opposition could arise if there is public concern that future development of the land would no longer be subject to certain federal requirements. For example, after the property transfers from federal ownership (e.g., to a local or state agency or to a private developer), the impacts of future development would generally not be subject to federal agency review or public comment under NEPA or NHPA. Another example of such a law is the Archeological and Historical Preservation Act (AHPA). It requires federal agencies to identify and recover data from archeological sites threatened by their actions. Since a nonfederal land owner would not be required to take such action, members of the public may want the landholding agency to ensure that the property has been adequately surveyed to identify archeological sites or to make the sale conditional on a buyer agreeing to implement certain actions if archeological sites are later discovered. The Comprehensive Environmental Response, Compensation, and Liability Act65 The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) is the principal federal statute that addresses releases of hazardous substances into the environment on both federal and nonfederal lands. Section 120(h) of CERCLA generally requires the United States to clean up contaminated federal property prior to transferring the property out of federal ownership. The policy premise of this provision is that the United States should assume full responsibility for the cleanup of contamination caused by federal activities, and not shift the burden of that responsibility to the recipient merely as a consequence of acquiring the property. Section 120(h) applies to all contaminated federal property declared surplus to the needs of the federal government. The agency with administrative jurisdiction over a surplus federal property generally is responsible for performing and paying for the cleanup of contamination to fulfill the financial liability of the United States. In some cases, the recipient may voluntarily agree to pay for the cleanup of a contaminated surplus federal property in exchange for a discounted purchase price to acquire the property, or other conditions of ownership that the recipient may desire. As is the case with federal facilities that remain in federal ownership, funds available for the cleanup of surplus federal properties are subject to the availability of appropriations to the federal agencies that administer those properties. For example, the Department of Defense (DOD) performs and pays for the cleanup of surplus federal property on military installations closed under a consolidated Base Realignment and Closure (BRAC) round out of funds appropriated to the DOD Base Closure Account. Federal facilities generally are not eligible for cleanup funds appropriated to the Environmental Protection Agency (EPA) under the Superfund program, which addresses nonfederal sites elevated for priority federal attention. However, EPA oversees the cleanup of federal facilities through the Superfund program in conjunction with the states, in a manner similar to the enforcement of cleanup liability at nonfederal sites. At federal facilities, the administering federal agency serves as the responsible party on behalf of the United States. Section 120(h) of CERCLA does not bind the United States to cleaning up a surplus federal property for any one particular land use. As a result, the reuse of a property is negotiated between the administering federal agency and the recipient of the property. Disagreements over reuse can arise if the recipient intends to use the property for a purpose that would necessitate a level of cleanup that the federal agency may consider too costly, relative to available appropriations to fund the cleanup. The capabilities of cleanup technologies also could constrain the reuse of a surplus federal property, if it would be impractical to achieve a level of cleanup that would be needed to make the property suitable for a use that the recipient may desire. Continuing Liability of the United States Consistent with the policy premise of Section 120(h) of CERCLA and retroactive liability under Section 107 of the statute, the United States remains responsible for contamination found not to have been sufficiently remediated after the property is transferred out of federal ownership. Section 120(h)(3) requires the continuing liability of the United States to be specified through a "covenant" incorporated into the deed transferring the property out of federal ownership. The covenant must warrant that all remedial actions necessary to protect human health and the environment have been taken before the date of transfer, and that the United States shall conduct any additional remedial actions found to be necessary after the date of transfer. A clause also must be included in the deed granting the United States access to the property to perform cleanup actions for which it may be responsible. In practice, the contents of a deed can place certain limitations on the continuing responsibility of the United States. A deed to a transferred federal property typically warrants cleanup only to a level suitable for the land use negotiated prior to transfer. In some cases, a deed may include a restriction prohibiting certain uses that would be considered unsuitable relative to the level of cleanup performed by the United States. Under such deed restrictions, the United States typically assumes responsibility for additional cleanup only to the extent that more work is found to be needed to make the originally agreed-upon use suitable. If the new owner later decides to use the property for a different purpose, the new owner typically must assume responsibility for the additional cleanup costs to make the property suitable for the desired purpose. In some instances, a deed may prohibit certain land uses even if the new owner is willing to pay the cleanup costs. For example, a deed to a decommissioned military training range may prohibit residential or other land uses because of limitations on cleanup technologies to detect and remove unexploded ordnance. Cleanup capabilities may be constrained especially when ordnance is located beneath the surface, or concealed on the surface by dense vegetation. Transfer of Uncontaminated Parcels Some surplus federal properties may contain a mix of contaminated and uncontaminated parcels of land. Although the clean parcels may be ready for reuse, the requirement to clean up the contaminated parcels under Section 120(h) of CERCLA prior to transfer could delay the conveyance of the property as a whole. To address such situations, the 102 nd Congress enacted the Community Environmental Response Facilitation Act (CERFA; P.L. 102-426 ) in 1992. This law amended Section 120(h) by adding a new subsection (4) that authorizes the transfer of uncontaminated parcels on a surplus federal property while cleanup continues on the contaminated parcels. This parcel-by-parcel approach is intended to avoid potential delays in the transfer of "clean" surplus federal lands for reuse, especially such lands on closed military installations where economic redevelopment is desired to replace lost jobs. In the event that previously unknown contamination is later discovered after transfer out of federal ownership, Section 120(h)(4)(D) requires that a deed to an uncontaminated parcel still include a covenant warranting that the United States shall conduct cleanup actions that may become necessary to address contamination attributed to past federal activities. Early Transfer of Contaminated Parcels The cleanup of a contaminated parcel may take several years or more, depending on the type and level of contamination, technical feasibility of cleanup actions, and availability of appropriations to pay for the cleanup. In such situations, the requirement to complete cleanup prior to transfer out of federal ownership could result in delaying the transfer. Enacted in the 104 th Congress, Section 334 of the National Defense Authorization Act for FY1997 ( P.L. 104-201 ) amended Section 120(h)(3) of CERCLA to add a new subsection (C) that allows the transfer of a contaminated parcel on a surplus federal property before cleanup is complete, if certain conditions are satisfied. Although Congress enacted this amendment in annual defense authorization legislation, this authority applies to any surplus federal property administered by any federal agency, not just surplus U.S. military property. Section 120(h)(3)(C) specifically authorizes a deferral of the cleanup covenant to allow the transfer of title to a contaminated parcel on a surplus federal property before cleanup is complete. Federal agencies often refer to this deferral of the covenant as an "early" transfer, although the statute does not use this term. The deed to a contaminated property transferred out of federal ownership must contain assurances that the cleanup still will be carried out after the property leaves federal ownership. The federal agency responsible for the performance of the cleanup also must identify the funding needed to carry out the cleanup in its annual budget requests. The deed also must restrict the use of the property to purposes that would be protective of human health and environment, while the cleanup proceeds. For example, at the time of transfer, a property may be suitable for industrial use because the risks of exposure to contamination may be within an acceptable range, whereas other land uses that would result in potentially harmful exposure would be restricted until the property is cleaned up sufficiently for that purpose. Once cleanup is complete, the United States remains obligated to provide a covenant at that time, warranting that all necessary actions to protect human health and the environment have been taken to make the property suitable for its intended, eventual use. The early transfer of a contaminated surplus federal property that EPA has designated on the National Priorities List (NPL) for cleanup purposes is subject to the concurrence of the Administrator of EPA and the governor of the state in which the facility is located. The early transfer of a contaminated surplus federal property that is not listed on the NPL still requires the concurrence of the governor of the state in which the facility is located, but not EPA. Federal agencies proposing an early transfer also must provide the public at least 30 days advance notice and an opportunity to comment on the proposed transfer before it is executed. National Historic Preservation Act73 When federal property is sold, a review under the National Historic Preservation Act (NHPA) may be required to determine whether the action will adversely affect historic properties and how to mitigate those effects. Courts describe NHPA as a "stop, look, and listen" statute that directs an agency to consider the effects of its action on historic sites, but does not require an agency to stop a project that would harm that property. Instead, NHPA requires an agency to make an informed determination following a decision making process that is known as a Section 106 review. Federal agencies conduct a Section 106 review when their actions, known as undertakings , may affect a historic property. An undertaking is defined as "a project, activity, or program funded in whole or in part under the direct or indirect jurisdiction of a Federal agency." The Section 106 process begins before federal funding is provided or a federal license issued. Starting a Section 106 review early in the project development process ensures that agencies consider "a broad range of alternatives" during the planning process. When a federal agency finds an action is an undertaking, its first step is to identify the parties required to be involved in the decision making process, who are known as consulting parties. NHPA regulations define who must be invited as a consulting party, including the State Historic Preservation Officer (SHPO), the Tribal Historic Preservation Officer (THPO), local and tribal officials, and, if the federal undertaking involves issuing a permit, the applicant. Other interested parties may participate, such as historic associations and general members of the public, but do not have the same standing in the decision making process as the consulting parties. Next, the agency identifies the area of potential effects (APE), defined as "the geographic area or areas within which an undertaking may directly or indirectly cause alterations in the character or use of historic properties." At this stage, the action agency, with the consulting parties, identifies historic properties that may be affected. Historic properties are defined as those listed or eligible for listing in the National Register of Historic Places. If no historic properties are within the APE, the Section106 process concludes. When historic properties are found within the APE, the agency will coordinate with the consulting parties to determine whether the undertaking will adversely affect the property. If no adverse effects are found, the Section 106 process ends. The undertaking does not have to touch a historic property physically for an agency to find an adverse effect, as the NHPA regulations state that the agency must consider both direct and indirect effects of the project, as well as reasonably foreseeable effects that may occur later in time or at some distance, or are cumulative. Accordingly, NHPA would apply not only to selling federally owned historic buildings but may also apply when the sale of a non-historic building would adversely affect historic properties. For example, if the sale of a non-historic federal building could change the character of a historic area, that might be considered an adverse effect and would require further analysis. If adverse effects on historic properties are found, NHPA does not require the agency to reject the undertaking. Instead, the agency is required to compile adequate documentation of its adverse effects findings, make the documentation available to the public, and provide an opportunity for comment. An additional consulting party may be invited at this stage—the Advisory Council on Historic Places (ACHP or the Council). The agency, with the cooperation of the consulting parties, shall "develop and evaluate alternatives or modifications to the undertaking that could avoid, minimize, or mitigate adverse effects on historic properties." When the parties agree on avoidance and/or mitigation of the adverse effects, the agency and the SHPO/THPO will enter into a binding agreement known as a Memorandum of Agreement (MOA), and consulting parties are invited to concur. Completion of a MOA concludes the Section 106 process. If the parties cannot reach an agreement on the adverse effects, the agency, the SHPO/THPO, or the Council may terminate the Section 106 process. The terminating party must notify the others in writing of the basis for ending consultation, and the ACHP will provide the opportunity for the parties (including itself) and the public to comment. However, termination of the Section 106 process does not mean that the project must also be terminated. If the agency decides to continue the undertaking, the agency must document its rationale and demonstrate that it considered the comments of the Council. The agency must give a copy of this document to the consulting parties and make it available to the public. Then, the agency may advance its project despite any harm to historic properties, taking any mitigation measures it chooses.

The federal government holds thousands of properties that agencies no longer need to accomplish their missions. When the government disposes of unneeded properties—through transfer, donation, or sale—it generates savings by eliminating maintenance costs. In addition, when state or local governments, nonprofits, or businesses acquire unneeded federal properties, they may be used to provide services to the public, such as temporary housing, or contribute to economic development. The General Services Administration (GSA) plays a central role in disposing of unneeded property at most federal agencies. The Federal Real Property and Administrative Services Act of 1949 (Property Act) gives GSA the authority to dispose of real property at all federal agencies unless they have independent statutory authority to dispose of their own properties themselves. A number of agencies have independent disposal authority—ranging from limited to broad in scope—including two of the largest federal landholders, the U.S. Postal Service (USPS) and the Department of Defense. When an agency notifies GSA that it has unneeded real property, GSA first offers to transfer the property to another federal agency, which must pay fair market value for it. If no other agency wishes to acquire the property, GSA may then convey it to a state or local government, or a qualified nonprofit, for up to a 100% discount—provided it is used for an approved public benefit. Should a state or local government or qualified nonprofit wish to acquire the property for a use other than one of the approved public benefits, GSA has the option to sell the property to them at fair market value. Finally, if the property is not sold to a public or nonprofit entity, it is offered for sale to the public. The disposal of a federal property may be subject to a number of environmental requirements and historic preservation mandates, although which requirements apply depends on a number of site-specific conditions. Three principal federal statutes govern the environmental review process, identification and remediation of hazardous substances, and historic preservation: the National Environmental Protection Act (NEPA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), and the National Historic Preservation Act (NHPA). Among the agencies with independent statutory disposal authority, USPS has the greatest autonomy. The Postal Service has, in essence, been granted the authority to dispose of its properties as it deems appropriate, without the assistance of GSA. DOD also has independent statutory disposal authority, but of a more limited scope. DOD must use GSA to dispose of all properties that do not otherwise fall under the scope of special, temporary disposal authorities, commonly referred to as Base Realignment and Closure (BRAC) legislation.

Background Many adults in the United States have low levels of literacy or numeracy, or limited English language proficiency. Under the authorization of the Adult Education and Family Literacy Act (AEFLA), the federal government has made grants to states to provide services to improve these skills among adults who are not enrolled in school. Commonly called "adult education" efforts, these investments provide educational services to adults at the secondary level and below, as well as English language training. Adult education services are typically provided by local entities using a combination of federal and non-federal funds. Students include those seeking to develop basic skills, those seeking to obtain a secondary credential, and English language learners of various educational backgrounds. Curricula vary based on student needs and objectives. According to the most recent annual data, the average adult education student received 124 hours of instruction. Adult education instructors are a combination of full-time, part-time, and volunteer personnel. AEFLA programs are administered by the U.S. Department of Education (ED) through its Office of Vocational and Adult Education (OVAE). In FY2013, appropriations under the act were $575 million. Of this appropriation, $554 million was distributed to the states via formula grants. This report will provide background information on AEFLA and the activities it funds. The report begins with a description of the law itself. This description focuses on AEFLA's largest component, the state grants program. The second half of the report uses program data to describe the implementation of the state grants program, including the data on providers and participants. AEFLA Statutory Provisions AEFLA was enacted as Title II of the Workforce Investment Act of 1998 (WIA; P.L. 105-220 ). It replaced the National Literacy Act of 1991 ( P.L. 102-73 ) and the Adult Education Act of 1966 (P.L. 89-750). AEFLA authorized such sums as necessary to carry out its functions from FY1999 through FY20003. When the program was not reauthorized, the General Education Provisions Act (GEPA) automatically extended AEFLA authorization for one year. Since the expiration of this extension, the program has continued to be funded through the annual appropriations process. AEFLA reauthorization has been debated in the context of broader efforts to reauthorize WIA. Purpose of AEFLA and Definition of Adult Education The statutory purpose of AEFLA is to (1) assist adults to become literate and obtain the knowledge and skills necessary for employment and self-sufficiency; (2) assist adults who are parents to obtain the educational skills necessary to become full partners in the educational development of their children; and (3) assist adults in the completion of a secondary school education. To fulfill this purpose, statute authorizes funds for adult education activities, which it defines as services or instruction below the postsecondary level for individuals who are at least 16 years old, are not enrolled in school nor required to be enrolled in school under state law, and either (i) lack sufficient mastery of basic educational skills to enable the individuals to function effectively in society; (ii) do not have a secondary school diploma or its recognized equivalent, and have not achieved an equivalent level of education; or (iii) are unable to speak, read, or write the English language. AEFLA-Funded Programs AEFLA specifies portions of its annual appropriation that are set aside for certain programs. The remaining funds (which are typically more than 95% of the annual appropriation) are distributed to the states through formula grants. State Grants AEFLA specifies how funds are allotted to each state as well as the proportion of each state's grant that must be allotted to various activities. The act also sets criteria for how state grant funds must be subgranted to local service providers. Allotment of Funds Among the States Section 211(b) of AEFLA specifies a two-step process through which state grant funds are distributed. First, there is an initial allotment of $250,000 to each state and $100,000 to each eligible outlying area. The second step of the allotment process distributes the remainder of the funding by formula. The formula is based on each state's share of qualifying adults. Qualifying adults are those who are at least 16 years of age, beyond the age of compulsory school attendance in the states, without a high school diploma or the equivalent, and not enrolled in secondary school. States must match their grants so that 25% of the state's total adult education resources are from non-federal sources. Non-federal matches may be cash or in-kind. In outlying areas, the non-federal share must be at least 12%. AEFLA's hold harmless provisions specify that states and outlying areas shall receive grants equal to at least 90% of the grant they received in the previous fiscal year. AEFLA's maintenance of effort provisions require each state and outlying area to expend at least 90% of what it spent in the prior year on adult education activities. Table B -1 in Appendix B lists the annual allotments to each state from FY2011 to FY2013. English Literacy-Civics Grants Since FY2000, appropriations legislation has set aside a portion of the AEFLA state grant funding for integrated English literacy and civics education services (EL-Civics) to limited-English-proficient populations. In FY2013, this set-aside was $70.81 million or about 12.8% of state grants funding. The remainder of state grant funds were allotted using the formula described in the previous section. The provisions of the EL-Civics grants are enumerated in annual appropriations legislation and are not established elsewhere in law. EL-Civics funds are distributed to the states based on recent immigration data from the United States Citizenship and Immigration Services (USCIS). Typically, 65% of the EL-Civics funding is distributed based on each state's relative share of immigrants admitted for legal permanent residence in the 10 most recent years and 35% is distributed based on each state's relative share of immigrants admitted for legal permanent residence in the three most recent years. Table B -2 in Appendix B lists the annual EL-Civics allotments to each state from FY2011 to FY2013. Uses of State Grant Funds Section 222 of AEFLA specifies several requirements on how states must allocate their grant funds: At least 82.5% of the state allotment must be competitively subgranted to local service providers. Up to 10% of the 82.5% may be granted to entities that provide services to individuals in correctional facilities or other institutionalized individuals. Up to 12.5% of the state's allotment may be allocated to state leadership activities (i.e., programs of statewide relevance such as the development and dissemination of curricula). No more than 5% of the total grant or $65,000, whichever is greater, may be used for administrative expenses. All recipients of local subgrants must use funds for the provision of one or more of the following services: adult education and literacy services, family literacy services, and/or English literacy programs. Entities eligible to receive local subgrants include local educational agencies, community and faith-based organizations, institutions of higher education, and other nonprofit organizations. AEFLA requires states to consider certain factors when selecting local subgrant recipients. Most of these considerations relate to a subgrantee's ability to successfully serve qualifying adults (particularly high-need populations) and accurately report performance data. State Plans Section 224 of AEFLA specifies that, to receive a grant, each state must submit, or have on file, a state plan. Plans are five years in duration. State plans must contain an assessment of adult education needs in the state, including high-need and hard-to-serve individuals; a description of the adult education activities that will be funded by AEFLA; a description of how the state will annually evaluate and improve its activities using standardized reporting measures (see " Performance Accountability and Reporting Requirements " subsection later in this report); a description of the process that the state will use for public participation and comment in the development of its state plan; a description of how the state will develop program strategies for certain populations such as individuals with disabilities and single parents; a description of how AEFLA-funded activities in the state will be integrated with other adult education, career development, and employment training services; and a description of steps the state will take to ensure equitable access to funds among local adult education providers. As an alternative to developing a specialized AEFLA plan, WIA allows states to develop a unified plan that combines AEFLA requirements with other federally funded workforce development programs. Performance Accountability and Reporting Requirements Section 212 establishes a performance accountability system for grantees under AEFLA. It requires grantees to track participation and other core indicators of performance. These core indicators are improvement in literacy skill levels in reading, writing, and speaking the English language; numeracy; problem solving; English language acquisition; and other literacy skills; placement or retention in, or completion of, postsecondary education, training, employment, or career advancement; and receipt of a secondary school diploma or the equivalent. States report their performance via the online National Reporting System (NRS). Reports from the NRS provide the program data presented in the " AEFLA Implementation and Program Data " section later in this report. Set-Asides for Other Purposes Section 211(a) of AEFLA specifies several set-asides from sums appropriated under the act. The lesser of 1.5% of the appropriation or $8 million for National Leadership Activities (NLA). These activities can include (1) technical assistance to the states such as assistance in developing performance measures or professional development for instructors, and (2) national research activities such as curriculum development, program evaluation, and dissemination of best practices. The lesser of 1.5% of the appropriation or $8 million for the National Institute for Literacy (NIFL). NIFL operates under an interagency agreement between ED, DOL, and the Department of Health and Human Services (HHS). Its purposes are to (1) provide national leadership regarding literacy, (2) coordinate literacy services and policy, and (3) serve as a national resource for adult education and literacy programs. 1.72% for WIA Title V I ncentive G rants . Incentive grants are available to states that achieve superior performance in both Title I and Title II of WIA. Annual performance levels are negotiated by the states, DOL, and OVAE. The maximum incentive grant for each qualifying state is $3 million and the minimum is $750,000. Actual appropriations activities have varied from these statutory directives. For example, NIFL has not received funding since FY2009 and some of its functions have been consolidated into National Leadership Activities. Since NIFL stopped receiving AEFLA funding, the set-aside for National Leadership Activities in appropriations legislation has exceeded 1.5% of AEFLA appropriations. Annual set-asides are listed in Table A -1 in Appendix A . AEFLA Implementation and Program Data As discussed in the prior section, AEFLA specifies certain requirements for state grants (and local subgrants) but leaves many decisions to the states and localities. This section will use program data from the NRS to illustrate the nature of states' and localities' adult education services, providers, students, and outcomes. NRS data are typically reported by program year (PY), which runs nine months behind the fiscal year (e.g., PY2011-2012 was from July 1, 2011, to June 30, 2012). As such, the data discussed in this section will not align precisely with fiscal year information discussed elsewhere in this report. When interpreting the data in this section, it is important to note that many states contribute beyond their AEFLA-required match. Localities and private entities may also contribute to adult education activities, and federal funds subsequently account for only a minority of the funds used to provide local adult education services. Characteristics of Local Services AEFLA-funded adult education services are typically administered at the local level. NRS data (and most other adult education literature) divides these services into three primary categories. Adult Basic Education (ABE) includes instruction for adults whose literacy skills are below the high school level. In PY2011-2012, about 47% of adult education students were enrolled in ABE classes. Adult Secondary Education (ASE) includes instruction for adults whose literacy skills are approximately at the high school level. This includes adults who are seeking to pass the General Education Development (GED) test or obtain a high school credential. In PY2011-2012, about 13% of adult education students were enrolled in ASE courses. English literacy (EL) is instruction for adults who are not proficient in the English language. In PY2011-2012, about 40% of adult education students were enrolled in EL courses. States have diverse adult education populations and there are large variations among the states in terms of enrollment levels in each program. For example, in PY2011-2012, Nevada reported that 80% of its adult education students were enrolled in EL courses while Louisiana reported that 81% of its adult education students were enrolled in ABE courses. Types of Service Providers Eligible providers of AEFLA-funded services include both public and private entities. Table 1 presents data on the allotment of federal AEFLA funds and state funds to eligible providers in PY2011-2012. Local education agencies (typically school districts) were the largest recipients of both federal and state adult education funding. Table 1 may exclude some non-federal, non-state contributions to adult education activities such as local funding and in-kind contributions. Comprehensive estimates of non-federal effort are available from each state's annual Financial Status Report (FSR). States' final FSR reports for the 2011-2012 program year will be available after September 2013. Aggregated data on non-federal effort from prior years' FSRs are not readily available. AEFLA services are provided by a combination of paid staff and volunteers. Table 2 presents data on state and local adult education personnel in PY2011-2012. Local teachers were the largest personnel group and almost 85% of this group was either part-time or volunteers. As is the case with other program components, the characteristics of each state's adult education personnel varied by state. For example, nearly 50% of Kentucky's teachers are full-time while more than 70% of the teachers in Pennsylvania are volunteers. Characteristics of Participants Data on the demographics and other characteristics of AEFLA participants are available from NRS. Table 3 presents data on the approximately 2 million individuals that participated in adult education programs in PY2011-2012. The characteristics of adult education participants vary by the type of services. For example, the ASE population tended to be younger (57% under the age of 25) and have a higher concentration of white students (48%) than the overall adult education population. Conversely, the EL population tended to be older (84% age 25 or over) and have a higher concentration of Hispanic or Latino students (65%) than the overall adult education population. Treatment and Outcome Data AEFLA requires grantees to track the nature and duration of their services as well as student outcomes. Data on educational gains are available for all participants. Data on other outcomes (such as entering employment or postsecondary education) are more limited. Educational Gains Table 4 presents data on participants' hours of attendance and educational progress. Educational progress is defined as completing a level of curriculum within the ABE, ASE, or EL tracks. The ABE program has four levels, the ASE program has two, and the EL program has six. Progress is determined through a pre-test administered to a participant at intake and subsequent post-tests at specified intervals. Other Outcomes In addition to educational gains, AEFLA requires states to track participant outcomes regarding employment, the completion of a secondary degree, and entrance into postsecondary education. Unlike the fairly comprehensive data on demographics and educational progress, data on these post-school outcomes are somewhat limited. These data are limited by two primary factors: Follow-up outcomes are only tracked when a client states an objective beyond education. Otherwise, only the default "educational progress" indicator is tracked. As Table 5 shows, a relatively small portion of AEFLA participants state a follow-up objective. Participants may decline to state an objective beyond educational progress for a variety of reasons. They may have already attained a goal (for example, Table 3 in a prior section shows that 32% of AEFLA participants were employed at intake), educational progress may be their only goal, or they may simply choose not to state a follow-up objective. In some cases, follow-up outcomes may be tracked with surveys that have varied response rates. Coupled with the fact that only a subset of the population's follow-up outcomes are tracked, this may result in follow-up outcome data based on only a small number of participants. Due to these limitations, the available data on follow-up measures in Table 5 should be interpreted with caution. While the available data can provide some insight into the subsequent outcomes for some AEFLA participants, using these data to evaluate program efficacy may be difficult. Appendix A. AEFLA Funding, FY1999-FY2013 Appendix B. AEFLA Grants to States and Outlying Areas, FY2011-2013

Enacted in 1998, the Adult Education and Family Literacy Act (AEFLA) is the primary federal legislation that supports basic education for out-of-school adults. Commonly called "adult education," the programs funded by AEFLA typically support educational services at the secondary level and below, as well as English language training. Actual services are typically provided by local entities using a combination of federal and non-federal funds. Specific curricula vary based on the needs and objectives of the local student population. In FY2013, approximately $575 million was appropriated for AEFLA. Of this sum, approximately $21 million was set aside for national activities and incentive grants. The remaining $554 million was allocated to the states via formula grants. To receive a federal grant, states are required to provide a match so that non-federal resources account for at least 25% of the total resources dedicated to adult education. Many states contribute well beyond their required match, though there is substantial variation among the states. The statute specifies that 82.5% of each state's grant must be subgranted to local providers of educational services. These local providers are most commonly local education agencies (typically school districts) or institutions of higher education (typically community, junior, or technical colleges). Nonprofit agencies, correctional institutions, and other entities may also receive grants. Adult education activities provided at the local level are divided into three broad categories: Adult Basic Education (ABE), which includes instruction for adults whose literacy and numeracy skills are below the high school level; Adult Secondary Education (ASE), which includes instruction for adults whose literacy skills are approximately at the high school level, including adults who are seeking to pass the General Education Development (GED) test; and English literacy (EL), which includes instruction for adults who are not proficient in the English language. In program year 2011-2012 (the most recent year for which complete data are available), approximately 1.8 million individuals participated in state adult education activities for an average of 124 hours each. A plurality of the students (47%) participated in ABE while a smaller share (40%) participated in EL activities. The remaining share of adult education students (13%) participated in ASE activities. Non-federal funds accounted for the majority of spending on these activities. The authorization of appropriations for AEFLA expired at the end of FY2003, though the programs it supports have continued to be funded through the annual appropriations process. AEFLA was enacted as Title II of the Workforce Investment Act of 1998 (WIA) and AEFLA reauthorization debate has also been part of broader efforts to reauthorize WIA.

Background: Geography and Military Balance The Korean peninsula lies at a nexus of military, economic, and political concerns with global implications. From North Korea'sperspective, it is surrounded by world powers: to the west and north are China and Russia, to the East is Japan, andto the South isSouth Korea and military forces of the United States. Since the Korean War began in 1950, the North Koreandictatorship haspresented continuous military and economic challenges to its neighbors. Recent challenges have included a specterof economiccollapse and a threat to develop a nuclear arsenal. North Korea, with a population of 22 million, maintains a large military force of over 1 million active soldiers and 4.7 millionreservists. Its force structure includes some 20 army corps with armor, mechanized infantry, and infantry units;notable enhancementsinclude 88,000 special purpose forces and a range of artillery, rocket, and missile forces (some reportedly capableof deliveringchemical and biological agents) (1) . Naval forcesinclude some 300 patrol and coastal combatants, 26 submarines, and 66inshore/coastal submarines for inserting special forces. Air forces deploy over 500 Russian fighter and attackaircraft and some 300utility helicopters. Detracting from the potency of this large force are the age and obsolescence of many combatsystems and lowtraining hours afforded to their crews. Many draftees may reflect weakness stemming from ten years of malnutrition. Directly facing the North Korean threat is South Korea with some 48 million people. It has 686,000 personnel on active military dutyand can muster 4.5 million reservists. The South Korean Army is organized into some 10 corps, with equipmentgenerally better thanthat found to the North -- for example, half of its tanks are comparable to the U.S. Abrams tank. Its fleet of over350 helicoptersincludes U.S. AH-1 Cobras, CH-47 Chinooks, and UH-60 Blackhawks. The Navy deploys 26 submarines, 39principal surfacecombatants, 84 patrol and coastal combatants, and a 2-division force of 28,000 Marines. The Air Force flies over530 combat aircraft, including the F-16C/D. The South Korean level of training is considered generally higher than that of North Korea. Integral to the defense of South Korea is the direct presence of some 37,000 U.S. military personnel. Major units are two brigades ofthe 2d Infantry Division, combat and support units of the Eighth Army (including Patriot missile batteries), and U.S.Air Force unitsdeploying 90 combat aircraft. Dedicated reinforcement and supporting forces are considerable, including a newStryker Brigade (2) and a corps headquarters in Fort Lewis, Washington and the 25th Infantry Division in Hawaii. Powerful Air Force, Marine Corps, andNavy forces (totaling 48,000 personnel) are nearby in Japan, including the Seventh Fleet. Availability of additionalArmy forces inthe near term, however, would be limited by ongoing commitments in Iraq, Afghanistan, the Balkans, and otherplaces. (3) A unique strength of the defense of South Korea resides in the command arrangements, both joint and combined. A U.S. officer,General Leon J. LaPorte, as Commander of the Combined Forces Command, would command all allied forces inSouth Korea duringwartime, as well as all U.S. forces. A South Korean general would be the ground component commander and haveoperationalcontrol of U.S. ground forces assigned to him by General LaPorte. Higher headquarters integrate both U.S. andSouth Koreanintelligence and operational planning, an area of frequent testing and exercise. Major military action on the Korean Peninsula could create a challenge exceeding that recently met by the United States and its alliesin Iraq. Some 80% of the peninsula, about the size of Utah, is covered by rugged hills and mountains. (4) The winters are bitterly cold,while the summers are hot and humid with periodic torrential rains and flooding. Much of the North Korean forceis protected by asystem of underground caves and tunnels. About two-thirds of the North Korean force is forward deployed alongthe DemilitarizedZone (DMZ), the northern boundary of South Korea. Complicating military defensive planning is the location ofSeoul, the capital ofSouth Korea. Seoul, a metropolis of some 10 million people, sits astride the major trafficable corridor betweenNorth and SouthKorea, as close as 25 miles to the DMZ. In a surprise attack, the North could inflict artillery and missile devastationupon Seoul --referred to by the North as a "sea of fire" (5) -- andpossibly reach the city with a coordinated ground and special operations attack. U.S. Military Alternatives Should resort to force be deemed necessary, there are several military actions that the United States could contemplate to achievepolicy objectives on the Korean Peninsula. North Korea, unfortunately, has a history of unpredictable, and oftenviolent, reactions toeven slight provocations. Therefore, even the most modest U.S. military action risks escalation to higher levels ofconflict and mostanalysts agree that no military option should be chosen without full recognition of such danger. Also, acombination of options couldbe chosen or even anticipated to ensue. U.S. allies and other nations in Northeast Asia are aware of these dangersand the UnitedStates would likely undertake some form of consultation with them -- their active or passive cooperation could beneeded. Some suggest that, in light of potentially large casualties, proceeding without South Korean agreement "would be immoralas well asill-advised." (6) Status Quo. Current U.S. policy involves maintaining a stable military situationwhile diplomacy proceeds to solve the North Korean nuclear crisis. South Korea and the United States maintainstrong defenses alongthe DMZ. Periodic military exercises elicit complaints from North Korean officials, but, over time, they generallyseem accustomedto and respect the existing military situation. (7) Somehave suggested withdrawal or drawdown of U.S. forces, but other analystsbelieve this could, in a time of tensions, send unintended messages to North Korea or even to one or more of itspowerful neighbors. Ongoing studies and negotiations propose to relocate U.S. ground forces and headquarters, primarily by movingthe U.S. 2d InfantryDivision from the north to the south of Seoul. (8) Sucha move would give U.S. forces greater flexibility to maneuver and make themless vulnerable to a surprise attack -- essentially lessening the "tripwire" effect of having U.S. forces close to theDMZ. Whethersuch an action will make the military situation more or less stable could be argued either way, (9) but the overall effect should notunduly change the military status quo on the Korean Peninsula. Improve Defensive Posture. Recognizing that the current situation is unusuallytense, the United States and South Korea could adopt a policy of temporarily increasing military preparedness todeter a NorthKorean military strike, (10) improve allied odds todefeat such a strike, or reinforce diplomatic firmness. The least provocative actionmight be to add more robust intelligence and warning activities, both those based in South Korea and those usingspace assets andadjoining air and sea access. Other options include: upgrading and testing alternate command headquarters,including thoseunderground, as well as information and communications networks; adding more air and missile defense assets toprotect additionalkey government and military facilities in South Korea and Japan; and, strengthening unit reception plans andfacilities forreinforcements. In so far as the North Korean crisis is recognized as a priority military challenge to the UnitedStates, the measuresabove are, in some cases, underway, according to recent press reports. (11) Although possible, it is unlikely that North Korea wouldattack solely in response to such gradual, defensive measures. It might, however, feel greater pressure to either reacha diplomaticsolution or expend more resources on its own military establishment. Calling up South Korean reservists or moving additional U.S. combat forces into the Peninsula might also be considered. Unlessdone in response to overtly hostile North Korean actions or intentions, such actions would most likely be construedas a seriousprovocation or possibly a prelude to an allied attack. North Korean sensitivity is illustrated by statements of concerneven whentemporary U.S. buildups and exercises are held in Okinawa. (12) Military Enforcement of Sanctions. Should North Korea attempt to export weapons of mass destruction, longer range missiles, or the materials to create such things, interception on the highseas or in the air bymilitary forces might be considered. (13) U.S. andinternational policy objectives would be to enforce nonproliferation goals and,perhaps secondarily, to restrict hard currency gains from such transactions. Such a "blockade," "quarantine," or"containment," to beeffective, would require large, dedicated U.S. Navy and Air Force participation, and at least some Coast Guardassets. It wouldrequire the cooperation of other nations and international organizations, not least being a commitment from Chinaand Russia toactively seal their land, sea, and air borders from penetration by North Korean conveyances and those of theircustomers. Risks for such an operation are that innocent trade and other activities of many nations could be inconvenienced; North Korea mightcircumvent even sophisticated intelligence and interception operations; and, since a blockade is considered an actof war, North Koreamight respond with military action. (14) Preemptive Strike on Nuclear Facilities. The Administration's National SecurityStrategy reserves the option for the President to order a preemptive strike to forestall a weapons of mass destructionattack against theUnited States, its military forces, or its allies. (15) In this case, the possession of nuclear weapons and ballistic missiles could threaten,now or in the short term, U.S. forces and allied populations in South Korea and Japan. In the longer term, a fewobservers areconcerned that North Korea could threaten more distant targets, to include parts of the U.S. homeland. (16) There is also the possibilitythat North Korean nuclear materials and weapons could be exported to third parties -- terrorist groups or rogue states-- that mightwish to harm the United States. In any event, a policy option would be to destroy identified weapons and materialsand associatedproduction facilities in North Korea; it would be complicated by the North Korean's ability to hide or protect suchtargets, oftendeeply underground. The United States has the ability to deliver both conventional and nuclear weapons against some underground targets, and is studying "robust nuclear earth penetrators." (17) Some targetscould presumably also be neutralized with special forces operations. A risk with apreemptive strike option is that all identified targets, if they do exist, might not be accurately located and that somemay be deeply oreffectively protected against U.S. weapons. (18) Surviving capabilities might be used in retaliatory strikes, possibly creating calamitiesthat U.S. policy was trying to prevent. U.S. strikes would undoubtedly be considered acts of war, and North Koreacould attempt tolaunch selective or massive conventional attacks against South Korea in response. (19) It is, therefore, unlikely that South Korea wouldsupport a preemptive strike option under most circumstances. Preemptive War. Initiating general war with North Korea is an unlikely option forthe United States, as South Korea would be unwilling to sustain the resultant, huge costs on its population withoutextremeprovocation. In theory, however, two policy objectives might be met. First, should regime change in North Koreabecome a prioritypolicy objective, a military march to Pyongyang might be the only sure means available. Second, should a majorNorth Korean attacksouth appear imminent, the policy of preemptive attack might offer advantages: the initial allied targeting andassaults could reduceNorth Korean capabilities to destroy Seoul, WMD could be destroyed or captured, and allied commanders wouldbe able to executetheir plan with nonattritted forces -- a particular advantage if the United States followed a doctrine of rapid, joint,and coordinatedattacks throughout the depth of North Korea. In considering a war option, certain assumptions and risks would need to be assessed. First, international support for the war wouldbe desirable, given U.S. reliance on global communications and transport; China's reaction would be key -- at theminimum it wouldhave to be neutral. Next, it would be difficult to mask attack preparations by U.S. and South Korean forces. NorthKorea couldlaunch its own preemptive attack, possibly creating some of the adverse consequences U.S. policy was trying tocircumvent. Also,timing is a problem -- due to heavy commitments in Iraq and many other places, the U.S. Army is currently stretchedvery thin, andwould find it difficult to contribute the major ground forces needed. (20) To sustain such an operation, it is likely that many ArmyNational Guard and Army Reserve units not already on active duty would have to be mobilized, as well asconsiderable numbers ofindividual reservists to fill out units and replace casualties. It is likely that much of any post-war occupation ofNorth Korea requiredcould be accomplished by South Korea. Finally, American public acceptance of a more difficult and protracted war than it might expect based on recent, quick U.S. militaryvictories in Southwest Asia and the Balkans may be a requisite. In addition to geographic problems highlightedabove and a largerenemy force that has possibly learned through observation how the United States fights, the North Korean soldiermay not surrendereasily. The Korean War of 1950-1953 is a cautionary example: one U.S. veteran of that conflict said, "I'd ratherfight the Chinese anyday than the North Koreans, who were more tenacious, more fanatical, and more disciplined." (21) Others would point out that today'sNorth Korean soldier is physically weaker, may resent state oppression, is severely outclassed in weaponry andexperience withmodern warfare -- and the current limits of his tenacity are not known. Should a military option be deemednecessary, the Executivewould be expected to consult with appropriate congressional bodies.

North Korea has confronted the United States with its decision, failing other securityaccommodations, to pursue production of nuclear weapons. The Bush Administration has stated that, although thesituation isunacceptable, it will pursue its resolution through diplomatic means. Military means, however, could be consideredat some point andbecome a serious issue for Congress. This short report discusses the geography and military balance on the KoreanPeninsula,presents the range of military options that might be applied there to specific U.S. political objectives, and assessespossibleconsequences. Military options discussed are: status quo, improved defensive posture, enforce sanctions,preemptive strike againstnuclear facilities, and preemptive war. Also see CRS Issue Brief IB98045 on U.S.-Korean relations and CRS Issue Brief IB91141 onNorth Korea's nuclear weapons. This report will be updated if major changes occur.

Introduction Large-scale disasters that cause extensive damage (such as Hurricanes Katrina and Sandy) or loss of life (such as the 9/11 terror attacks) often spur discussions concerning whether the existing federal framework for responding and recovering from disasters can adequately meet the needs brought on by such events. For example, after Hurricane Katrina, numerous studies issued by policy experts, congressional committees, the White House, federal offices of Inspector General, and the Government Accountability Office (GAO), among others, concluded that the government response to the hurricane was subject to a variety of deficiencies that occurred at all levels of government. Deficiencies in disaster response and recovery include questionable leadership decisions and capabilities, organizational failures, overwhelmed preparedness and communication systems, and inadequate statutory authorities. Another issue identified after large-scale incidents is that federal assistance has been overly bureaucratic and untimely. Others have argued that the disaster declaration process "does not provide the necessary framework to manage the challenges posed by 21 st century catastrophic threats." These conclusions have led to a number of reforms in federal emergency management laws and policies. For example, one proposed reform that has been contemplated by policymakers is an amendment to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (hereinafter the Stafford Act) that would add a new category of disaster declaration known as a "catastrophic declaration" for events characterized by extraordinary devastation. Proponents of such a measure would argue that adding a catastrophic declaration provision could streamline response and recovery processes and/or possibly increase the amount of federal assistance provided to states and localities after large-scale disasters. Opponents, on the other hand, would argue that implementing a catastrophic declaration is not necessary and may create confusion for emergency managers and officials. States, they say, might be enticed to request a catastrophic declaration rather than a major disaster, if catastrophic declarations trigger an increased federal share of the assistance. This report examines concerns expressed by policymakers and experts that current Stafford Act declarations are inadequate to respond to, and recover from, highly destructive events, and presents the arguments for and against amending the act to add a catastrophic declaration amendment. These arguments are framed by data analyses of past and potential disasters that might be considered as "catastrophic." The report also explores alternative policy options that might obviate the need for catastrophic declarations. Overview of Stafford Act Declarations The Stafford Act is the principal authority governing federal assistance for emergencies and disasters in the United States. The act authorizes the President to issue declarations that trigger federal assistance programs to help states respond to and recover from natural and human-caused incidents. While the Stafford Act authorizes assistance from numerous federal agencies, the Federal Emergency Management Agency (FEMA) is the primary federal agency responsible for coordinating the federal response as well as response activities provided by other agencies and nongovernmental entities. Two organizing principles guide the declaration process. First is the preservation of the governor's discretion to request federal assistance. Second is the President's discretion to decide to issue or deny the request for federal assistance. The President cannot issue either an emergency or a major disaster declaration without a gubernatorial request. The only exception to this rule is the authority given to the President to declare an emergency when the President "determines that an emergency exists for which the primary responsibility for response rests with the United States because the emergency involves a subject area for which, under the Constitution or laws of the United States, the United States can exercise exclusive or preeminent responsibility and authority." The Stafford Act stipulates several procedural actions a governor must take prior to requesting federal disaster assistance. The governor cannot request a declaration unless he or she determines the event has overwhelmed the state's resources to such an extent that federal resources are needed. The Stafford Act authorizes three types of presidential declarations—the proposal for a catastrophic declaration would add a fourth type of declaration. The three currently authorized by the Stafford Act include (1) Fire Management Assistance Grants (FMAG), (2) emergency declarations, and (3) major disaster declarations. Fire Management Assistance Grants While the President has the sole authority to issue an emergency or major disaster declaration, the determination to issue a FMAG declaration can be rendered either by the President or FEMA. A FMAG declaration authorizes various forms of federal assistance, such as equipment, personnel, and grants to any state or local government for the control, management and mitigation of any fire on public or private forest land or grassland that might become a major disaster. Emergency Declarations The Stafford Act defines an emergency broadly as any occasion or instance for which, in the determination of the President, federal assistance is needed to supplement State and local efforts and capabilities to save lives and to protect property and public health and safety, or to lessen or avert the threat of a catastrophe in any part of the United States. Emergency declarations authorize activities that can help states and communities carry out essential services as well as activities that might reduce the threat of future damage. Emergency declarations, however, do not provide assistance for repairs and replacement of public infrastructure or nonprofit facilities. Emergency declarations may be declared before an incident occurs to save lives and prevent loss. For example, emergency declarations have been declared prior to a hurricane making landfall to help state and local governments take steps (evacuation assistance, placement of response resources, etc.) that might lessen the impact of the storm and prevent a major disaster from occurring. Major Disaster Declarations While emergencies are defined broadly, the Stafford Act defines a major disaster narrowly as: any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this chapter to supplement the efforts and available resources of states, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby. The definition for a major disaster is more precise than an emergency declaration, and the range of assistance available to state and local governments, private, nonprofit organizations, and families and individuals is much broader. Under a major disaster declaration, state and local governments and certain nonprofit organizations are eligible (if so designated) for assistance for the repair or restoration of public infrastructure such as roads and buildings. A major disaster declaration may also include additional programs beyond temporary housing such as disaster unemployment assistance and crisis counseling. A major disaster declaration may also include recovery programs such as community disaster loans. Proposed Catastrophic Declaration If amended, the Stafford Act might provide a declaration for what might be classified as a "mega-disaster" or "catastrophic disaster." It is unclear, however, what differentiates a disaster from a catastrophe. Moss and Shelhamer, two policy scholars who have written on the subject, state that catastrophic incidents by definition, tend to occur in large metropolitan regions due to the concentration of people and infrastructure. For example, a category 5 hurricane striking an undeveloped coast will generate less damage than a category 3 hurricane hitting a major city. Recent catastrophes include the 1989 Loma Prieta Earthquake (San Francisco), the 1994 Northridge Earthquake (Los Angeles), Hurricane Hugo (1989), Hurricane Andrew (1992), Hurricanes Katrina and Rita (2005), the Midwest Floods of 1993, and the September 11 attacks of 2001. The authors then recommend amending Section 102 of the Stafford Act with the language used to define a catastrophic incident in the Post-Katrina Emergency Management Reform Act of 2006 (Title VI of the Department of Homeland Security Appropriations Act, 2007—hereinafter the Post-Katrina Act). The Post-Katrina Act defines a catastrophic incident broadly as any natural disaster, act of terrorism, or other man-made disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the population (including mass evacuations), infrastructure, environment, economy, national morale, or government functions in an area. The above definition was used in the Post-Katrina Act for the purposes of improving planning documents by defining the scope of events that should be considered by the Catastrophic Incident Annex of the National Response Framework (NRF). The definition was not used in the context of actual declared disasters nor was it intended to replace the definition of a major disaster in the Stafford Act. The main difference between a catastrophic incident as defined in the Post-Katrina Act and the definition of a major disaster in the Stafford Act is that the former focuses on the event's scope, impact, and severity. In general, a catastrophic incident would carry far-reaching consequences beyond a state's borders and have national implications including the economy, infrastructure, and even national psyche. In contrast, the major disaster definition generally focuses more on categorizing causes that potentially overwhelm states and localities. Supporters of catastrophic declarations argue that while "routine disasters" can be managed through major disaster declarations, large-scale, destructive incidents warrant their own type of declaration because they pose unique challenges inadequately addressed by major disaster declarations. Examples of such challenges may include The President can declare an emergency without a gubernatorial request, if he considers the event to be primarily a federal responsibility, but must wait for a gubernatorial request for most emergencies and all major disasters. The wait for a request could delay the federal response, or federal assistance, or both. The response and recovery efforts associated with large-scale disasters involve multiple federal agencies that require higher levels of leadership to resolve potential inter-agency conflicts, and effectively coordinate and manage response and recovery efforts. Current response and recovery procedures for major disasters are too cumbersome for large-scale disasters because the procedures are too rigid and inefficient to provide assistance at an accelerated rate. Some argue that federal assistance is needed more quickly after large-scale, destructive incidents than routine disasters—the disbursal of assistance provided through a major disaster declaration is too slow to meet recovery needs. Due to the enormous amount of destruction and the economic impacts caused by large-scale disasters, many states and localities are unable to pay their portion of the cost-share. The following section describes how a catastrophic declaration might address these challenges. Potential Uses and Benefits of a Catastrophic Declaration A catastrophic declaration may be used to trigger certain mechanisms before, during, and after a catastrophe. Policymakers might also elect to apply a catastrophic declaration to one or more phases of the incident. Prior to an Incident The Catastrophic Incident Annex of the NRF states that federal resources and assets may be deployed prior to a catastrophic incident in anticipation of a request from state, tribal, and local governments that an imminent disaster appears to threaten human health and safety. Such activities may include the placing of resources to reduce the impact of the incident and improve response capabilities, pre-positioning of emergency and disaster employees and supplies, monitoring the status of the situation, communicating with state emergency officials on potential assistance requirements, and deploying teams and resources to maximize the speed and effectiveness of the anticipated federal response. It should be noted, however, that catastrophic incidents are often no-notice events. Thus, pre-positioning resources may not be possible. As mentioned previously, under certain conditions the Stafford Act authorizes federal support in the absence of a gubernatorial request to save lives, prevent human suffering, or mitigate severe damage. If Congress chose to create a catastrophic declaration, it might elect to amend Section 401 or 402 of the Stafford Act to provide the President with similar authority so as to trigger federal activities such the ones described above. Additionally, the amendment could be designed to signal the immediate deployment of federal response assets and surge capacity forces. Alternatively, some may argue the Stafford Act could be amended to authorize the aforementioned precautionary measures for major disasters without a catastrophic declaration. During an Incident The NRF provides the guiding principles for a unified national response by assigning roles and responsibilities to all levels of government, nongovernmental organizations, the private sector, communities, and communities to all types of hazards regardless of their origin. The unified response is further guided by supporting documents known as annexes: Eme rgency Support Functions (ESF) Annexes and Incident Annexes. ESFs group federal agencies by their authorities, resources, and functions related to a particular incident. For example, federal agencies that have capabilities to support the response to an oil spill are listed in ESF #10 - Oil and Hazardous Materials. The ESFs have designated coordinating and supporting federal agencies responsible for supporting the incident response along each functional mission. Similar to an ESF, Incident Annexes identify agencies by their authorities, resources, and functions to support the response a particular incident. Incident Annexes also designate coordinating and cooperating agencies. For example, federal agencies with capabilities to respond to a biological attack are provided in the Biological Incident Annex. Response efforts initiated as planned in ESF and Incident Annexes are executed through various operational plans. One key tenet of the NRF is that the framework is "scalable, flexible, and adaptable operational capabilities" to respond to all types of hazards, including ones that are catastrophic. In terms of catastrophic incidents, the NRF contains a Catastrophic Incident Annex which provides a strategy for coordinating an accelerated national response to large-scale events. A catastrophic incident is defined in the Catastrophic Incident Annex as any natural or manmade incident, including terrorism, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the population, infrastructure, environment, economy, national morale, and/or government functions. A catastrophic incident could result in sustained nationwide impacts over a prolonged period of time; almost immediately exceeds resources normally available to State, tribal, local, and private-sector authorities in the impacted area; and significantly interrupts governmental operations and emergency services to such an extent that national security could be threatened. These factors drive the urgency for coordinated national planning to ensure accelerated Federal and/or national assistance. According to the Catastrophic Incident Annex, in a catastrophic event, states and localities may not be able to initially establish or maintain a command structure for incident response. In such cases, the federal government might take the lead and coordinate response activities until local, tribal, and/or state authorities are capable of establishing their incident command structure. The development of the Catastrophic Incident Annex can be traced back to the National Response Plan (NRP)—the predecessor to the NRF. The NRP contained guidelines for the implementation of an "Incident of National Significance." According to the NRP, the DHS Secretary could designate an Incident of National Significance if the event met the criteria of paragraph 4 of Homeland Security Presidential Directive-5 (HSPD-5). Generally, an Incident of National Significance would be designated if a no-notice incident occurred in which the need for federal assistance was "obvious, overwhelming, and immediate, and cannot wait for absolute situational clarity." The Incident National Significance designation could be used, presumably, to implement the Catastrophic Incident Annex. The Incident of National Significance designation was eliminated due to confusion during the Hurricane Katrina response—primarily because the designation established a different leadership structure than was commonly used for "routine" disasters. Despite the elimination, the Catastrophic Incident Annex has been retained in the NRF. It is unclear, however, what criteria is used by the Secretary to put the Catastrophic Incident Annex into effect. Some might argue that the Catastrophic Incident Annex could be useful for a catastrophic incident but that the Annex needs a triggering mechanism or clearly defined criteria to make the Annex operational. They may further argue that a catastrophic declaration would be an appropriate triggering mechanism. However, unlike the Incident of National Significance designation, the response to a catastrophic incident could be developed in a manner that reduces or eliminates confusion. Proponents might therefore argue that a catastrophic declaration could be used to trigger the streamlined response activities established in the Catastrophic Incident Annex. Similarly, they may argue that that in addition to triggering the Catastrophic Incident Annex, a catastrophic declaration could be used to streamline response procedures by removing barriers that might slow response times or take steps that would provide flexibility to operational plans by promoting autonomous decisionmaking. The declaration could also be used to trigger a chain of command structure consisting of higher levels of leadership and rank to address the catastrophe. Opponents of a catastrophic measure may argue that the scalability of the NRF (and its annexes) makes it capable of responding to a catastrophic event without a unique declaration. They may further argue that, while intuitively appealing, providing additional flexibility during a catastrophic declaration might produce a chaotic federal response because operational plans among federal agencies are tightly coupled with each other. Deviation in response by one agency could have negative rippling effects that could hinder the response of other agencies. They may further argue that using a different command structure would duplicate the problems associated with the Incident of National Significance as well as create additional layers of bureaucracy that impede or hinder the response. After an Incident A catastrophic declaration could be used to automatically alter aspects of recovery policies and regulations. Such a declaration could have triggers that would cause a change in the percentage of federal resources as well as adjusting the delivery system of traditional disaster relief programs. The following recovery strategies might be included in the event of a catastrophic declaration. The catastrophic declaration could automatically increase the federal cost-share to lessen the economic impact states and localities incur from catastrophic incidents. The Stafford Act provides that the federal share for the repair, restoration, and replacement of damaged facilities "shall be not less than 75%." A catastrophic declaration could be used to automatically increase the federal share to 90% or perhaps 100%. Moreover, the 72-hour window of 100% funding for immediate federal aid could be extended for a longer period. Early knowledge of such adjustments may accelerate state and local activity because foreknowledge of the adjustment provides states and localities with an assurance of fiscal relief which would then encourage them to act quickly to accomplish necessary repairs and begin comprehensive recovery planning. However, these adjustments can add significantly to the overall cost of the disaster. A catastrophic declaration could trigger a number of changes to recovery programs that could speed assistance and provide increased flexibility. Some of these changes could include the delivery of block grants to states to handle immediate needs and begin infrastructure repairs. An alternative would be for a catastrophic event to (1) switch on "gap funding" which provides timely front-end funding to states and localities to cover initial efforts; (2) make straight-time force account labor (for disaster work) by state and local governments eligible for reimbursement; (3) automatically increase funding caps for the Community Disaster Loan (CDL) program; and (4) provide clear authority and resources to FEMA and its federal partners for long-term recovery efforts in partnership with state and local governments. Once declared, catastrophic declarations could trigger certain congressional rules that might prevent potential deadlock over the passage of disaster relief funds for disaster-stricken communities. On the other hand, it could be argued that the Stafford Act could be amended to make these changes part of a major disaster declaration. Analysis of Congressional Action After the Incident Part of the argument for a catastrophic declaration is that it could provide immediate financial assistance on a broader scale without having to await congressional approval for additional federal assistance through a supplemental appropriation. An examination of the record, however, demonstrates that congressional action on emergency supplemental funding in the wake of large disasters has grown more rapid in recent years (see Table 1 ). It could be argued that Congress has acted expeditiously. While on average, Congress has passed supplemental appropriations for disaster assistance within 38.9 days of the disaster declaration, supplemental funding has been provided in less than a week after an incident (for example, Hurricane Katrina and 9/11 received funding in three days and seven days respectively). Furthermore, in cases where it took Congress longer than 30 days to enact some supplemental appropriations, the incidents for which the funding was enacted generally had fewer damages than the larger, more expensive disasters. The longer time elapsed for Hurricane Sandy could partly be attributed to a relatively large balance in the Disaster Relief Fund at the time of the incident rather than a reluctance to fund disaster assistance. The reaction to the devastation caused by the 2005 hurricane season resulted in historic amounts of disaster response and recovery funding. Along with the amount of resources provided by Congress, it could be argued that the Stafford Act is a very flexible instrument that provides broad authority for various forms of assistance. The reluctance or inability of some to administer these authorities in the past does not eliminate their existence or the possible help that can be derived from those broad authorities under any disaster declaration. Authorities such as Section 402 of Stafford for "General Federal Assistance" and Section 403 for "Essential Assistance" provide FEMA the discretion to use various forms of federal help or to supplement state help to achieve disaster response and recovery goals. Analysis of Catastrophic Events Past and Future This section analyzes incidents that might be deemed as catastrophic to help frame a debate concerning the need and desirability of amending the Stafford Act to include a catastrophic declaration. Because catastrophic incidents are generally characterized as events that cause extraordinary damage, or loss of life (or both), the following analysis is based on data from past, large-scale incidents that have occurred in the United States, as well as data derived from studies that predict damage levels and loss of life for large-scale disasters that could happen in the future (see Table 2 ). This report incorporates a method known as the value of statistical life (VSL) to assign a monetary value to each fatality caused by the given incident. VSL helps compare incidents with many fatalities and little or no damage (such as the Chicago Heat Wave of 1995 and the Galveston Hurricane in 1900) to incidents that caused significant damages, but had few, or no, fatalities (such as the Hurricane Ike in 2008). This section of the report is divided into four subsections that rank incidents according to the following: (1) previous large-scale disasters by estimated damage costs; (2) previous large-scale disasters by estimated damage and VSL costs; (3) previous large-scale disasters and potential incidents by damage costs; and (4) previous large-scale disasters and potential incidents by estimated damage and VSL costs. The percentiles used for this analysis are derived by multiplying the costliest incident in the subsection by a given percentile. It should be noted that the data used for this analysis are subject to variations and limitations (see " Caveats and Methodology "). Previous Incidents with Extraordinary Damages This subsection ranks some of the costliest incidents to ever occur in the United States in the past 140 years ( Table 3 ). Assuming catastrophic incidents are the most expensive events, then the following conclusions could be drawn: If the 50 th percentile ($63 billion or more in damages) of incidents are catastrophic, then only Hurricane Katrina would qualify as a catastrophic incident. If the 40 th percentile ($50 billion or more in damages) of incidents are catastrophic, only Hurricane Katrina and Hurricane Sandy would qualify as catastrophic incidents. These would remain constant until the 30 th percentile ($38 billion or more in damages), which would then include Hurricane Andrew. The remaining incidents fall below the 30 th percentile. Figure 1 presents the same data in chronological order. Again, assuming catastrophic incidents are the most expensive events, then it could be concluded that most expensive disasters in American history have occurred in recent times. Six of the costliest incidents occurred since 1992, and two of the costliest occurred within the last decade. Given the number of large-scale disasters occurring in the last 30 years, one might conclude that large-scale disasters are occurring more frequently—which might support an argument for a catastrophic declaration. A counterargument, on the other hand, is that in terms of damage costs, only Hurricane Katrina truly qualifies as a catastrophic event when compared to other, recent incidents. It might be further argued that while many of the most expensive disasters have occurred in recent years, the increased costs associated with such incidents are a function of variables that are not necessarily related to the magnitude of the incidents (such as increased federal expenditures for assistance and recovery projects, the replacement of expensive infrastructure, and the development of previously uninhabited areas). Consequently, opponents of a catastrophic declaration might conclude that damage costs are not a suitable determinant for assessing the need for the new declaration because it fails to address the response and recovery issues previously discussed in this report. Previous Incidents by VSL and Damage Costs Table 4 lists the same incidents presented in Table 2 ranked according to combined VSL and damage costs. With the exception of the 1900 Galveston Hurricane and the September 11 th terrorist attacks, combining VSL and damage cost estimates does not significantly alter the rankings. Assuming that catastrophic incidents are incidents with the highest combined VSL and damage costs, then the following conclusions could be drawn: If the 50 th percentile ($67 billion or more) of incidents are catastrophic, then only Hurricane Katrina would qualify as a catastrophic incident. If the 30 th percentile is used ($40 billion or more), Hurricane Sandy in 2012, the 1900 Galveston Hurricane, the September 11 th terrorist attacks, and Hurricane Andrew in 1992 would then also qualify as catastrophic. Hurricane Ike and the 1906 San Francisco Earthquake and Fire would be deemed catastrophic if the 20 th percentile were used ($26 billion or more) for the determination. Disasters Past and Future When the analysis is extended to capture all of the incidents in Table 2 , the inclusion of potential disasters changes the order of percentile rankings. However, the number of incidents meeting certain catastrophic thresholds remains low. In terms of damage costs alone, if one assumes catastrophic incidents are the most expensive events, then the following conclusions could be drawn: If the 50 th percentile ($206 billion or more) of incidents are catastrophic, then only two hypothetical incidents, the "ARkStorm" and South San Andreas Earthquake, would qualify as a catastrophic incident. If the threshold were lowered to the 30 th percentile ($124 billion or more), Hurricane Katrina would also qualify as catastrophic. With a threshold at the 20 th percentile ($83 billion or more) or higher, then the hypothetical New Madrid Earthquake would also be considered catastrophic. Table 5 and Figure 3 provide the rankings based on damage if the hypothetical incidents are included. Notably, with the exception of Hurricane Katrina, all three hypothetical incidents are projected to produce more damage than the historical incidents discussed in this report. When the VSL estimated are combined with the damage totals presented above, the following conclusions could be drawn: If the 50 th percentile ($321 billion or more) of incidents are catastrophic, then only the New Madrid Earthquake scenario and "ARKStorm" would qualify as a catastrophic incident, just as they were for the projections that only included damage estimates. Using the 30 th percentile ($193 billion or more), the South San Andreas Earthquake would be considered catastrophic. Only if the threshold were lowered to the 20 th percentile ($128 billion or more) would a previous incident be included, Hurricane Katrina. All of the remaining incidents fall under the 10 th percentile range ($64 billion or more). Summary of Analysis and Policy Implications Upon reviewing the results of the comparative analysis of destructive incidents, it could be argued that highly destructive events occur too rarely to warrant a catastrophic declaration. In terms of damage estimates alone, only one incident exceeds the 90 th percentile benchmark, and only two would qualify if the 80 th percentile is used as a benchmark (the 1871 Chicago Fire and Hurricane Katrina). In addition, these events are separated by over 130 years. Similar conclusions might be drawn on the comparative analysis of combined VSL and damage estimate costs—specifically, that high-impact events are too infrequent to merit the addition of a new declaration category—only two incidents in the last 100 years meets the 90 th percentile threshold—and these incidents are over 100 years apart from each other. Additionally, the threshold would have to be adjusted to the 30 th percentile to include more than two incidents. Critics of the additional type of declaration might further argue that VSL is a poor determinant for a catastrophic declaration because federal assistance is predominately tied to recovery projects rather than victim or survivor compensation. With regard to recent disaster activity, proponents who support the addition of a catastrophic declaration could argue that, in terms of damage estimates, 8 of the top 17 incidents have occurred within the last 30 years. However, in terms of combined VSL and damage estimate costs, two of the top four incidents have occurred within the last 10 years. To some, this may be taken as an indication that catastrophic incidents are increasing in frequency. They may also argue that future disasters might be more destructive due to increases in population, development, and infrastructure. Thus, they might argue the scope of this analysis should be limited to more recent incidents. Proponents who support the addition of a catastrophic declaration could also argue that the analysis fails to take into account potential future incidents. While opponents of a catastrophic declaration might conclude that this analysis demonstrates that catastrophic incidents are too rare to warrant a new type of declaration, supporters might make the claim that the damage and VSL costs portrayed in this analysis would have been reduced if carried out according to the provisions provided under a catastrophic declaration. Caveats and Methodology The data sources for the above analyses have been assembled from multiple governmental sources and are listed in the Appendix . As mentioned previously, the data on fatalities and damages from these sources are subject to variation and should not be viewed as definitive. Additionally, many studies report death tolls in ranges for various incidents. For the purposes of this report, the average number between the range was used as a fatality figure. The hypothetical scenarios used for the analyses do not represent the universe of possible incidents—such as a nuclear detonation, an asteroid incident, or another influenza pandemic. There were also some reporting anomalies. The United States Geological Survey (USGS) ARkStorm scenario study did not provide a fatality estimate. For the purposes of this report, the number of fatalities from the 1929 Mississippi flood was used because reporting no deaths produced outlying figures that skewed the data results. Similarly, the 1919 Influenza Pandemic was eliminated from the analyses because the number of fatalities (675,000) produced an outlying figure that skewed the data results. The comparative analysis spans over a century and the incident computations reported in the analyses do not reflect increases in development, infrastructure, and populations that would have made earlier incidents more costly were they to occur in this period of time. The computations in this report do not reflect current mitigation and response mechanisms that might have decreased the impacts of previous events had they been available. VSL computations vary among federal agencies from roughly $5 million to $10 million per individual. Since there were no documents published by FEMA in the Federal Register that included a VSL, the calculations in this report are based on a VSL of 6.3 million developed by Customs and Border Protection and used by other components within the Department of Homeland Security (DHS) during 2014. As mentioned previously, damage costs are not the sole determinant for disaster declarations. The purpose of these analyses is to develop a model to determine which incidents could be deemed as catastrophic based on damages and VSL costs. Other considerations, such as potential economic or social impacts of the incidents are not reflected in the analyses. Statistically reliable forecasts of the occurrence of future events based on this data could not be completed due to insufficient data points. The data presented in this report are not definitive and should be interpreted with care before drawing any conclusions. Summary of Potential Implications Potential Benefits of a Catastrophic Declaration Depending on its design, certain benefits may be derived from using a catastrophic declaration for large-scale disasters, including accelerated and more robust federal assistance to states prior to an incident, the use of specialized response plans and guidelines for the federal response, the elimination or reduction of procedures and protocols that might impede response and recovery activities and efforts, the elimination or reduction of procedures and protocols that might delay the disbursal of federal assistance, and increasing the amount of federal assistance through various mechanisms to help states recovery more quickly and avoid economic hardship. Potential Drawbacks of a Catastrophic Declaration The potential drawbacks of a catastrophic declaration may include unclear authority and responsibility designations could confuse those responsible for executing the response and recovery, increased federal costs for disaster assistance due to increased declaration activity, increased federal costs for disaster assistance due to the increased federal cost-share provisions included with the declaration, and increased federal involvement and responsibility for incident response. Further Considerations In addition to the points previously made in this report, upon review of potential policies regarding the use of a catastrophic declaration for large-scale incidents, policymakers may contemplate the following considerations related to catastrophic incidents: Some may argue that the Stafford Act's broad definition of an emergency lacks sufficient specific criteria and provides the President with too much discretion to determine which incidents are emergencies. This, in turn, may have increased the federal role (and by extension—the amount of federal expenditures for disaster assistance) in emergency assistance through declaration "creep." Critics assert that once an incident qualifies as an emergency, the odds are improved that a similar incident in the future will be declared as an emergency. The Post-Katrina Act also uses a broad definition to define a catastrophe. It could be argued that the addition of a broad definition of a catastrophe could lead to a similar type of declaration "creep" for large-scale incidents. The use of an arithmetical formula or sliding scale based on income or population to declare a major disaster or an emergency is precluded by Section 320 of the Stafford Act. Amending the Stafford Act to include a catastrophic declaration would presumably be subject to the same limitation—unless the amendment requires some form of measurable criteria that would be applied to make determinations. One method that could be used to keep assistance costs down is legislative language that allows a catastrophic declaration to be downgraded to a major disaster if it was determined that damages did not merit a catastrophic declaration. Downgrading a catastrophic declaration, however, may appear indecisive and create confusion. Another consideration involves aspects of politics more than policy. It may be difficult for the President to deny a request for a catastrophic declaration because the President might be seen as failing to properly respond to a calamitous event—even if it were declared a disaster. Some may argue a catastrophic incident would not receive unique resources that are not already authorized and provided for a major disaster declaration. If this is the case, one might question the need for catastrophic declarations. On August 2, 2011, the President signed into law the Budget Control Act of 2011 (BCA, P.L. 112-25 ), which included a number of budget-controlling mechanisms. As part of the legislation, caps were placed on discretionary spending beginning in FY2012. If these caps are exceeded, an automatic rescission—known as sequestration—takes place across most discretionary budget accounts to reduce the effective level of spending to the level of the cap. Additionally, special accommodations were made in the BCA to address the unpredictable nature of disaster assistance while attempting to impose discipline on the amount spent by the federal government on disasters. The BCA created an allowable adjustment specifically to cover disaster relief (defined as the costs of major disasters under the Stafford Act), separate from emergency appropriations. One notable aspect of the BCA is that it appears to have encouraged larger appropriations for the DRF. In the case of hurricane Sandy, the increased appropriation size to the DRF helped fund the immediate needs caused by an incident without an immediate supplemental appropriation. The larger balance may have also provided Congress with more time to contemplate and target assistance needs. Some may therefore question whether a catastrophic declaration is needed to expedite funding packages. A full federal cost-share, if included in a catastrophic declaration, might tempt states to request a catastrophic declaration to increase the amount of federal assistance provided for the incident. If that became the case, a catastrophic declaration would incentivize requests for the declaration and drive up the costs of federal funding for disaster relief. The reports issued on the federal response to Hurricane Sandy have generally been favorable. For example, according to the DHS Inspector General, FEMA's response to the damages caused by hurricane Sandy in New York was "effective and efficient." After reading such reports, some may conclude that the federal response to large-scale incidents such as multistate hurricanes has improved since Hurricane Katrina. They may therefore question the need for catastrophic declarations and a more efficient and streamlined response processes. Natural disasters on a truly catastrophic scale, such as the San Francisco earthquake, the fire of 1906, and Hurricane Katrina, are infrequent, and might be called "100-year events." If used for such events, the catastrophic declaration might not be put to use for an extended period of time. If a catastrophic declaration is used infrequently, it might become antiquated over time and fail to meet the needs of the incident. Furthermore, infrequent use of the declaration could create confusion because lawmakers and officials may have to become reacquainted with the declaration before applying its provisions. Thus, it could be argued that these incidents would be better handled through special legislation on an as-needed basis. Potential Alternatives to a Catastrophic Declaration Perhaps the strongest rationale for the development of a catastrophic declaration grew out of the Hurricane Katrina response and recovery experience which began in 2005 and now, nearly ten years later, is still the focus of debate and the template for legislative attempts aimed at improving response and recovery. While considering the possible changes and improvements that could potentially be a part of a catastrophic declaration, reviewing the changes that have been made since the Katrina disaster could be useful. The Post-Katrina Act made some significant changes to the Stafford Act. Since the changes were not retroactive and could not be applied to the Katrina disaster, the actual program adjustments have not been fully tested. These changes include The authority to provide case management for disaster victims. This change provides assistance for a major disaster where large numbers of people may be displaced and need help in understanding the assistance that is available, and to connect people, particularly those with special needs, with other forms of help from both public and private sources. Removal of the $5,000 cap on home repairs to make a home habitable . Under the Disaster Mitigation Act of 2000, home repairs were limited to $5,000 with the remainder of work to be accomplished with a Small Business Administration disaster loan, assuming an applicant qualified for the loan. Since the Post-Katrina Act, repairs can be done for up to the maximum amount available under the Individuals and Households Program (IHP). Pilot Program for Public Assistance (PA). The PA pilot program accelerated debris removal at the local level by permitting payment of straight time wages to government employees involved in debris removal work and encouraged local communities to have a debris removal plan in place by decreasing the state and local share by 5% of costs (from 25% to 20%). This authority expired in 2008. FEMA intends to develop regulations to implement provisions of the PA pilot. This would include a public comment period and related parts of the rule-making process. While FEMA considers this "a priority of the Agency" it has not yet determined a timeframe for publication of the proposed rule. Pilot Program for Individual Assistance (IA). This pilot program permitted FEMA to make repairs on privately owned rental units to increase the available housing stock after a disaster event. Reports by FEMA indicate that this was a successful program that decreased temporary housing costs in comparison to other housing alternatives. The authority for the program expired on December 31, 2008. As with the PA Pilot, FEMA released a report two years ago on the IHP pilot program. The report concluded that "Analysis and recommendations on additional authorities will be provided at a later date." FEMA now has determined that "through our existing authority, that we may repair multi-family rental housing units for use by disaster survivors. We expect to implement this authority in future disasters, as appropriate." Similarly, following Hurricane Sandy in 2012, Congress enacted the Hurricane Sandy Recovery and Improvement Act (SRIA). This legislation made several changes to the Stafford Act that could arguably influence the federal government's ability to respond to catastrophic events in the years to come. Some of those changes include: Alternative Procedures for Public Assistance . As with the Disaster Mitigation Act of 2000 ( P.L. 106-290 ), SRIA provided FEMA the authority to administer the PA program based on cost estimates, thus hopefully accelerating the repairs of public infrastructure. These procedures could also speed up debris removal and the repairs of private non-profit facilities that perform a public function. The authority to provide child care services to the families of disaster victims . This category is now considered an eligible expense under the "Other Needs Assistance (ONA)" grants which are a part of Section 408, the Individuals and Households Program (IHP). The ONA grants are cost-shared with the state. The IHP program is generally the disaster housing provided but also includes limited ONA grants for clothing, furniture, and other uninsured needs following a disaster. Advance Funding in the Hazard Mitigation Grant Program (HMGP). 56 The HMGP program is the principal post-disaster source for mitigation funds to reduce future hazards. The program is cost-share on a 75% federal/25% state and local basis. Because the amount of funds allotted to the program is determined by a percentage of total disaster spending, the program has usually lagged behind other elements of the recovery process. In order to step up the process, SRIA authorized FEMA to advance up to 25% of the estimated HMGP award. Joint Environmental and Historical Reviews . In an action related to expedited processes for both Public Assistance and Mitigation programs previously discussed, SRIA directs the creation of a joint process for environmental and historical reviews. Such a joint process is intended to expedite the administration of disaster recovery projects. Taken together, these changes to the Stafford Act have created a more flexible framework that can more easily be scaled up to meet the needs of extraordinary events. However, as the discussion of adding a catastrophic declaration attests, there is considerable debate concerning whether additional changes are necessary to increase FEMA's ability to assist state and local governments and individuals and families affected by disasters. Appendix. Sources 1871 Chicago Fire Wayne Blanchard, Ph.D., Worst Disasters - Lives Lost (U.S.) , Federal Emergency Management Agency, FEMA Emergency Management Higher Education Project, July 5, 2006. 1900 Galveston Hurricane National Oceanic and Atmospheric Administration, The Great Galveston Hurricane of 1900 , August 30, 2007, http://celebrating200years.noaa.gov/magazine/galv_hurricane/ . 1906 San Francisco Earthquake Wayne Blanchard, Ph.D., Worst Disasters - Lives Lost (U.S.) , Federal Emergency Management Agency, FEMA Emergency Management Higher Education Project, July 5, 2006. 1919 Influenza Pandemic Wayne Blanchard, Ph.D., Worst Disasters - Lives Lost (U.S.) , Federal Emergency Management Agency, FEMA Emergency Management Higher Education Project, July 5, 2006. 1929 Great Mississippi Flood Hydrologic Information Center, Flood Losses: Compilation of Flood Loss Statistics , National Oceanic and Atmospheric Administration/National Weather Service, Silver Spring, MD, February 1, 2011. 1964 Alaska Earthquake/Tsunami United States Geological Survey, 40 th Anniversary of "Good Friday" Earthquake Offers New Opportunities for Public and Building Safety Partnerships , Reston, VA, March 26, 2004, http://www.usgs.gov/newsroom/article.asp?ID=106 . 1969 Hurricane Camille National Oceanic and Atmospheric Administration /National Weather Service, Hurricane Camille 1969 , Flowood, MS, August 20, 2010, http://www.srh.noaa.gov/jan/?n=1969_08_17_hurricane_camille . Edward N. Rappaport, Jose Fernandez-Partagas, and Jack Beven, The Deadliest Atlantic Tropical Cyclones, 1492 - Present , APPENDIX 1: Atlantic tropical cyclones causing at least 25 deaths, April 22, 1997, http://www.nhc.noaa.gov/pastdeadlya1.html . 1974 Xenia (Easter) Tornado Outbreak National Oceanic and Atmospheric Administration, Weather Service Commemorates Nation's Worst Tornado Outbreak, March 31, 1999, http://www.publicaffairs.noaa.gov/storms/release.html . 1978 Love Canal Eckardt C. Beck, The Love Canal Tragedy , Environmental Protection Agency, January 1979, http://www.epa.gov/aboutepa/history/topics/lovecanal/01.html . 2008 Hurricane Ike Robbie Berg, Tropical Cyclone Report: Hurricane Ike , National Hurricane Center, AL092008, May 3, 2010, p. 9, http://www.nhc.noaa.gov/pdf/TCR-AL092008_Ike_3May10.pdf . 1980 Mount St. Helens Robert I. Tilling, Lyn Topinka, and Donald A. Swanson, Economic Impact of the May 18, 1980 Eruption , United States Geological Survey, Eruptions of Mount St. Helens: Past, Present, and Future: USGS Special Interest Publication, 1990. 1989 Loma Prieta Earthquake Robert A. Page, Peter H. Stauffer, and James W. Hendley II, Progress Toward A Safer Future Since the 1989 Loma Prieta Earthquake , United States Geological Survey, U.S. Geological Survey Fact Sheet 151-99 Online Version 1.0, 1999, http://pubs.usgs.gov/fs/1999/fs151-99/ . 1992 Hurricane Andrew National Oceanic and Atmospheric Administration, Famous Hurricanes of the 20 th and 21 st Century In the United States 1900 - 2004 , September 16, 2010. 1995 Chicago Heat Wave Jim Angel, The 1995 Heat Wave in Chicago, Illinois , Illinois State Climatologist Office, Champaign, IL, http://www.isws.illinois.edu/atmos/statecli/General/1995Chicago.htm . 1989 Hurricane Hugo National Oceanic and Atmospheric Administration, Famous Hurricanes of the 20 th and 21 st Century In the United States 1900 - 2004, September 16, 2010. 1994 Northridge Earthquake United States Geological Survey, Alaska and Washington Yield Largest U.S. Earthquakes ... Most Significant Earthquakes of '96 Rattle China, Indonesia , February 13, 1997, http://www.usgs.gov/newsroom/article_pf.asp?ID=975 . 2001 September 11 th Terrorist Attacks National Commission on Terrorist Attacks Upon The United States, 9/11 Commission Report , Notes On Chapter 9, Washington, DC, p. 552. 2005 Hurricane Katrina Richard D. Knabb, Jamie R. Rhome, and Daniel P. Brown, Tropical Cyclone Report , National Oceanic and Atmospheric Administration/National Hurricane Center, Hurricane Katrina 23-30 August 2005, August 9, 2006, p. 11, http://www.nhc.noaa.gov/pdf/TCR-AL122005_Katrina.pdf . 2008 Hurricane Ike National Oceanic and Atmospheric Administration/National Hurricane Center, Hurricane History : Ike 2008, http://www.nhc.noaa.gov/HAW2/english/history.shtml#ike . 2008 Hurricane Sandy Center for Disease Control and Prevention, Morbidity and Mortality Weekly Report, Deaths Associated with Hurricane Sandy—October-November 2012, May 24, 2013, http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6220a1.htm . ARkStorm Scenario United States Geological Survey, Overview Of The ARkStorm Scenario , Open File Report 2010-1312, http://pubs.usgs.gov/of/2010/1312/of2010-1312_text.pdf . New Madrid Earthquake U.S. Congress, House Committee on Science and Technology, Subcommittee on Technology and Innovation, The Reauthorization of the National Earthquake Hazards Reduction Program: R&D for Disaster Resilient Communities, Hearing, 111 th Congress, June 11, 2009. South San Andreas Fault Earthquake U.S. Congress, House Committee on Science and Technology, Subcommittee on Technology and Innovation, The Reauthorization of the National Earthquake Hazards Reduction Program: R&D for Disaster Resilient Communities , Hearing, 111 th Congress, June 11, 2009.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) is the principal authority governing federal emergency and disaster response in the United States. The act authorizes the President to issue three categories of declaration: (1) major disaster, (2) emergency, or (3) fire management assistance grants in response to incidents that overwhelm the resources of state and local governments. Once a major disaster declaration is issued, a wide range of federal disaster assistance becomes available to eligible individuals and households, public entities, and certain nonprofit organizations. Disaster assistance authorized by the Stafford Act is appropriated by Congress and provided through the Disaster Relief Fund. Emergency declarations supplement and promote coordination of local and state efforts such as evacuations and protection of public assets. They may also be declared prior to the impact of an incident to protect property, public health and safety and lessen or avert the threat of a major disaster or catastrophe. Major disaster declarations are issued after an incident and constitute broader authority to help states and localities, as well as families and individuals, recover from the damage caused by the event. Fire management assistance grants provide assistance to state and localities to manage fires that threaten to cause major disasters. In the aftermath of especially large or damaging incidents discussion can develop considering whether the Stafford Act should be amended to include a fourth category, generally called a "catastrophic declaration." If approved, catastrophic declarations could be invoked for high-profile, large-scale incidents that threaten the lives of many people, create tremendous damage, and pose significant challenges to timely recovery efforts. This report examines concerns expressed by policymakers and experts that current Stafford Act declarations are inadequate to respond to, and recover from, highly destructive events, and presents the arguments for and against amending the act to add a catastrophic declaration amendment. This report also includes data analyses of past and potential disasters to determine what incidents might be deemed as catastrophic, and explores alternative policy options that might obviate the need for catastrophic declarations. This report will be updated as events warrant.

Overview and Legislative History In late October 2012, Hurricane Sandy impacted a wide swath of the East Coast of the United States. President Obama had, as of January 31, 2013, declared major disasters for 12 states plus the District of Columbia under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.). The Obama Administration submitted a request to Congress on December 7, 2012, for $60.4 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. The Administration's proposal included $47.44 billion in funding for a range of disaster assistance, and $12.97 billion specifically for mitigation of damage from potential future storms and flooding. Budget authority of $55 billion was requested as emergency funding, while $5.4 billion was requested as disaster relief under the Budget Control Act (BCA). 112th Congress On December 17, 2012, S.Amdt. 3338 , entitled the Disaster Relief Appropriations Act, 2013, was introduced as an amendment to H.R. 1 of the 112 th Congress. This bill was a continuing resolution that had previously passed the House of Representatives, and served as the Senate legislative vehicle for disaster relief supplemental appropriations. On December 19, the amendment was withdrawn and S.Amdt. 3395 , with the same title and overall cost, was offered in its place. This legislation would have provided $60.41 billion in supplemental appropriations for disaster assistance, as well as a suite of legislative provisions that included reforms to disaster assistance authorities. The Senate amendment did not explicitly separate all its mitigation provisions from other relief appropriations, although it did reference some funding as being for mitigation. Budget authority of $55 billion in the legislation was designated as emergency funding, while $5.379 billion in funding for the Disaster Relief Fund would have been designated as being for disaster relief under the BCA. A budget point of order was upheld against part of the legislation, removing the emergency designation from $3.461 billion of construction funding for the Army Corps of Engineers. The Senate made several changes to the amendment (which was passed by voice vote), and then passed the supplemental appropriations legislation on December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112 th Congress. However, one facet of the Obama Administration's request did become law during the 112 th Congress. The Administration had sought a legislative provision to increase the bond limit for the Small Business Administration's Surety Bond Guarantees Revolving Fund. A provision increasing the bond limit to $6.5 million, and up to $10 million if a federal contracting officer certified it was necessary, was included in P.L. 112-239 , the National Defense Authorization Act for Fiscal Year 2013. 113th Congress On January 4, 2013, the House and Senate both passed H.R. 41 , legislation providing an additional $9.7 billion in borrowing authority for the National Flood Insurance Program (NFIP), which had been a part of the Obama Administration's request. The President signed it into law as P.L. 113-1 on January 6, 2013. H.R. 152 , which included another portion of the Obama Administration's supplemental request, was introduced on January 4, 2013, and an amendment was filed that same day that included additional portions. The House Appropriations Committee described H.R. 152 as including $17 billion "to meet immediate and critical needs," and described the amendment as including $33 billion "funding for longer-term recovery efforts and infrastructure improvements that will help prevent damage caused by future disasters." On January 7, an amendment in the nature of a substitute to H.R. 152 which contained some minor textual changes, along with a restructured "long-term recovery" amendment, was posted on the House Rules Committee website. The House took up the legislation on January 15, 2013. The amendment with long-term recovery funding passed with several amendments, and the amended bill passed the House by a vote of 241-180. The rule for consideration of the bill combined H.R. 219 , a House-passed package of legislative provisions reforming disaster assistance programs, with the appropriations legislation upon engrossment of H.R. 152 , and sent them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. Comparison of Supplemental Request and Legislative Response3 Table 1 below outlines the Obama Administration's request for supplemental funding and mitigation funding in the wake of Hurricane Sandy, and the congressional response to those requests. All figures are in millions of dollars of budget authority. The Obama Administration's request is shown by appropriations subcommittee in Table 1 . Unlike in the Administration's request, no distinction is made in this table between requested mitigation funding and recovery funding. A breakdown of the Administration's request that illuminates the Administration's separate request for mitigation funding is included in CRS Report R42869, FY2013 Supplemental Funding for Disaster Relief . Headers in bold italics note the appropriations subcommittee of jurisdiction, followed by the department or independent agency in bold capitals. Two columns then specify where a given appropriation is going, by bureau, if applicable, then account or program. The Obama Administration's request is next, in millions of dollars of budget authority, followed by the appropriations that would have been provided if Senate-amended H.R. 1 from the 112 th Congress had been enacted. This is provided only for historical reference, as the bill expired with the end of the 112 th Congress. The last column reflects the amount of funding provided in H.R. 152 as it passed both House and Senate and was ultimately signed into law. Where accounts are funded through transfers, that number is shown in the table and the donor account is reduced accordingly. Note that all funding levels in the enacted column show the resources provided by P.L. 113-2 : those resources were ultimately reduced by the sequestration required on March 1, 2013, under the provisions of the BCA, as amended. That sequestration required the Office of Management and Budget (OMB) to implement across-the-board spending cuts at the account and program level to achieve equal budget reductions from both defense and nondefense funding, under terms specified in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended by the BCA. The amount and implementation of those reductions was unclear at the time P.L. 113-2 was enacted. Disaster Relief and Emergency Funding Under the Budget Control Act The Budget Control Act (BCA) changed the way Congress accounted for federal funding for disaster response and recovery. In previous years, Congress provided funds over and above limits on discretionary appropriations by designating additional appropriations as being for emergency needs. Budget authority provided in this manner did not count against funding limitations on discretionary spending in budget resolutions. Although the BCA included legislation allowing for emergency appropriations, the new law included provisions that outlined separate treatment for disaster relief, as distinct from emergency funding. Funding designated as disaster relief in future spending bills could be "paid for" by adjusting upward the discretionary spending caps. This allowable adjustment for disaster relief is limited, however, to an amount based on the 10-year rolling average of what has been spent by the federal government on relief efforts for major disasters. This disaster relief allowable adjustment for FY2013 was $11.8 billion. Under the continuing resolution signed into law on September 28, 2012 ( P.L. 112-175 ), the amount of disaster relief (as defined under the BCA) that would be provided if the resolution were extended for the full fiscal year was $6.4 billion. This was the first time under the BCA that in the wake of a major disaster more relief funding was sought than could be accommodated under the allowable adjustment. The Administration proposed designating all of the supplemental funding it sought as an emergency requirement, with the exception of a portion of the request for the Disaster Relief Fund (DRF), which would be designated as being for disaster relief under the BCA. The Administration noted in the letter accompanying the request that it was unclear how much of the disaster relief allowable adjustment might be available pending the finalization of general FY2013 appropriations, and that therefore these numbers could require adjustment. Senate-passed H.R. 1 proposed that $5,379 million in DRF funding be designated for disaster relief under the BCA, with all but $3,461 million (for Army Corps of Engineers construction activities) of the remaining funding in the bill designated as emergency funding. P.L. 113-2 contained $41,669 million in emergency funding, $5,379 million for the DRF designated as disaster relief, and $3,461 million for Army Corps of Engineers construction activities that would count against the discretionary budget caps. Offsetting Disaster Relief One potential method for accommodating disaster response and recovery costs beyond the allowable adjustment for disaster relief would be offsetting the additional spending through rescissions or other means that would reduce the net budgetary scoring of the bill. Traditionally, supplemental funding for the DRF has been treated as emergency spending—it was not counted against discretionary budget caps, nor was an offset required. However, supplemental spending packages have at times carried rescissions or transfers that have offset, to one degree or another, the budgetary impact of other forms of disaster assistance that could be defined as "disaster relief" under the BCA. Of the 59 bills passed with supplemental appropriations from 1990 to the end of 2012, 6 were fully offset by rescissions. Only one of those actually provided net additional resources for the DRF—the Emergency Supplemental and Rescissions for Antiterrorism and Oklahoma City Disaster, 1995 ( P.L. 104-19 ). In other cases, the DRF was used as an offset for disaster assistance provided through other federal entities. Offsetting the Obama Administration's supplemental request in the wake of Hurricane Sandy, however, would have been complicated by two key factors. First, as the federal government was operating under a continuing resolution, there was no baseline appropriation in the current fiscal year from which to offset. It is also worth noting the scale of the offset that would have been required: had the request been an FY2012 annual appropriations bill, it would have been the fourth largest of the group. The budget authority sought in the request exceeded the size of the three smallest appropriations bills from that year combined—even if none of the nearly $13 billion in the Administration's mitigation request were counted. The Obama Administration's request, Senate-passed H.R. 1 , and P.L. 113-2 did not include offsets, and the Administration's request letter and Statement of Administration Policy on H.R. 152 specifically stated the Administration's position that the funding could and should be provided without offset. However, an amendment was offered in the House to offset $17 billion of disaster assistance from H.R. 152 by making an across-the-board cut of 1.63% to FY2013 discretionary spending. This amendment did not pass by a vote of 162-258. A Senate amendment to offset the entire cost of H.R. 152 through reducing the caps on discretionary spending through FY2021 also was not agreed to by a vote of 35-62. When the Senate struck the emergency designation for Army Corps of Engineers construction activities, it allowed $3,461 million of Senate-passed H.R. 1 to count against the FY2013 discretionary budget caps. P.L. 113-2 gave the same treatment to the $3,461 million it provides for Army Corps of Engineers construction. This means that $3,461 million in discretionary budget authority that would have been available to resolve the FY2013 regular appropriations legislation has been expended, and the final resolution of the FY2013 appropriations process had to accommodate that reality to avoid violating the budget caps. Is the "Sandy Supplemental" Just for Hurricane Sandy? It is not common practice to have a supplemental appropriations bill focus on a single event to the exclusion of all other purposes, despite the practice of colloquially naming supplemental appropriations legislation for a particular event or problem that has drawn public attention. Appropriations for the FEMA's DRF are regularly obligated to relief and recovery efforts from multiple disasters across many fiscal years, regardless of the legislative vehicle that provided them. More than 80% of the individual appropriations in P.L. 113-2 had uniform explicit language accompanying them that specified the funding provided was "for necessary expenses related to the consequences of Hurricane Sandy." Of the ten appropriations which did not carry that specific language, seven of them (including the three largest appropriations in the act) were either for disaster relief-specific programs or carried language limiting the usage of the entire appropriation provided to disaster relief and recovery activities. All instances of funding in P.L. 113-2 not covered by the uniform controlling language are shown in Table 2 , along with explanatory notes. In cases where controlling language accompanied the appropriation it is highlighted with bold type. Comparing Past or Future Disasters to Hurricane Sandy15 As Congress debated the provision of supplemental funding in the wake of Hurricane Sandy, some commentators compared the scope and magnitude of Hurricane Sandy to past disasters. Generally, comparisons were drawn to other major disasters in recent memory, including Hurricane Irene of 2011 because of the similarities in geographic region impacted, and Hurricanes Katrina of 2005 and Andrew of 1992 because of their scope and magnitude of damage. Some comparisons spoke to the loss of life, others to the disruption of daily activities of citizens, and other to the relative impacts on the local and regional economies. While these comparisons helped provide a level of perspective on the scale of devastation, it is important to note that all disasters, and especially disasters of the magnitude of Hurricane Sandy, are produced by a set of unique circumstances that result in an equally unique set of needs for assistance from the federal government. Two major concepts may be useful to keep in mind when comparing the need for federal assistance following disasters. First, because of the principles of federalism in emergency management—that the federal government generally provides assistance to supplement the work of state, tribal, and local governments only after they become overwhelmed and only at their request—the varying capabilities of a state/tribal/local government can change the types and scope of assistance provided by the federal government. This issue was discussed by former Administrator of FEMA, Craig Fugate, in testimony on Hurricane Sandy. In reference to the denial of an application for one form of disaster assistance (individual assistance), Fugate explained that decisions to provide federal assistance are based not upon the need of any particular individual, but upon the need of the state as a whole and whether the state is capable of addressing that need without federal assistance. Second, the relative levels of federal assistance required for each disaster depend on the proportional impact to various sectors of the community. For example, a particular disaster may destroy one community's business district and overwhelm the ability of the state to respond to that impact, while another may significantly damage the majority of the community's public facilities. In the first disaster, the assistance from the federal government may be noteworthy for the relatively large amount of loan assistance provided by the Small Business Administration, while the second disaster may be noteworthy for the relatively large amount of assistance provided through the FEMA's Public Assistance (PA) program. Some additional disaster-specific factors that may inhibit the comparability of disasters include: The comparative density and socioeconomic status of the impacted populations; The percentage of properties and private/public losses that were insured, and the adequacy of the insurance coverage; and The number of jurisdictions impacted by the disasters, and whether these jurisdictions span multiple states requiring greater federal coordination of the response and recovery effort.

On January 29, 2013, the Disaster Relief Appropriations Act, 2013, a $50.5 billion package of disaster assistance largely focused on responding to Hurricane Sandy, was enacted as P.L. 113-2. In late October 2012, Hurricane Sandy impacted a wide swath of the East Coast of the United States, resulting in more than 120 deaths and major disaster declarations for 12 states plus the District of Columbia. The Obama Administration submitted a request to Congress on December 7, 2012, for $60.4 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. On January 15, 2013, the House of Representatives passed H.R. 152, the Disaster Relief Appropriations Act, 2013. This bill included $50.5 billion in disaster assistance. This was the third piece of disaster legislation considered by the House during the first month of the 113th Congress. H.R. 41, which passed the House and Senate on January 4, 2013 and was signed into law two days later as P.L. 113-1, provided $9.7 billion in additional borrowing authority for the National Flood Insurance Program. On January 14, the House passed H.R. 219, legislation making changes to disaster assistance programs. The rule for consideration of H.R. 152 combined the text of H.R. 219 with H.R. 152 upon its engrossment, to send them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. H.R. 152 was not the initial legislative response to the storm. In the 112th Congress, the Senate passed a separate package of disaster assistance totaling $60.4 billion, as well as several legislative provisions reforming federal disaster programs. While appropriations legislation generally originates in the House of Representatives, the Senate chose to act on the Obama Administration's request first by amending an existing piece of House-passed appropriations legislation—H.R. 1. This passed the Senate December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112th Congress. This summary report analyzes the Obama Administration's request, the initial Senate position from the 112th Congress, and H.R. 152, the legislative package developed in the House that was ultimately enacted as P.L. 113-2. This report is primarily for reference purposes. The material in it is intended to provide context to help the reader better understand how the disaster relief bill that passed in the wake of Hurricane Sandy moved through Congress at what funding it ultimately contained. The report does not track obligation of funds or discuss ongoing recovery efforts. Enacted funding levels in the report represent funding prior to the sequestration of March 2013, as how sequestration would be implemented was not clear at the time P.L. 113-2 was enacted. For details concerning the legislative provisions requested by the Obama Administration, as well as those included in Senate-amended H.R. 1, see CRS Report R42869, FY2013 Supplemental Funding for Disaster Relief. Division B of P.L. 113-2, which amended several disaster assistance programs managed by FEMA, is discussed separately in CRS Report R42991, Analysis of the Sandy Recovery Improvement Act of 2013.

Federal Budget Outlook In recent years, the budget deficit, the difference between spending and revenues, has significantly exceeded economic growth. If the budget deficit exceeds economic growth for a sustained period, a variety of problems could result. These include a lower national saving rate, higher interest rates, and higher levels of inflation. Moreover, budget deficits add to the level of national debt, as additional borrowing is needed to finance the gap between spending and revenues. Doing nothing to combat the country's deficit and rising debt levels can lead to more severe problems over the long term, including the potential for the United States government to default on its obligations. As the debt grows, the nation relies on the willingness of investors to buy it. If investors lose confidence in the ability of the United States to bring its fiscal house under control, at some point they would no longer be willing to continue buying debt and financing the budget deficit except at very high interest rates. Consequently, the longer that policymakers wait to improve the fiscal outlook, the larger changes will likely have to be, the greater the risk of a lack of investor confidence, and the more likely the a risk of a severe financial crisis. What is Fiscal Sustainability? Whether or not the federal budget is fiscally sustainable is generally measured by the annual changes in the ratio of debt held by the public-to-GDP (hereafter referred to as debt-to-GDP ratio). Budget deficits will generally increase the level of total federal debt. If the budget is in surplus, total federal debt will generally fall. Temporary increases in the debt-to-GDP ratio are not necessarily problematic. However, if the debt-to-GDP ratio is persistently rising, it is considered unsustainable. If GDP growth equals or exceeds the annual budget deficit as a percentage of GDP, meaning that the debt-to-GDP ratio would generally remain constant or fall, then the budget is considered sustainable. The issue of fiscal sustainability has gained prominence due to the significant increases in the debt-to-GDP ratio over the last several years as a result of the recession and financial crisis and the projected increases over the long term. In FY2007, the debt-to-GDP ratio stood at 36.2%. At the end of FY2010, the debt-to-GDP ratio stood at 62.1%, and is projected by the Congressional Budget Office (CBO) to rise to 87.4% by FY2021, under the President's proposed budget. While there is no level of debt-to-GDP that is universally regarded as optimal, some budget reform proposals recommended maintaining the debt-to-GDP ratio at 60% or less going forward. Two sets of policy issues currently affecting the size of the budget deficit and the federal debt: economic recovery and related policies in the short run and imbalances in retirement and healthcare programs in the long run. Short-Run Issues The economy is still recovering from the most recent recession, which lasted from December 2007 to June 2009. During this period, the federal budget deficit rose from 1.2% of GDP in FY2007 to 9.9% in FY2009. The budget deficit remained elevated at 8.9% of GDP in FY2010. Debt held by the public rose from 36.2% of GDP at the end of FY2007 to 62.1% of GDP at the end of FY2010. The budget deficit grew primarily for two reasons: 1) government actions taken to combat the economic downturn; and 2) significantly lower revenue and higher spending levels directly attributable to the economic conditions. Generally, as debt rises, the portion of the federal budget devoted to interest payments on it also rises, leaving fewer resources to finance other priorities. As federal debt continues to accumulate, interest payments are generally expected to rise especially as the economic recovery continues and interest rates increase. Even if the current level of federal debt were to remain stable, interest payments, or the cost of holding that debt, would still need to be made on the debt that has already been issued. Even at a stable level of debt, interest payments could still increase if maturing debt is refinanced at higher interest rates. In the short term, continued economic recovery will lead to decreases in the budget deficit relative to its current level. Revenues will automatically increase as unemployment falls and spending will automatically decrease due to less reliance on federal programs meant to provide assistance during economic downturns. The deficit is not projected to decline enough to stabilize the debt relative to GDP, however. Though many argue that fiscal stimulus and other actions were needed to help the economy recover, accumulated large budget deficits and resulting high debt levels will have an effect for many years. Long-Run Issues In the long run, the United States faces several major challenges. Most budget analysts agree that federal spending on healthcare is the largest contributor to the nation's long-term fiscal challenges. This is largely due to projections that the rapid growth in healthcare costs will continue in the future. In addition, benefits owed to future retirees under the Social Security program are growing out of balance with the revenue stream that finances the program. CBO projects that, under certain assumptions, federal spending on major health programs, Social Security, and net interest payments alone could exceed the revenues collected by the federal government in 2024. This scenario would mean that, without increasing revenues or altering spending patterns, federal outlays other than for these programs would need to be deficit financed. In other words, if policy were simply allowed to continue on its current path after the economy recovers, there could be a significant structural deficit that would be difficult to overcome without programmatic reforms. In the absence of changes to correct this future imbalance between spending and revenue, there would likely be negative effects on future living standards and the economy and an increased likelihood of a financial crisis. If current policy is maintained and long-run deficits remain high, interest rates on U.S. Treasury bonds would likely rise substantially, both as a result of the higher risk that the Treasury might ultimately default on the debt and as a result of the government's demand for borrowed funds. If the government financed its rising budget deficit by increasing the money supply, inflation and interest rates would also increase significantly. Higher interest rates, in turn, make investment more expensive, causing economic growth to slow and ultimately leading to lower U.S. living standards. CBO estimates that, by 2035, the deficits resulting from current policy would reduce GDP by 15% relative to what it would have been. Recent Developments Budget policy debates thus far in the 112 th Congress have centered on how to achieve meaningful deficit reduction and implementation of a plan to stabilize the federal debt. On April 5, 2011, Representative Paul Ryan, the Chairman of the House Budget Committee, released a report entitled "The Path to Prosperity: Restoring America's Promise," which provided a plan to stabilize the federal debt. Under the assumptions in Chairman Ryan's plan, the deficit would be reduced by $1,649 billion relative to the CBO current law baseline over the FY2012 and FY2021 period. If all of his proposals are implemented, fiscal sustainability would be achieved by roughly FY2030 with a declining debt-to-GDP ratio thereafter. Though no formal proposal has been introduced in the Senate, a group of six senators, known as the "Gang of Six", has been working on formulating a bipartisan deficit reduction proposal. This proposal is expected to be released in Spring 2011. On April 13, 2011, President Obama released a deficit reduction proposal that would include spending cuts and tax reform. The proposal also included a "debt failsafe" trigger that would require a debt-to-GDP ratio that is stabilized by FY2014 and declining thereafter. If this is not achieved, the trigger would automatically initiate across the board spending cuts and reductions in tax expenditures (i.e., broadening the tax base and raising revenue). The proposal also included the creation of a new bipartisan, bicameral group, led by Vice President Biden, to negotiate an agreement on a legislative framework for comprehensive deficit reduction. Framing the Issues and Evaluating the Tradeoffs Budgets are a reflection of the nation's priorities and allocate limited resources. To achieve fiscal sustainability, cuts or reductions to favored programs and increases in taxes will likely be required. Spending and tax law changes made in the near-term can reduce the probability of a future crisis and help ensure an improved standard of living for future generations. Many federal programs help the elderly and the poor. In FY2010, federal spending on Social Security, and the major mandatory federal healthcare programs, including Medicare and Medicaid, accounted for 43% of all federal spending. Spending on income support programs, like unemployment compensation and the Supplemental Nutrition Assistance Program (SNAP), accounted for an additional 12% of all federal spending. Under certain assumptions, spending on federal health programs is expected to exceed total revenue collected by the middle of the century. In the absence of changes made to these and other programs, spending devoted to many national priorities, such as defense, education, the environment, or energy, will either be deficit financed or require significant increases in revenues. Budgetary choices, particularly centered around the magnitude of changes that would be required to return to fiscal sustainability, have important economic, social, and generational impacts in the present and the future. Social Effects Certain federal programs are specifically aimed at reducing income inequality. However, because spending on many of these programs, known as mandatory or direct spending, occurs automatically without explicit congressional action, mandatory spending is harder to control on an annual basis. Mandatory spending currently comprises roughly 60% of the federal budget. Because of the nature of mandatory programs, changes in spending levels can vary significantly with the economic cycle as more people come to temporarily rely on certain benefits. Spending on these "automatic stabilizers" is intended to counteract economic downturns by providing benefits, such as unemployment insurance and income support programs, to a greater segment of the population. This additional spending during these periods causes deficits to increase or surpluses to shrink. However, increases in outlays as a result of economic downturns may do more to alleviate the effects of an economic downturn than other types of spending. Mandatory spending is projected to increase as a share of the total budget over time, mainly due to rising healthcare costs. These programs represent one of the largest burdens to future federal spending and will likely have to be curtailed to meaningfully address these budgetary issues. Cutting these federal benefits by means of curtailing mandatory spending may also result in harm to vulnerable members of society. Similar to the social effects of spending programs discussed above, tax policy also plays a role in reducing income inequality and affects the deficit. The distribution of the federal tax burden is a perennial topic of concern and debate. Economic theory does not provide an answer as to how the tax burden should be distributed among people with unequal incomes. A consensus seems to have evolved that the federal tax system should be progressive, a goal that, over time, has been achieved. During times of economic downturn, tax revenues tend to fall. When the economy is performing well, tax collections tend to increase. Given the current concerns with the level of federal debt, evaluating changes to tax policy may be necessary. Economists evaluate the relative merits of tax policies using the concepts of economic efficiency and equity. Tax systems that maximize economic efficiency oftentimes do not have desirable distributional (equity) consequences. Generally speaking, tax revenues can be enhanced by increasing tax rates or by eliminating various exemptions, deductions, and credits available under the current tax code (i.e., broaden the tax base). While making changes to the tax code may be desired to increase revenue collection, it may increase the tax burden on individual societal groups that may be less able to afford it. Others argue that certain changes to the tax code may increase the tax burden on groups that can afford it, but are also the source of economic activity and therefore should not have to bear the burden of a tax increase. Economic Effects Budget policy can play a strong role in determining long-run economic circumstances for individuals and the government. Every dollar of income can be either spent or saved to be spent later. National saving is measured by private saving (the saving of individuals) plus public saving (the budget surpluses or deficits). Because a budget deficit represents negative public saving, it lowers the national saving rate. In order to sustain large budget deficits, the economy requires some combination of higher private saving, lower investment, and higher borrowing from abroad. A low or negative national saving rate has economic consequences. If private saving is inadequate, the government may be required to fill the gap where an individual did not adequately save for retirement, potentially increasing budgetary imbalances. If public saving is insufficient (i.e., there is a budget deficit), the government will have to sell Treasury securities to domestic and foreign investors to fill the gap. Some economists have argued that borrowing much more from abroad is unrealistic, and the already-heavy U.S. reliance on such borrowing makes the maintenance of a large deficit even less sustainable. However, negative public saving (i.e., budget deficits) is not necessarily a problem if, for example, spending is used to finance national investments. On the other hand, running sustained periods of negative saving, whether in the private or public sector, could harm long-term growth. It is difficult to find the optimal match between saving and investment. Generally economic theory indicates that higher levels of government borrowing will compete with other potential uses of the same capital, including private investment. If domestic public investment crowds out domestic private investment, fewer resources would be available to grow the capacity of the private sector. Higher levels of borrowing could lead to increases in interest rates, which would increase the costs of borrowing for everyone. An increase in interest rates could reduce investment over time. Diverting productive capital from private investment would reduce total economic output in the long run. If negative government saving leads the federal government to collect more from individuals and businesses, via higher taxes as a percentage of GDP in order to finance higher debt service costs, the government would control more of the country's resources, leaving a lower proportion available to the private individuals and businesses. Generational Effects Budget deficits, the resulting debt, and future payments on that debt force future generations to pay for those things that the country is unwilling to pay for now. That is, the burden of the national debt is largely shifted towards future generations. As a result of the national debt and associated interest payments, future generations will likely face a reduction in economic output and lower levels of real income. Generally, economic theory indicates that the reduction of output in the future constitutes the burden of the national debt, which is borne largely by future generations. Other imbalances in government spending can also have effects on future generations. As the retirement of the baby boom generation begins, an increasingly larger portion of the population will be over 65. For programs like Social Security and Medicare, the amount of benefits paid to older Americans will exceed the amount of revenue collected from current workers. The assets held in these programs' trust funds, which presently contain surpluses, will be drained in order to pay benefits. In order to correct this imbalance, future benefits will have to be reduced or other sources of funding will have to be used to pay full benefits. If policymakers wait until trust funds are depleted to alter programs, the costs (whether in the form of higher taxes or lower spending) will be solely borne by future generations. Work of Fiscal Reform Groups Many budget analysts are concerned about future levels of federal debt and acknowledge that the current spending and revenue collection cannot continue at current or projected future levels. A number of groups have published reports detailing possible ways that the federal government can put itself on a more sustainable fiscal path. These recommendations are not without the tradeoffs discussed earlier in the report. The longer that the country continues without a plan to stabilize its fiscal future, the more costly reform will be and the more plausible that reforms will be forced, as a result of a severe fiscal crisis, rather than well-planned. None of the recommendations in any plan can proceed without legislative action. Though the fiscal reform plans discussed here differ, they all have several things in common. They propose that implementation of their recommendations beginning around FY2012, with the goal of stabilizing the debt at 60% of GDP near the end of the decade. Over the longer term, they all propose to reduce this ratio further. In the outyears, the reports agree that the costs of federal healthcare programs and reform of the tax code are some of the major issue areas that needs to be addressed. They also recommend cuts to discretionary programs. Some of the reports focus on specific policy options that are available, while others focus on issues of accountability and transparency in the budget process, featuring recommendations for new budget procedures. Some plans also recommend implementing additional, immediate, short-term stimulus that would increase the deficit before beginning deficit reduction once the economy fully recovers. Taking short-term policy actions, such as enacting additional fiscal stimulus, that would increase the federal debt would reduce income in the longer term unless offsets to reduce future debt levels are also enacted. Ultimately, no matter which policy is put in place, debt stabilization is key to restoring fiscal sustainability over the long term. This section analyzes five widely discussed proposals from non-partisan groups: (1) President Obama's National Commission on Fiscal Responsibility and Reform, (2) Galston-MacGuineas Plan, (3) Peterson-Pew Commission on Budget Reform, (4) National Research Council and National Academy of Public Administration, and (5) Debt Reduction Task Force. Each discussion contains a brief description of the composition of each of these groups, followed by a discussion of the main goals of each proposal and recommendations to achieve the targets. Table 1 provides a summary of these plans by illustrating selected measures of deficit and debt levels if the plans are fully implemented. The number of groups working on this issue far outnumbers those that are discussed below. At the end of this section, a list of plans not discussed in detail in this report is also provided. National Commission on Fiscal Responsibility and Reform As a policy initiative included in his FY2011 budget proposal, President Obama committed to create a bipartisan fiscal commission to be tasked with putting the nation on a sustainable fiscal path. The commission had two main goals: balance the budget excluding net interest payments by FY2015 (also known as primary balance) and examine ways to achieve fiscal sustainability over the long run. By executive order, President Obama created the 18-member National Commission on Fiscal Responsibility and Reform (Fiscal Commission) on February 18, 2010. The commission's co-chairs, Erskine Bowles, former chief of staff to President Clinton, and former Senator Alan Simpson, released a draft proposal on November 10, 2010, accompanied by a second document, titled $200 Billion in Illustrative Savings , providing more detail on proposed discretionary spending cuts. These proposals were amended and the final report was released on December 1, 2010. On December 3, 2010, the commission voted 11-7 in favor of the recommendations in the final report, fewer than the 14 votes needed for formal approval of the commission's proposal. The Fiscal Commission's final report, The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform , contained recommendations that would 1) reduce the deficit by a combined $4 trillion between FY2012 and FY2020; 2) lower the budget deficit to 2.3% of GDP by FY2015; 3) reduce tax rates and tax expenditures to collect more revenue on net; 4) cap revenue at 21% of GDP; 5) ensure the solvency of Social Security; and 6) reduce the federal debt to 60% of GDP by FY2023 and 40% by FY2035. In order to achieve these savings, the proposal included cuts to both security and non-security discretionary programs, health care cost containment, additional mandatory savings through cuts to agriculture subsidies and the civil service retirement system, Social Security reforms, comprehensive tax reform, and budget process changes. Excluding interest savings, spending cuts account for 69% of deficit reduction, while revenue increases account for the remaining 31% over the FY2012-FY2020 period. Table 2 illustrates the savings achieved under their plan in FY2015 and FY2020. The savings shown in Table 2 are relative to the Commissions "Plausible" baseline, which assumes the following adjustments: (1) a permanent "doc fix" for Medicare physician payments; (2) a permanent extension of the "Bush tax cuts" for single taxpayers with AGI below $200,000 and married taxpayers with AGI below $250,000; (3) an extension of the estate tax at 2009 levels; (4) indexing the AMT for inflation; (5) a level of discretionary spending in the FY2011 President's Budget; and (6) a gradual reduction of spending related to the conflicts in Iraq and Afghanistan. The "Plausible" baseline is similar to an extension of current policy, rather than current law as is depicted in the CBO baseline. If these spending and revenue levels were measured relative to current law rather than current policy, the Fiscal Commission's plan would actually increase the deficit through FY2014 and the debt-to GDP ratio through FY2018. Beyond FY2014 and FY2018, the Fiscal Commission's plan reduces the deficit and debt-to-GDP ratio, respectively, relative to current law. Discretionary Savings The Fiscal Commission's report included cutting discretionary spending back to 2008 levels in real terms by 2013, with interim goals over the next two fiscal years to achieve that reduction. Beyond that, the report limited increases to discretionary spending at half of the rate of inflation through 2020. These spending limits would be enforced through the use of discretionary caps, which would require equal cuts, in percentage terms, in both security and non-security discretionary spending. The commission's report also recommended that the President propose annual limits on overseas contingency operations (OCO), which would not count against the general discretionary cap but would have their own limits. The report also recommended establishing a disaster fund, which would provide budget authority to be used for disasters, with strict parameters for its use. Any unused disaster funds from a fiscal year would be rolled forward to the next fiscal year. Along with this disaster fund, the commission's report included creating a strict definition of an "emergency" so that the designation is used for true emergencies, rather than as a way to circumvent fiscal caps. Finally, though the Fiscal Commission's report provided its own specific recommendations for cutting spending, it also recommended that executive agencies and Congress find additional ways to achieve savings and identify high-value investments. Mandatory Savings In addition to the reforms to discretionary spending discussed above, the commission's report included a number of immediate reforms to existing mandatory programs as well as proposals to slow the growth of healthcare costs. Over the longer term, the report recommended setting a target for the total federal budgetary commitment to healthcare. Changes to health-related spending included freezing Medicare physician payments through 2013 and a 1% cut in 2014, followed by a newly developed payment formula for 2015 and beyond, and reforming the long-term care insurance program (CLASS Act). Beyond these reforms, the report also included numerous additional savings proposals from the Medicare and Medicaid programs, medical malpractice reform, and transforming the Federal Employees Health Benefits program into a defined contribution premium support plan. Cuts to other mandatory spending programs were also recommended. The largest savings were derived from reforming federal retirement programs, reducing agriculture subsidies, eliminating some student loan subsidies, and allowing the Pension Benefit Guarantee Corporation the authority to increase premiums. Additional programmatic savings were also provided. Social Security One of the major themes of the Fiscal Commission's proposal was to ensure the solvency of Social Security over the next 75 years. In order to accomplish this, the report contained several recommendations to change benefits, increase taxes, increase the retirement age, and expand the size of the contributing population. Proposals to change the benefit structure included modifying the current benefit-formula calculation, creating an enhanced minimum benefit for low-wage workers, increasing benefits for the very old and long-time disabled, and allowing for flexibility in claiming benefits for those who cannot work to the normal retirement age. In order to pay for some of these increases in benefits, the Fiscal Commission's report recommended increasing the taxable maximum on wages and using a more appropriate measure to calculate the cost-of-living adjustment for beneficiaries. The report also recommended increasing the early and normal retirement ages to be more in line with life expectancy. Finally, newly hired state and local workers, currently not eligible for Social Security, would be included in the program. Tax Reform On the revenue side of the budget, the Fiscal Commission's report proposed comprehensive tax reform that would reduce individual and corporate tax rates, broaden the tax base, cut tax expenditures, and maintain or increase the progressivity of the tax code. Eliminating all tax expenditures, which would amount to roughly an additional $1 trillion in revenue a year, would allow for deficit reduction and for a reduction of tax rates in all tax brackets. The Fiscal Commission favored the plan that would eliminate most tax expenditures. However, their plan allowed for the option of choosing to keep some additional tax expenditures. This option would still result in lower tax rates, relative to the present rates, though they would be higher than if all tax expenditures were eliminated. Corporate tax rates would also be reduced and business tax expenditures would be eliminated. Further, the report recommended enacting a competitive territorial corporate tax system where tax is imposed only in the country where business activity occurs and not in the country of ownership. Ultimately, these reforms would stabilize tax collections at 21% of GDP, somewhat higher than the historical average. Other Reforms Certain reforms to the budget process and other budget concepts were also recommended. Specifically related to the budget process, the report included establishing a debt stabilization process that would trigger enforcement provisions if the budget was not on track to be in primary balance by 2015 (the Fiscal Commission's target goal) or if the debt-to-GDP ratio was projected to increase in 2015 or thereafter. Further, the report also recommended that the Budget Committees review and reform existing budget concepts, including budget scorekeeping. Finally, the commission's report recommended the implementation of automatic triggers for long-term unemployment benefits under certain economic conditions, rather than ad-hoc legislative extensions. Galston-MacGuineas Plan The Committee for a Responsible Federal Budget (CRFB) published a comprehensive report titled The Future is Now: A Balanced Approach to Stabilize the Public Debt and Promote Economic Growth , a report co-authored by Bill Galston and Maya MacGuineas in September 2010. Their recommendations for debt stabilization are based on five principles for reform: (1) no major sections of the federal budget should be declared off-limits; (2) certain areas of the budget that encourage growth, like public investment and education, should be targets for spending increases; (3) a strong safety net should remain to protect vulnerable populations; (4) spending transparency should be improved; and (5) the long-term challenges related to demographics and healthcare spending must be acknowledged. The authors posited that the greatest obstacle to debt stabilization was the political environment. Within this framework, Galston and MacGuineas recommended bringing the debt-to-GDP ratio down to 60% by the end of the decade, with continued work to gradually lower this level over the long term. To do this, they recommended an even split between programmatic reductions and tax increases, with additional savings resulting from lower interest payments. Table 3 illustrates how these savings would be achieved in FY2020. The savings above were achieved through a variety of discretionary and mandatory spending cuts. Specific discretionary cuts affected defense programs, including reducing or eliminating outdated weapons systems, reforming military compensation and healthcare, contracting process reform, small reductions in research and development funding, and removing some layers of bureaucracy. The report also called for a three-year freeze on all domestic discretionary spending, with growth in spending thereafter capped at inflation through FY2020. Mandatory savings would come from Social Security and health-related cuts. Savings from Social Security included accelerating the currently scheduled increase in the retirement age to 67, with increases in the retirement age thereafter tied to increases in life expectancy. The plan also included an expanded disability program for workers who cannot work to the required eligibility ages; slowing the growth of benefits for medium and high income earners; changing the measure of inflation used to calculate the cost of living increase; including new state and local workers in the system; and establishing mandatory add-on retirement accounts. In terms of health spending, the report recommended reforming the nation's malpractice laws by limiting pain and suffering awards and creating specialized health courts; increased cost sharing of Medicare Part B premiums for higher income seniors; gradually raising the Medicare eligibility age from 65 to 67; expanding the powers of the new Independent Payment Advisory Board; and scaling back the healthcare exchange subsidies. The report also included recommendations for tax changes and the addition of a carbon tax. The revenues from the carbon tax would replace a portion of the Social Security payroll tax and would also be devoted to deficit reduction. In terms of tax expenditures, the report recommended creating a tax expenditure budget, cutting this type of "spending" by 10%, and capping its growth thereafter. New tax expenditures would be subject to a strict "PAYGO for tax expenditures." Overall, the report suggested that the tax base needed to be broadened, in combination with lower rates, to achieve additional revenue collection that could be used to reduce the deficit. Beyond publishing the Galston-MacGuineas report, the CRFB has led or assisted in other fiscal stability initiatives. Through their "Let's Get Specific" reports on Social Security, Healthcare, and Tax Expenditures, CFRB has provided a list of specific policies that could be used to for the purposes of deficit reduction in each of these areas. In addition, the CRFB also created a simulator called "Stabilize the Debt!", which allows the public to test their own policy choices that would lower the debt-to-GDP ratio to 60% by FY2018. These tools are being used to inform the public of the magnitude of the fiscal problem that the country faces as well as the types of sacrifices that may be required to achieve fiscal stability. Peterson-Pew Commission on Budget Reform The Peterson-Pew Commission on Budget Reform released a comprehensive proposal to achieve fiscal sustainability in November 2010 titled Getting Back in the Black . The key component of this proposal was to improve the nation's fiscal position by stabilizing the debt-to-GDP ratio at 60% by FY2018, and gradually reducing the debt as a share of GDP over the long term. Policy changes would be phased in beginning in FY2012. The Peterson-Pew Commission reforms focused on changing the budget process and strengthening rules and enforcement mechanisms within Congress to ensure that the benchmarks were met. First, the commission called on Congress to pass a "Sustainable Debt Act" (SDA), which would set a medium-term debt-to-GDP target along with annual fiscal debt targets in order to facilitate the path to reaching it. The annual targets would have some flexibility to respond to economic conditions and could be waived or adjusted under certain circumstances. However, it was also assumed that if the economy was performing well, the debt would be reduced at a faster rate. Once the medium-term targets were met, the commission recommended setting a new longer-term target that would allow for the continuation of the budgetary framework with programmatic caps and triggers focused on the programs that are driving increases in the federal debt at that time. Over the long term, the commission recommended that the debt-to-GDP ratio be continuously reduced below the 60% level. To achieve the benchmarks set in the SDA, the commission recommended several changes to the budget process and enforcement mechanisms. In order to adhere to the medium-term target set in the SDA, both the President's budget and the congressional budget resolution would be required to contain policies to achieve the goal. Congress would adopt a multi-year budget resolution that would remain in effect unless changes were required in order to meet SDA targets. Several enforcement mechanisms would also be put in place to help ensure that an annual budget remained on track to hit the SDA debt targets. These mechanisms included an automatic "debt" trigger that would put the budget back on track if enacted legislation fails to meet the act's targets, a strengthened PAYGO process with fewer programmatic exemptions, and the reestablishment of budget caps to cover discretionary spending as well as tax expenditure "spending." Finally, the commission recommended an end to the use of the "emergency" designation to bypass enforcement rules in favor of the creation of an emergency reserve, which could be drawn upon in appropriate situations. In order to meet goals over the medium and long term, the Peterson-Pew Commission recommended several additional changes to increase transparency and accountability in the budget process. These changes include integrating long-term data into the President's budget and congressional budget documents; imposing annual reporting requirements on progress towards achieving sustainability; incorporating the presentation of tax expenditures into the budget process; and improving budgetary accounting for various other long-term expenditures. To increase accountability, the commission recommended changes to the way that the budget baseline is used in order to more appropriately illustrate the increases in spending levels from one year to the next, and requiring an annual Presidential address to Congress on the status of meeting fiscal targets. NRC/NAPA Committee on the Fiscal Future of the United States Choosing the Nation's Fiscal Future , issued in January 2010 by the National Research Council (NRC) and the National Academy of Public Administration (NAPA), details four paths that would bring the federal budget back to a sustainable path. The committee recommended that action on deficit reduction begin around FY2012. Assessing the fiscal sustainability of future federal budgets would be measured by the government's public debt as a percentage of GDP, with the goal of maintaining a 60% ratio within a decade. In order to determine whether or not a proposed budget is successful at putting the country on the path to fiscal sustainability, the committee recommended that the budget be evaluated using the following criteria: Does the budget reduce the deficit in the near future?; Does the budget reduce the federal debt to achieve a sustainable debt-to-GDP ratio?; Does the budget align spending and revenue closely over the long term? When evaluating a proposed federal budget in this context, the committee suggests it is important to also consider whether spending on entitlement programs is being restrained, if resources are being use efficiently and effectively, and if the burdens placed on state and local governments are fully assessed. The four paths detailed in the report were expected to put the federal budget on a sustainable course. In choosing one of the four paths, the committee acknowledges that it would be necessary to evaluate how the proposed spending and revenue levels fit into the context of what type of government would be most consistent with the values and beliefs of the country. Table 4 details these four paths to achieving the 60% ratio of debt-to-GDP over the long term, with action to be taken within the next few years to lower the current budget deficit. Achieving fiscal sustainability under any of these options would depend on what combination of changes in spending and revenue policy were chosen. These four scenarios achieve the same ultimate goal of long-term sustainability, though they employ different methods of reaching it. The "Low" scenario maintains revenues at historical levels, while restricting federal spending to be more in line with this level of revenues. The "High" scenario combines a substantial increase in revenues with high levels of government spending. The two "Intermediate" scenarios entail levels of spending and revenues fall in between the "Low" and "High" scenarios. The "Intermediate 1" scenario focuses on a greater level of investment spending, which would bring relatively larger benefits to future generations. The "Intermediate 2" scenario necessitates more spending devoted to Medicare, Medicaid and Social Security. Under each of these scenarios, spending levels represent a major reduction in health programs relative to current policy. Each of these scenarios depends on lower growth rates in the three major entitlement programs. Since restoring Social Security to long-term solvency is not as large a problem relative to the health programs, options are available without a change to the nature of the program. Regarding Medicare and Medicaid, the report recommended direct spending reductions in the near-term, followed by more fundamental reform of the programs over the longer term. Proposals for reducing spending in the short term included increasing the Medicare payroll tax or Medicare beneficiary cost sharing, or cutting provider reimbursement rates or the federal cost-sharing for Medicaid. Options for altering the healthcare system in the long term, with a focus on improving care quality and health outcomes, included instituting a single-payer health insurance system; a "robust public option" (a government insurance company which would compel healthcare providers to work at rates dictated by the government); a "non-robust public option" (a government insurance company which would not have power to set rates); impose price controls; provide individuals with funds to purchase their own insurance plans; and eliminating group health insurance. Outside of spending on Social Security, Medicare, and Medicaid, the committee focused on several reforms that could be undertaken on the discretionary side of the budget as well as in other mandatory programs. These options included various levels of spending, from cuts of 20% to increases of 16%. Increases in spending could be achieved, while still reaching fiscal sustainability the report stated, if corresponding cuts in other areas in the budget, revenue increases, or both matched the chosen level of spending in a category. In addition to these policy changes, the committee also recommended changes in the budget process, which would allow for forward-looking assessments rather than the current process, which focuses heavily on the present. These changes included setting both medium- and long-term fiscal goals and instituting mechanisms that would hold both Congress and the President accountable in meeting goals. Specific reforms included further integrating long-term budget projection data into the formulation of the federal budget; including information on the net present value of future costs for specific programs in the budget; and increasing the use of accrual accounting which would record the net present value of long-term contractual commitments. The Debt Reduction Task Force The Debt Reduction Task Force (DRTF) was created by The Bipartisan Policy Center and co-chaired by former Senator Pete Domenici and former OMB and CBO director Alice Rivlin. The report produced as a result of their efforts, titled Restoring America's Future , contained a comprehensive path to restore the economy and achieve fiscal sustainability. Recommendations included spending reductions and tax increases to achieve a debt-to-GDP ratio of less than 60% of GDP by FY2020, a balanced primary budget by FY2014, and a strengthened economy. These results were achieved by incorporating changes to Social Security, controlling healthcare costs, and freezing discretionary spending. Other cuts to mandatory programs were also included. On the revenue side, the plan recommended a simplification of the tax code, lower corporate and individual tax rates, and a debt reduction sales tax. Along with these recommendations, the plan included a one-year payroll tax holiday in calendar year 2011 to help boost the economy and create jobs. This provision would increase the deficit in the short term. The DRTF estimated that the tax holiday would create 2.5 to 7 million new jobs over the next two years. Table 5 illustrates the how the recommendations in the report achieved debt reduction goals. Roughly half of the debt reduction was achieved through spending cuts, while the other half was achieved through revenue changes. Along with the changes in the tax code discussed above, the report also recommended raising revenue by capping the tax exclusion of employer provided health benefits. Beginning in 2018, the cap would begin to be phased out entirely over the next 10 years. Specifically relating to Medicare, premiums would be increased gradually with a transition to a "premium support" program beginning in 2018. Under this new structure, the traditional Medicare program would remain in place with increases in premiums linked to increased costs above certain levels. A new program will also be established to allow beneficiaries to purchase coverage on the new health insurance exchanges. Cost-control changes to the Medicaid program would also be instituted, including changes to the federal-state cost sharing arrangement. Other healthcare cost control measures were also included. Social Security reforms included combining increased revenue collection with adjustments to benefits. By raising the amount of wages subject to payroll taxes and incorporating newly hired state and local workers into the program, revenues would increase, especially in the near term. On the other side, using a modified cost-of-living adjustment, slightly reducing benefits for higher income beneficiaries, and indexing the benefit formula for increases in life expectancy, overall benefit payments would decline. Minimum benefit levels would also be increased for lower income wage earners. Combined, these changes would make the program solvent for the next 75 years. Other spending cuts include freezing discretionary spending and, thereafter, capping growth to GDP growth rates. This freeze would be enforced by statutory spending caps and automatic cuts in all programs. Domestic discretionary spending would be subject to this freeze for four years, while defense discretionary spending would be subject to the freeze for five years. Cuts would also be made to certain farm payments and the federal civilian retirement program. Other spending reduction proposals were also included. Additional revenue would be raised by making various changes to the tax code, with the goals of making it easier to file taxes and removing economic and consumption distortions. Ultimately, the task force said that the changes would create a more progressive tax system. Current individual tax rates would be replaced by a two-tiered tax rate system with rates of 15% and 27%. Corporate rates would decline from 35% to 27%. Most tax expenditures would also be eliminated. Specifically, the mortgage interest and charitable contribution deductions would be replaced by a flat 15% refundable credit for anyone who qualifies and the deduction for state and local taxes would be eliminated. Finally, additional revenue would be raised through a national Debt Reduction Sales Tax (DRST), beginning at 3% in 2012 and increasing to 6.5% in 2013. Primarily for low income earners, the deductions that are eliminated and the DRST would be offset by a higher earned income and child tax credit. The task force also included proposals to create additional budget enforcement mechanisms and reforms. These included the imposition of statutory spending caps, as mentioned earlier, the strengthening of statutory PAYGO, conversion to biennial budgeting, and enactment of specific long-term budgets for certain programs to be monitored by a new Fiscal Accountability Commission to make sure that that the programs are staying on target. Other Groups The proposals described above do not represent a comprehensive list of all the groups or individuals that provided recommendations to stabilize or reduce the federal debt. There are additional reports on how fiscal sustainability can be achieved that were issued by Members of Congress and outside groups. These additional reports include Representative Mike Quigley, Reinventing the Federal G overnment: The Federal Budge – Part I , available at http://quigley.house.gov/images/stories/pdf/quigley_reinventing_government_the%20federal%20_budget_part_1.pdf Representative Paul Ryan, A Roadmap for America's Future , available at http://www.roadmap.republicans.budget.house.gov/ Representative Jan Schakowsky, Schakowsky Deficit Reduction Plan , available at http://schakowsky.house.gov/images/stories/1202_Schakowsky_Deficit_Reduction_Plan.pdf Brookings-Heritage Fiscal Seminar, Taking Back Our Fiscal Future , available at http://www.brookings.edu/~/media/files/rc/papers/2008/04_fiscal_future/04_fiscal_future.pdf Campaign for America's Future, Report and Recommendations of the Citizens' Commission on Jobs, Deficits and America 's Economic Future , available at http://www.ourfuture.org/report/citizenscommission Center for American Progress, A Thousand Cuts: What Reducing the Federal Budget Deficit Through Large Spending Cuts Could Really Look Like , available at http://www.americanprogress.org/issues/2010/09/thousand_cuts.html CATO, A Plan to Cut Spending and Balance the Federal Budget , available at http://www.downsizinggovernment.org/balanced-budget-plan Demos, The Century Foundation, and the Economic Policy Institute, Investing in America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility , available at http://www.ourfiscalsecurity.org/fiscal-blueprint The Heritage Foundation, How to Cut $343 Billion from the Federal Budget , available at http://heritage.org/Research/Reports/2010/10/How-to-Cut-343-Billion-from-the-Federal-Budget In March 2011, CBO issued Reducing the Deficit: Spending and Revenue Options , its latest update in a series providing a list of options for altering spending and revenue policies for the purpose of deficit reduction. The report does not make recommendations to Congress on which options it should chose.

The federal budget is on an unsustainable path. Though deficit levels are currently elevated, they are expected to fall towards the middle part of the decade as the economic recovery continues. Looking beyond this decade, however, the country's fiscal outlook becomes more bleak as spending on programs like Social Security, Medicare, and Medicaid, and net interest are projected to consume a larger portion of the total federal budget. Budget policy debates thus far in the 112th Congress have centered on how to achieve meaningful deficit reduction and implementation of a plan to stabilize the federal debt. Various views and opinions exist about how to improve the long-term fiscal outlook, specifically centered around which programs should be prioritized or sacrificed. Delays in taking corrective action will exacerbate the size of the changes that need to be made. At the extreme, if no actions are taken, the United States risks a significant economic crisis and the government may be limited in its ability to address these challenges. Any choices that are made to address the budgetary imbalances have important economic, social, and generational impacts in the present and the future. In order to undertake any substantive changes to the federal policies and programs, sacrifices to favored programs and increases in taxes will likely be required. The sacrifices made today are essential to minimizing the size of potential programmatic cuts or tax increases, reducing the probability of a future crisis, and ensuring an improved standard of living for future generations. A number of groups have published reports detailing possible ways that the country can put itself on a more sustainable fiscal path. Though the fiscal reform plans differ, they all have several things in common. They recommend that implementation of their plans largely begin in FY2012, with the goal of stabilizing the debt at 60% of GDP near the end of the decade. Over the longer-term, they all provide plans to reduce this ratio further. Some of the reports focus on specific policy options that are available, while others focus on issues of accountability and transparency in the budget process. Some plans also recommend implementing additional, immediate short-term stimulus that would increase the deficit before calling for deficit reduction. In addition, other groups, including the Senate "Gang of Six" and a new group comprised of Members of Congress and led by Vice President Biden, are formulating additional bipartisan deficit reduction proposals. President Obama created a bipartisan fiscal commission tasked with putting the nation on a sustainable fiscal path. The commission had two main goals: balancing the budget excluding net interest payments by FY2015 and examining ways to achieve fiscal sustainability over the long run. The Fiscal Commission's final report contained recommendations that would 1) reduce the deficit by a combined $4 trillion by FY2020; 2) lower the budget deficit to 2.3% of GDP by FY2015; 3) reduce tax rates and tax expenditures; 4) cap revenue collection at 21% of GDP; 5) ensure the solvency of Social Security; and 6) reduce the federal debt to 60% of GDP by FY2023 and 40% by FY2035. In order to achieve these savings, the plan includes cuts to both security and non-security discretionary programs, health care cost containment, additional mandatory savings through cutting agriculture subsidies and the civil service retirement system, Social Security reforms, comprehensive tax reform, and budget process changes. This report discusses why the federal government's fiscal path is unsustainable and provides an overview of proposals of selected groups that have published detailed recommendations on how to return the federal budget to a sustainable course.

Background Several statutes authorize the use of administrative subpoenas primarily or exclusively for use in a criminal investigation in cases involving health care fraud, child abuse, Secret Service protection, controlled substance cases, and Inspector General investigations. The Child Protection Act of 2012, P.L. 112-206 ( H.R. 6063 ) authorizes the Marshals Service to use administrative subpoenas to track unregistered sex offenders. Administrative Subpoenas Generally Administrative agencies have long held the power to issue subpoenas and subpoenas duces tecum in aid of the agencies' adjudicative and investigative functions. There are over 300 instances where federal agencies have been granted administrative subpoena power in one form or another. The statute granting the power ordinarily describes the circumstances under which it may be exercised: the scope of the authority, enforcement procedures, and sometimes limitations on dissemination of the information subpoenaed. In some instances, the statute may grant the power to issue subpoena duces tecum, but explicitly or implicitly deny the agency authority to compel testimony. The statute may authorize use of the subpoena power in conjunction with an agency's investigations or its administrative hearings or both. Authority is usually conferred upon a tribunal or upon the head of the agency. Although some statutes preclude or limit delegation, agency heads are usually free to delegate such authority and to authorize its redelegation thereafter within the agency. Failure to comply with an administrative subpoena may pave the way for denial of a license or permit or some similar adverse administrative decision in the matter to which the issuance of the subpoena was originally related. In most instances, however, administrative agencies ultimately rely upon the courts to enforce their subpoenas. Generally, the statute that grants the subpoena power will spell out the procedure for its enforcement. Objections to the enforcement of administrative subpoenas must be derived from one of three sources: a constitutional provision; an understanding on the part of Congress; or the general standards governing judicial enforcement of administrative subpoenas. Constitutional challenges arise most often under the Fourth Amendment's condemnation of unreasonable searches and seizures, the Fifth Amendment's privilege against self-incrimination, or the claim that in a criminal context the administrative subpoena process is an intrusion into the power of the grand jury and its concomitant Fifth Amendment right to grand jury indictment. In an early examination of the questions, the Supreme Court held that the Fourth Amendment did not preclude enforcement of an administrative subpoena issued by the Wage and Hour Administration notwithstanding the want of probable cause. Neither the Fourth Amendment nor the unclaimed Fifth Amendment privilege against self-incrimination was thought to pose any substantial obstacle to subpoena enforcement. Soon thereafter a second case echoed the same message—the Fourth Amendment does not demand a great deal of administrative subpoenas addressed to corporate entities; a governmental investigation into corporate matters may be of such a sweeping nature and so unrelated to the matter properly under inquiry as to exceed the investigatory power. But it is sufficient if the inquiry is within the authority of the agency, the demand is not too indefinite, and the information sought is reasonably relevant. The gist of the protection is in the requirement that the disclosure sought shall not be unreasonable. A statute or judicial tolerance, however, may require what the Constitution does not. Nevertheless when asked if the Internal Revenue Service (IRS) must have probable cause before issuing a summons for the production of documents, the Court intoned the standard often repeated in response to an administrative subpoena challenge, the Commissioner need not meet any standard of probable cause to obtain enforcement of his summons. He must show [1] that the investigation will be conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to the purpose, [3] that the information sought is not already within the Commissioner's possession, and [4] that the administrative steps required by the Code have been followed.... This does not mean that under no circumstances may the court inquire into the underlying reason for the examination. It is the court's process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Criminal Administrative Subpoenas Controlled Substances Act The earliest of the three federal statutes (21 U.S.C. 876) used extensively for criminal investigative purposes appeared with little fanfare as part of the 1970 Controlled Substances Act, and empowers the Attorney General to issue subpoenas "in any investigation relating to his functions" under the act. In spite of its spacious language, the legislative history of section 876, emphasizes the value of the subpoena power for administrative purposes—its utility in assigning and reassigning substances to the act's various schedules and in regulating the activities of physicians, pharmacists, and the pharmaceutical industry—rather than as a criminal law enforcement tool. Nevertheless, the Attorney General has delegated the authority to issue subpoenas under section 876 to both administrative and criminal law enforcement personnel, and the courts have approved its use in inquiries conducted exclusively for purposes of criminal investigation. Section 876 authorizes both testimonial subpoenas and subpoenas duces tecum. It provides for judicial enforcement; failure to comply with the court's order to obey the subpoena is punishable as contempt of court. It also contains no explicit prohibition on disclosure. Inspectors General The language of the Inspector General Act of 1978 provision is just as general as its controlled substance counterpart: each Inspector General, in carrying out the provisions of this act, is authorized to require by subpoena the production of all information necessary in the performance of the functions assigned by this act. Its legislative history supplies somewhat clearer evidence of an investigative tool intended for use in both administrative and criminal investigations. The Justice Department reports that the Inspector General's administrative subpoena authority is mainly used in criminal investigations, and the courts have held that the act gives the Inspectors General both civil and criminal investigative authority and subpoena powers coextensive with that authority. The act contains no explicit prohibition on disclosure of the existence or specifics of a subpoena issued under this authority. Health Care, Child Abuse, Presidential Protection, and Marshals Service Unlike its companions, there can be little doubt that 18 U.S.C. 3486 is intended for use primarily in connection with criminal investigations. It is an amalgam of three relatively recent statutory provisions—one, the original, dealing with health care fraud; one with child abuse offenses; and one with threats against the President and others who fall under Secret Service protection. Congress added the final piece to Section 3486 in the Child Protection Act of 21012. There, it vests Section 3486's administrative subpoena power in the Marshals Service for use in tracking unregistered sex offenders. Section 3486 is both more explicit and more explicitly protective than either of its controlled substance or IG statutory counterparts. In addition to a judicial enforcement provision, it specifically authorizes motions to quash and ex parte nondisclosure court orders. It affords those served a reasonable period of time to assemble subpoenaed material and respond and in the case of health care investigations the subpoena may call for delivery no more than 500 miles away. In child abuse and presidential investigation cases, however, it imposes no such geographical limitation and it may contemplate the use of "forthwith" subpoenas. It includes a "safe harbor" subsection that shields those who comply in good faith from civil liability; and in health care investigations limits further dissemination of the information secured. Although the authority of section 3486 has been used fairly extensively, reported case law has been relatively sparse and limited to health care investigation subpoenas. The first of these simply held that the subject of a record subpoenaed from a third party custodian has no standing to move that the administrative subpoena be quashed. The others addressed constitutional challenges, and with one relatively narrow exception agreed that subpoenas in question complied with the demands of the Fourth Amendment. They cite Oklahoma Press , Powell , and Morton Salt for the view that administrative subpoenas under Section 3486 need not satisfy a probable cause standard. The Fourth Amendment only demands that the subpoena be reasonable, a standard that requires that (1) it satisfies the terms of its authorizing statute, (2) the documents requested were relevant to the Department of Justice's investigation, (3) the information sought is not already in the Department of Justice's possession, and (4) enforcing the subpoena will not constitute an abuse of the court's process. Comparison Of the three statutes that most clearly anticipate use of administrative subpoenas during a criminal investigation, Section 3486 is the most detailed. Neither of the others has a nondisclosure feature nor a restriction on further dissemination; neither has an explicit safe harbor provision nor an express procedure for a motion to quash. All three, however, provide for judicial enforcement reinforced by the contempt power of the court. Only the controlled substance authority of 21 U.S.C. 876 clearly extends beyond the power to subpoena records and other documents to encompass testimonial subpoena authority as well. The Inspector General Act speaks only of subpoenas for records, documents, and the like, and has been held to not include testimonial subpoenas. Section 3486 strikes a position somewhere in between; the custodian of subpoenaed records or documents may be compelled to testify concerning them, but there is no indication that the section otherwise conveys the power to issue testimonial subpoenas.

Proponents refer to administrative subpoenas as a quick, efficient and relatively nonintrusive law enforcement tool. Opponents express concern that they pose a threat of unchecked invasions of privacy and evasions of the Fourth Amendment warrant and probable cause requirements. The courts have determined that, as long as they are not executed in a manner reminiscent of a warrant, administrative subpoenas issued in aid of a criminal investigation must be judicially enforced if they satisfy statutory requirements and are not unreasonable by Fourth Amendment standards. The Child Protection Act of 2012, P.L. 112-206 (H.R. 6063) authorized the United States Marshals Service to issue administrative subpoenas in aid of tracking unregistered sex offenders. This report is an abridged version—without footnotes, appendixes, quotation marks, and most citations to authority—of CRS Report RL33321, Administrative Subpoenas in Criminal Investigations: A Brief Legal Analysis, by [author name scrubbed].

Introduction: Obama Administration Plans for Afghanistan and Iraq In February and March 2009, President Obama approved the deployment of an additional 21,000 service members to Afghanistan in the spring and summer of 2009, meeting most of the request from Secretary of Defense Robert Gates, and General David McKiernan, former Commanding General of the International Security Assistance Force (ISAF) in charge of the Afghan theater of operations. According to the President, these additional troops are intended to "stabilize a deteriorating situation in Afghanistan." In the winter of 2008 before leaving office, President Bush approved deploying an additional Brigade Combat Team (BCT) of about 9,000 to Afghanistan in January 2009. Still pending is a DOD request for an additional 9,000 troops that could be deployed in Afghanistan sometime in the winter of 2009. Last October, General David McKiernan requested about 35,000 more combat troops for Afghanistan composed of four Brigade Combat Teams with support. Later, 4,000 trainers were added, bringing the total request to 39,000. About 30,000 of that request has been approved by either former President Bush or President Obama. With these increases, CRS estimates the number of U.S. troops deployed in Afghanistan is expected to reach about 63,450 by the end of FY2009, double that of the prior year; this estimate is somewhat lower than the Administration's estimate of 68,000. If some 31,000 coalition troops from NATO nations serving in the International Security Assistance Force are included, average monthly foreign troop strength in Afghanistan would be about 81,000 in FY2009, and 93,450 in FY2010. These figures do not include from 10,000 to 17,000 more U.S. troops dedicated to Operation Enduring Freedom (OEF), most of whom provide support in the region. Because all but the 2,000 troops in the Philippines are linked to the Afghan War, CRS uses OEF and the Afghan War interchangeably in this report. In a speech to U.S. Marines at Camp Lejeune on February 27, 2009, President Obama announced that the Administration's review of U.S. strategy in Iraq was complete and that the U.S. mission in Iraq would shift from combat to supporting and training Iraqi security forces, and that U.S. troops would decline from the February 2009 level of about 140,000 in-country to 35,000 to 50,000 troops by August 31, 2010. In addition, the policy would meet the deadlines set in the January 1, 2009 Security Agreement with Iraq that requires all U.S. combat troops to move outside of cities by the end of June 2009, as recently took place, and that all U.S. troops leave Iraq by December 31, 2011. The Administration has not explained the effect of these withdrawals on other troops deployed for OIF, or the Iraq War, which includes not only U.S. troops located in Iraq but also some 80,000 to 90,000 troops providing theater-wide support in neighboring areas. CRS uses OIF and the Iraq War interchangeably in this report. The President reportedly considered options ranging from the 16-month withdrawal proposed during the campaign to a 23-month alternative reportedly favored by some in the military. Ultimately, the President adopted a 19-month plan. DOD spokesmen have suggested that increasing troop levels in Afghanistan depends, at least in part, on decreasing troop levels in Iraq if the services are to continue current 12-month tours. During the surge in troops in 2007 and 2009, tours grew to 15 months, a move that proved very unpopular. These two decisions about troop levels are reflected in the FY2009 Supplemental request sent to Congress in early April and the FY2010 war request submitted in early May 2009 with the regular budget. The FY2009 Supplemental covers DOD's war costs for the rest of this fiscal year that ends September 30, 2009 because DOD received only part of its war funding in the FY2009 bridge fund enacted last summer. According to statute, the Administration is to include a full year of war costs with the regular budget in FY2010, and provide separate budget displays for each war, and troop strength levels as well as the underlying assumptions. DOD provided general information about troop levels but not the underlying assumptions or separate budget displays for each operation in its FY2010 request. The Administration's decisions to reduce the number of troops in Iraq reflects declining levels of violence and peacefully conducted provincial elections that took place in January 31, 2009, while its decision to increase troop levels in Afghanistan reflects rising levels of violence and elections slated for August of 2009. Another important element in decisions about troop levels is the effectiveness of Afghan and Iraqi security forces, where the U.S. has invested $38.9 billion thus far to train and equip these forces. To identify the implications of troop levels for these and other policy issues, this report explains how and why measures of troop levels in five different DOD data sources differ; estimates future troop strength in Afghanistan and Iraq for FY2009-FY2012 under the Obama Administration plan using "Boots on the Ground," the most commonly cited measure; discusses the potential cost implications of these changes in troop levels along with other adjustments; analyzes and explains past trends in troop levels for the Afghan and Iraq Wars under the different measures; and measures contributions and burdens of deployment for the four services. For detailed description and analysis of the political and military context for changes in troop levels in Afghanistan and Iraq, see the following CRS Reports: CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy and CRS Report RL31339, Iraq: Post-Saddam Governance and Security , by [author name scrubbed]; and CRS Report R40156, War in Afghanistan: Strategy, Military Operations, and Issues for Congress and CRS Report RL34387, Operation Iraqi Freedom: Strategies, Approaches, Results, and Issues for Congress , by [author name scrubbed]. Wide Range in Deployed Troop Strengths in DOD Sources When discussing deployed troop levels, it is important to be clear about which troops are included and which troops are not included. CRS analyzed five different sources for DOD troop strength for the Afghan and Iraq Wars ranging from including only those troops deployed in-country to including not only troops deployed in-country but also those providing theater-wide support in the region. In the June preceding the September 11, 2001 attacks, the United States had about 26,000 troops stationed in the U.S. Central Command region, which encompasses Afghanistan and Iraq and neighboring areas. Most troops were located in Kuwait, Saudi Arabia and on ships in the region, including some conducting over flight operations for Northern and Southern Watch to contain Saddam Hussein after the first Gulf War. Based on the most comprehensive measure of troop strength, DOD's Defense Manpower Data Center's Location Report , capturing all troops deployed for both wars, there were 294,000 U.S. troops in the region for Operation Enduring Freedom and Operation Iraqi Freedom in December 2008, more than ten times the level seven years ago (see Figure 1 and Box 1 ). Figure 1 shows the number and location of these U.S. troops in December 2008, with an allocation between OEF or OIF based on where personnel are located that generally reflects guidelines developed by the Joint Staff, Joint Chiefs of Staff and Central Command. These allocations may or may not match distributions of war costs, which are collected separately by each service. This figure of 294,000 troops is over 100,000 higher than the December 2008 total of 181,000 reported in DOD's oft-cited Boots on the Ground," (BOG) report. Military leaders, DOD press spokesmen and Members of Congress use the monthly BOG figures to give a snapshot of the number of troops deployed in-country in Afghanistan and in Iraq. For example, Admiral Mullen, Chair of the Joint Chiefs of Staff, said there were 150,000 troops in Iraq "right now" on November 17, 2008, and Pentagon press secretary, Geoff Morrell said in January 2009 that the proposal to add 30,000 troops in Afghanistan would double the number there. DOD has reported these Boots on the Ground figures to Congress each month since 2008. As of the most recent data for April 1, 2009, DOD reported that there were 178,400 Boots on the Ground in Afghanistan and Iraq, slightly lower than in December 2008 reflecting the withdrawal of some troops from Iraq offset by the deployment of additional troops to Afghanistan. Part of the difference between DOD's Boots-on-the-Ground figures and the Location Report is definitional. Boots on the Ground reports only personnel in Afghanistan or in Iraq while the Location Report counts deployments of all military personnel tracked as part of OEF and OIF, including primarily personnel providing support in neighboring countries, as well as about 2,000 OEF personnel engaged in counter-terror operations in the Philippines. Relying primarily on guidelines developed by staff of the Joint Chiefs of Staff and Central Command, CRS allocated troops to each operation based on their location (see Figure 1 and Box 1 ). CRS uses the Iraq War interchangeably with OIF and the Afghan War interchangeably with OEF to include not only troops in-country, but also those providing theater-wide support primarily in the region. (All but the 2,000 troops in the Philippines are part of OEF or the Afghan War.) For example, in addition to the 38,000 troops in Afghanistan in December 2008, OEF includes: 2,300 troops in Kyrgyzstan supporting Afghan operations; 2,100 troops in Djibouti where there are groups connected to Osama Bin Laden; 2,200 in the Philippines conducting other counter-terror operations; and a scattering of other military personnel in the region (see Figure 1 ). Similarly, while there are 161,000 troops for OIF in Iraq, the operation also includes: 46,000 troops in Kuwait providing a wide range of support; 15,000 Navy personnel on ships in the region; and several thousand troops deployed to regional headquarters (4,800 Navy personnel in Bahrain, 2,000 Air Force (AF) personnel in the United Arab Emirates, and 8,000 AF personnel in Qatar for the Air Force (see Figure 1 and Box 1 ). There are also some 15,000 troops whose location is unknown or was not provided to the Defense Manpower Data Center, probably reflecting either data collection problems in the services or some personnel whose location is classified (see Figure 1 ). The gap between Boots on the Ground figures and the Location Report reflects differences in both who is counted and how personnel are counted. At one end of the spectrum, Boots on the Ground figures reflect once-a-month headcounts collected from the services by the Joint Staff that include only troops located in-country in Afghanistan and Iraq. At the other end of the spectrum, the Defense Manpower Data Center data captures all deployments during each month for those in the 28 countries, plus Navy members aboard ships in the region who are deemed part of OEF and OIF. These figures include short and long-term deployments. Another inclusive measure is "average strength," which captures "person years" for all deployed OEF and OIF personnel taking into account the length of deployments. For example, an Army member deployed for 15-months would count as 1.25 in average strength while an Air Force member flying missions for six months of the fiscal year would count as .5 in average strength. The most appropriate figure to capture troop strength for the Afghan and Iraq wars may depend on the purpose. For example, Boots on the Ground counts may be the best measure for those troops most likely to face combat situations. On the other hand, Location Reports capture all troops deployed in the region for the two operations. Finally, Average Strength may be the best measure for looking at the total demand for troops as well as the cost of both operations. In-Country Troop Strength: FY2002-FY2012 The Obama administration outlined its plans for troop strength in the next several years only in terms of the number of troops in-country, also referred to as "Boots on the Ground" in Afghanistan and Iraq. For this reason, CRS estimates of future troop levels are also expressed in terms of troops in-country. These figures do not include over 100,000 other deployed troops who provide theater-wide support in the region and are dedicated to Operation Enduring Freedom, the Afghan War, and Operation Iraqi Freedom (see Figure 1 and later discussion). Nevertheless, Boots on the Ground figures captures those troops most likely to face combat and can provide an overall sense of the direction and scope of change. Overall Changes in Troop Strength To better capture strength levels in each fiscal year, CRS uses monthly averages rather than the once-a-month snapshots commonly cited by DOD spokesman. These figures smooth out month-to-month variations and reflect overall demands for troops each year and are more closely related to the likely cost to deploy, conduct operations, and support troops in-theater. Overall Troop Strength Rises from FY2002-FY2008 Between FY2002 and FY2008, the number of troops in Afghanistan and Iraq increased from 5,200 troops to a peak of 172,000. Troop levels first jumped in FY2003 with the invasion of Iraq when troop strength in-country reached 78,000 for both wars (see Table 1 ). This figure does not include troops on ships or deployed in the region. Between FY2003 and FY2005, average monthly troop levels doubled from 78,100 to 162,900, reflecting increases in both Afghanistan and Iraq. There was little change in FY2006. Then in January 2007, President Bush announced his decision to send five more Brigade Combat Teams to Iraq for a temporary surge in troop levels to quell rising violence. Average strength rose in FY2007 and FY2008 because of these additional troops as well as additional increases in Afghanistan. Average strength for both wars peaked at 187,900 in FY2008. During the surge, average troop strength for both wars grew from 161,500 in FY2006 to 172,000 in FY2007, an increase of 10,500 or 7%. The following year, in FY2008, when the peak was reached, troop levels were 187,900, an increase of another 15,900 or 9%. These increases reflect growth in troop levels in Afghanistan as well as the surge in Iraq. Likely Overall Declines: FY2008-FY2012 Based on the plans announced by the Obama Administration described above, CRS estimates that average monthly troop strength in Afghanistan and Iraq will decline from 187,900 in FY2008 to 67,500 in FY2012, a drop of 64%. These estimates reflect announcements made this spring by the Obama Administration. If these plans change — with more rapid increases in Afghanistan or slower decreases in Iraq — these estimates would, of course, change. Under the current plan, overall troop strength in Afghanistan and Iraq in FY2009 will remain essentially the same between FY2008 and FY2009 as declines in troop levels in Iraq are offset by increases in Afghanistan (see Table 1 ). In FY2010, assuming troop levels remain the same in Afghanistan and the pace of withdrawals in Iraq picks up, average troop strength for both wars would fall to 151,800 or by 19%. By that year, troop levels in Afghanistan would be about 25,000 less than those in Iraq. In FY2011, the pace of withdrawal in Iraq would quicken to meet the deadline of withdrawing all but 35,000 to 50,000 troops in Iraq by August 31, 2009 announced by the President. CRS estimates this would reduce overall average troop levels to 106,200 in FY2011, a decline of 30%, assuming no change in Afghanistan. This would decrease overall deployed strength by another 30%, still above the FY2003 level when operations in Afghanistan and Iraq were both underway. By FY2011, the balance of troops between the two operations would shift with 20,000 more troops in Afghanistan than deployed in Iraq. By FY2012, when the withdrawal from Iraq is slated to be complete to meet the Security Agreement with Iraq, overall troop levels would fall by another 36% to 67,500 as all but the last three Brigade Combat Teams leave Iraq, and some 7 BCTs would be in Afghanistan (see Table A -1 ). DOD did not include troop estimates for these years in its budget submissions. By showing average troop strength both in the past and estimating troop strength in the future, CRS hopes to provide a tool that can help Congress assess the pacing cost implications in current plans to increase troop levels in Afghanistan and decrease troop levels in Iraq including: Are the planned increases in Afghanistan too much, too little or about right and how long are higher levels likely to be maintained? Is the pace of withdrawal in Iraq too fast, too slow, or about right and what are the implications if current plans change? What are the likely implications for war costs in FY2009-FY2012? Cost Implications of Changes in Troop Strength: FY2009-FY2012 The Administration's FY2009 supplemental, submitted on April 9, 2009, and the FY2010 war budget, submitted on May 7, 2009, presumably incorporate the recent decisions to increase troop levels in Afghanistan by 30,000 by the summer of 2009 and to reduce troop levels in Iraq gradually in FY2009 and then more rapidly in FY2010 and FY2011. Thus far, the Administration has not indicated how these decisions will affect the other 100,000 troops in the region. These planned adjustments in troop levels are likely to be a key variable in how DOD's war costs change. War costs cover the additional or incremental costs to deploy and support troops (e.g. combat pay, upgrading overseas bases, meals), conduct operations, and to repair, replace and sometimes upgrade equipment (see Appendix B ). The cost of the regular salaries of military personnel, conducting normal training and maintaining equipment or running military installations at home are all covered in DOD's regular budget. CRS estimated the cost implications for FY2009-FY2012 war costs of changes in average strength in Afghanistan and in Iraq along with other changes. The Effects of Timing The timing of proposed increases and decreases in troop levels is important in estimating current and future war costs. In addition to the 33,450 troops deployed in Afghanistan at the beginning of this fiscal year, an additional 30,000 troops are scheduled to deploy during the remainder of FY2009. The increases in troop levels in Afghanistan include the following: one additional Brigade Combat Team of about 9,000 including support deployed in January 2009 as directed by then-President Bush; 21,000 more troops including a brigade of 8,000 U.S. Marine Corps personnel deployed in March 2009, and about 9,000 Army troops in June 2009 as directed by President Obama; and 4,000 additional trainers deployed this summer as directed by President Obama. The war cost implications of these decisions depend on the amount of time that these personnel will be in-country: for example, 9 months for the brigade deployed in January, seven months for the Marine Corps personnel, four months for the additional Army brigade and five months for the trainers. Not until FY2010 would a full year's cost for all 30,000 additional troops be needed. Similarly, for Iraq, the savings from the withdrawal in June 2009 of two Brigade Combat Teams that will not be replaced will reflect the three months that those roughly 18,000 troops will no longer be in-country in FY2009. To estimate the effect of these troop plans on average troop strength and cost, CRS developed a schedule of the movement of units in and out of Afghanistan and Iraq based on Presidential and DOD announcements (see Appendix A and Table A -1 ). To simplify the metric, CRS assumes that 9,000 troops make up a BCT-equivalent including both combat and support troops. This reflects the Army's assumption that 10,000 troops is the average for a BCT including support forces, adjusted for the fact that Marine Corps units tend to be smaller. CRS uses this metric to estimate the cost of maintaining a certain number of weighted average BCT-equivalents in country that reflect both the number of units and the amount of time that they are in Afghanistan or Iraq in each fiscal year. While this metric has the advantage that it can be tied to Administration and DOD plans to move units into or out of Afghanistan and Iraq, it implicitly assumes that the more than 100,000 other troops in the region rise or fall in proportion to troop changes in-country. While many of the Navy and Air Force personnel conducting operations at sea or outside the country who support ground operations are likely to rise or fall proportionately, other personnel, such as headquarters personnel in Bahrain or Qatar, may adjust gradually or not at all. Army support troops in Kuwait who provide maintenance services may face reduced workload as troops leave partly offset by higher workload as equipment that has not rotated with troops is prepared to be re-deployed. DOD has not provided any information about the likely effect of the planned increases and withdrawals on these additional 100,000 troops providing theater-wide support. For example, troop levels outlined in the FY2009 Supplemental and the FY2010 war request only include strength levels in-country. Between FY2006 and FY2012, the balance of troops dedicated to Afghanistan and Iraq would gradually shift from the 88% for Iraq and 12% for Afghanistan that was typical for FY2006-FY2008 to 73% for Iraq and 27% for Afghanistan in FY2009 (see Table 2 ) . By FY2010, troops in Iraq would make up about 58% and those in Afghanistan about 42% of the total. The following year, Afghanistan would become the predominant mission with 60% of the troops, and by FY2012, Afghanistan would have 93% of all troops in-country. These estimates reflect the Administration's plans as currently outlined. If plans change with different pacing of increases and decreases, then troop strength and costs would rise or fall as would the balance between the two operations. Changes in Afghanistan and Iraq For Afghanistan, troops in-country grew gradually from 5,200 in FY2002 to 20,400 in FY2006. Between FY2006 and FY2008, average strength there jumped by another 10,000 to 30,100. Under the Administration's plans, CRS estimates that average monthly Boots on the Ground in Afghanistan may increase to 50,700 in FY2009 with a further increase to 63,500 the following year once all new units are in-place (see Table 2 ). Currently, additional increases have not been approved. Including some 31,000 coalition troops, the total number of foreign troops in Afghanistan could rise to about 95,000. Secretary Gates has suggested that going beyond that level could become "a hindrance rather than a help because we begin to look like occupiers to the Afghans," as did the Soviets with their 110,000 to 120,000 troops. For Iraq, troops in-country nearly doubled between FY2003 and FY2004 reaching an average of 130,600. By the following year, average strength grew by another 13,000 to 143,800, with that level maintained in FY2006. During the surge in troops initiated by President Bush, average troop strength in Iraq initially grew by 7,000 or 6% in FY2007, less than the increase between FY2005 and FY2004. By the next year with another 9,500 troops, troops or another 9%, reaching a peak of 157,800 even as the additional combat brigades began to be withdrawn. CRS estimates that troop strength in Iraq will average 135,600 in FY2009, 88,300 in FY2010, 42,800 in FY1011, and 4,100 in FY2012. Annual decreases range from 22,00 to 46,000 in these years. Estimated Troop Levels in Afghanistan in FY2009 Based on the schedule outlined by the Administration, CRS estimates average annual U.S. troop levels in Afghanistan would likely grow from an average of 30,100 in FY2008 to about 50,700 in FY2009 or by 68% percent. The Administration plans to review troop levels at the end of this year including a request by former Commander of U.S. Forces in Afghanistan, General McKiernan, to deploy an additional combat brigade in the winter of 2009, partway through FY2010. DOD estimates troops in Afghanistan would average 45,000 in FY2009. At a press conference in May 2009, Secretary Gates characterized the additional brigade as a "hard sell." If no additional troops are approved, troop levels in Afghanistan would be likely to increase by another 25% to an average strength of 63,350 in FY2010, or close to DOD's estimate of 68,000 included in its war request. According to Pentagon spokesman, Geoffrey Morrell, Secretary Gates has voiced concerns that "there is a tipping point in terms of the American footprint . . . on the ground in Afghanistan." With no further changes, CRS estimates that troop levels in FY2011 and FY2012 would remain at that level. In this scenario, the number of BCT-equivalents would more than double from 3.3 BCT-equivalents in FY2008 to about 7.1 BCTs in FY2010 (see Table A -1 ). If the additional brigade of 9,000 troops including support were added, troop levels would rise to 70,200 in FY2010 and peak at 72,450 or about 8 average BCTs in FY2011 and FY2012. Troop levels could, of course, increase or decrease in these later years if current plans change. Estimated Troop Levels in Iraq in FY2009 In FY2008, troop strength in Iraq declined from a peak of 170,000 in November 2007 to 147,000 by September 2008 as additional units sent for the surge were withdrawn. Administration plans call for a gradual drawdown in FY2009 to be accomplished mainly by not replacing two of three BCTs slated to re-deploy from Iraq in June 2009, as well as withdrawals of other smaller units, and some downsizing of replacement units. This could bring monthly average troop strength to about 135,600 in FY2009, a 14% decrease from the previous year, close to DOD's estimate of 140,000 (see and Table A -1 ). CRS assumes that additional re-deployments would not resume until the end of January 2010 after the Iraqi elections slated for December 2009. In order to reach the target of 35,000 to 50,000 troops in Iraq by August 2010 announced by President Obama, an additional 8 average BCTs would need to be withdrawn from Iraq. Reflecting this schedule, average troop levels in Iraq would be about 88,300 in FY2010, a decrease of 35% that year (see Table 2 and Table A -1 ). DOD estimates average troop strength in Iraq would be about 100,000 in FY2010, somewhat higher than this CRS estimate. In his speech to Marines at Camp Lejeune, President Obama announced that all troops would be out of Iraq by the end of 2011 as required by the Security Agreement. To meet that deadline, CRS assumes, conservatively, that the last five remaining BCTs are withdrawn in the last five months of 2011, spanning the end of FY2011 and the first quarter of FY2012. This also reflects recent statements by Secretary Gates that the United States would have "a significant presence for another 18 months." To meet this schedule, two BCTs would need to be withdrawn in August and September 2011 — the end of fiscal year — with the final three BCTs leaving between October and December 2011 during the first quarter of FY2012. This schedule would reduce average monthly troop strength from 88,300 in FY2010 to 42,750 in FY2011, and 4,050 in FY2012 ( Appendix A and Table A -1 ). If troops were withdrawn sooner, or the agreement with the Iraq government was re-negotiated to extend DOD troop presence, average troop levels and costs would be lower or higher. The FY2009 Supplemental and FY2010 War Request Changes in average troop strength may provide a benchmark that can be used to evaluate the reasonableness of DOD requests for war funds along with other considerations. Although the services develop war requests by evaluating specific funding requests from the field rather than from a "top-down" approach, few would argue that changes in the number of deployed troop levels play a major role in determining war costs. Along with other adjustments, CRS estimates how costs in FY2009 and beyond would change based on the number and operational costs of average Brigade Combat Teams in Afghanistan and Iraq each fiscal year based on FY2008 data (see Appendix B and Table B -1 ). Operational costs include military personnel and Operation and Maintenance (O&M). Factors other than changes in troop strength, of course, also affect costs, including one-time expenses in the previous year that would be unlikely to be repeated, transfers of costs previously funded in supplementals to DOD's baseline budget, policy changes, lags in when savings from withdrawals would occur, the timing of new demands, and programmatic changes only loosely tied to troop levels (e.g. funds to train Afghan security forces). Adjustments Affecting FY2009 On April 9, 2009, the Obama Administration submitted a request for an additional $75.5 billion for DOD for FY2009 Supplemental Overseas Contingency Operations, abandoning the "Global War on Terror" label used by the Bush Administration. This brings the total request for FY2009, the current fiscal year, to $141.4 billion. For FY2010, the Administration has requested $130 billion in FY2010 for both wars. Based on these requests, the proposed FY2009 level would be $45.7 billion lower than the $187.1 billion enacted in FY2008. At first glance, this 24% decrease appears to substantially exceed the 1% decrease in troop levels between those two years. To estimate how FY2009 would change compared to FY2008, several one-time decreases may be appropriate including: $12.2 billion provided by Congress in FY2008 that DOD characterizes as not related to war needs that would not be requested the following year, ranging from C-17 transport aircraft added by Congress ($3.3 billion), base closure or BRAC funding ($1.3 billion), and compensation for higher fuel prices for DOD's baseline program ($4.0 billion); $16.8 billion for a largely one-time purchase of the full requirement for Mine-Resistant Ambush Protected (MRAP) vehicles in order to speed the delivery of these vehicles considered to have greater protective qualities than High Mobility Uparmored Wheeled Vehicles (HMMWV); a policy change by the new Administration that restores the definition of reconstitution — the repair and replacement of war-worn equipment — to procurement strictly to replace war losses and replenish supplies within the next fiscal year, reducing war-related procurement by $27 billion; and adjustments to troop levels for increases in Afghanistan and decreases in Iraq (see Table 3 ). With these adjustments, CRS estimates that DOD's FY2009 war needs would total $133.1 billion rather than the $141.1 billion, or $8.3 billion below the Administration's request (see Table 3 ). For changes in troop strength, this estimate assumes that operational costs in FY2009 rise or fall in proportion with changes in troop levels. Other programmatic changes may not be related to troop levels. Increases could include: the proposed $1.9 billion increase for the training for both Afghan and Iraqi security forces; additional demands for unmanned aerial vehicles or light-weight MRAPS; an additional $300 million for Coalition Support; and $400 million for the new Pakistan Counterinsurgency Fund. At the same time, other areas may have lower costs in FY2009 as needs change or are already met, including: $400 million less for Military Construction; and $800 million less for the Improvised Explosive Device Defeat Fund. DOD's request makes adjustments for several of the changes outlined above and assumes small changes in military personnel costs and the same level of Operation and Maintenance funding in FY2008 as in FY2009. Potential Changes to DOD's FY2010-FY2012 Requests The Obama Administration requested $130 billion for war funding in its FY2010 budget that Congress is considering along with DOD's baseline request. The funding needed for that year depends on not only changes in troop strength but other adjustments made by DOD. In FY2010, according to Secretary of Defense Robert Gates, DOD transferred to its baseline about $8 billion of programs previously funded in supplemental appropriations. Anticipating that supplemental or war funding would be reduced, DOD transferred programs considered necessary for DOD's long-term requirements such as additional funding for increasing the size of the Army, recruiting and retention, countering threats from Improvised Explosive Devices (IEDs), Intelligence Surveillance and Reconnaissance (e.g., unmanned aerial vehicles), and "Global Train and Equip" funds for countries facing terrorist threats. Because of these transfers, the FY2010 war request would be expected to be $8 billion lower than in FY2009. In addition, CRS estimates that planned changes in troop levels would also reduce requirements by an additional $7.7 billion for a total of $15.7 billion altogether. This could reduce DOD's requirement from $133 billion in FY2009 to $117 billion in FY2010, or almost $13 billion less than DOD has requested (see Table 3 ). For FY2011 and FY2012, the Administration included planning figures of $50 billion each year in its budget. Based on currently announced plans, CRS estimates that war costs could total $92 billion in FY2011 and $70 billion in FY2012. These levels would be $42 billion and $20 billion, respectively, above the current planning figures. While other factors could affect costs, this suggests future war requests are likely to change (see Table 3 ). Potential Costs of Withdrawal Some observers would argue that the assumption that war costs in Iraq will fall in tandem with troop levels overlooks that some costs are likely to fall more slowly than others, and that there may be additional costs associated with the withdrawal itself. Budgeteers sometimes assume that in the short-term, only direct support costs (e.g., special pays, operating costs, meals, protective gear) change with troop strength. Then once some threshold is reached, indirect costs (e.g., base support, communication hubs) fall, and reductions will become proportional. Current efforts to reduce and move U.S. troops outside major cities in Iraq, required by the Security Agreement, may have already begun the consolidation process, which could reduce base support costs sooner rather than later. In fact, there is some evidence that base support costs are already declining. In addition, the transfer of responsibility to Iraqi Security forces may also reduce U.S. operating costs even before there are major declines in troop levels. Other observers have suggested that the withdrawal process itself may entail additional costs. Government Accountability Office (GAO) has emphasized the complexity and need for coordination and planning to re-deploy forces and equipment, but has not estimated costs associated with a drawdown. Army leaders have testified frequently that the cost of "reset" or repairing and replacing war-worn equipment could persist at the current annual level of $16 billion for two years after a withdrawal from Iraq though the specific rationale for this argument is unclear. For the past two years, the cost of repairing and replacing Army equipment has been $16 billion each year, a cost covered in war funding received each year. About three-quarters of the Army's equipment rotates with units each year, being repaired on its return to the United States. This suggests that about one-quarter of unit equipment remains in-theater to be used by newly deploying units (based on the value of the equipment). Once U.S. forces in Iraq fully withdraw, this equipment would be returned to the United States for repair or replacement except for items left behind for the Iraqis or transferred to Afghanistan. If the repair and replacement bill were proportional to the value of the equipment, the Army would face an additional bill of about $5 billion to $6 billion to reset the equipment that has remained in theater, well below Army estimates. At the same time, the annual bill for repairing equipment that rotates with troops would be expected to decline as troop levels fall, offsetting some of this additional expense. Similar factors would presumably apply to the other services. Potential Questions About Troop Strength and Cost In looking at the effect of changes in troop levels on cost, CRS took into account the following questions: How many and how quickly are increases and decreases in troop levels planned for each fiscal year? How many troops are being increased and decreased in-country? CRS distributed all operational costs over the number of troops in-country and assumed that troops in the region would fall at the same rate as those in-country, which is supported by past changes (see Figure 5 and Figure 7 ). To do a more precise estimate, additional information would be needed. These question include: How did the number of troops in the region change? How are changes in troop levels distributed among the services since the war cost of an Army soldier in-country differs from a Navy sailor or Air Force pilot operating from outside Afghanistan or Iraq? How quickly will operational costs (Military Personnel and Operation & Maintenance) adjust to decreases in the number of troops deployed to Iraq or increases in Afghanistan, i.e. will some types of costs fall slower than others? How large are additional costs associated with re-deploying troops, such as sending troops and equipment home and repairing, replacing, or upgrading equipment currently stored in theater? How large is any new investment to build or upgrade bases to support higher levels of troops in Afghanistan, and are bases intended to be temporary or permanent? Thus far, DOD has provided only very general information about troop levels rather than the number, location, or distribution among the services of troop levels which would help Congress to evaluate its supplemental war requests. The FY2009 National Defense Authorization Act requires that DOD provide separate budget displays for Afghanistan and Iraq as well as "include a detailed description of the assumptions underlying the funding for the period covered by the budget request, including the anticipated troop levels, the operations intended to be carried out, and the equipment reset requirements necessary to support such operations." These separate budget displays and detailed assumptions are not included in DOD's FY2009 Supplemental or the FY2010 war requests. Ways to Measure Troop Levels for the Afghan and Iraq Wars While CRS used Boots on the Ground or in-country troop levels to estimate future troop levels and potential effects on war costs, these figures do not accurately capture the total demand for troops for the Afghan and Iraq war because other troops deployed in the region are not included. To get a better sense of changes in the total demand for troops since the 9/11 attacks, CRS calculated average monthly strength for troops deployed for the Afghan and Iraq Wars using the following five DOD data sources, which range from including only troops in-country to all those deployed for OEF and OIF: Boots on the Ground or ( BOG ) Report , a once-a-month headcount limited to U.S. troops in-country that is compiled by the Joint Staff, Joint Chiefs of Staff (JCS) using inputs from the services; Operations Report, a more inclusive monthly headcount collected by Central Command, that counts service members under U.S. Central Command which captures some, but not all, military personnel deployed for OEF or OIF (e.g., Special Operations Command is excluded). C ombat Pay Estimate , based on the funding for combat or Imminent Danger Pay that is reported in DOD's war cost reports and used in budget justification materials; A verage S trength Report , a person-year estimate of all OEF and OIF military personnel collected by the Defense Manpower Data Center (DMDC) based on its Contingency Tracking System (CTS), which reflects service personnel records and the beginning and ending dates of each service member's deployment; and Location Report s , a monthly DMDC count of all those deployed for OEF and OIF that reports the country where service members are located. Yet another demand for troops resulting from OEF and OIF operations is the activation of some 50,000 reservists to backfill some of the positions of deployed active-duty troops. Although these reservists are not carrying out OEF and OIF missions, their activation would not have occurred without those operations. Adding those troops to the 294,000 included in the Location Report for December 2008 brings the total troops associated with OEF and OIF to 344,000, or almost twice the level in the Boots on the Ground report for December 2008 (see Figure 1 and Table D -1 and Table D -2 ). Policy Issues Raised by Differences in Troop Counts These different measures of troop strength for the Afghan and Iraq Wars raise several significant policy and cost issues: How will the Administration's plan to increase troops in Afghanistan and decrease forces in Iraq affect troops providing support in the region, i.e. will forces in the region change in proportion to changes in combat troops? What do war requests assume about reducing troops in-country as opposed to reducing troops in the region, and are there interactions between the two? How does the United States envision the overall U.S. military presence in the region in terms of deployed troops and their locations? A number of other questions arise for each individual operation including: To what extent are increases in troop levels in Afghanistan dependent on decreases in Iraq, taking into account all troops deployed? What can we learn from the past about the effect of U.S. troop levels on the likelihood that the U.S., its allies, and local security forces can quell violence in Afghanistan or in Iraq? Trends in Troop Levels From FY2002-FY2008 Using Five Alternative Sources Although there are wide differences in troop levels reported by these five DOD sources, trends over time are similar (see Table 4 and Figure 2 ). Some of the differences between sources reflect definitions — for example, Boots on the Ground Reports for Afghanistan and Iraq include only those troops located within each country, whereas Operations Reports include some of the military personnel providing support in the region. Other differences reflect whether figures are headcounts taken once a month as opposed to average strength which takes into account the number or days each member is deployed for OEF or OIF. These distinctions can have important implications for the cost and demand for troops. In general, more comprehensive measures are more useful. To get a better sense of monthly trends, CRS calculated averages for each DOD source for each fiscal year rather than using the more commonly cited Boots on the Ground figures which captures only a point in time. Using this method, average monthly troop strength for both wars in FY2008 ranged from: 188,000 for DOD's Boots on the Ground or troops deployed in Afghanistan and Iraq; 223,000 in the Central Command's Operations Report including some but not all troops deployed in the region, or 19% above the BOG total; 248,000 in average strength estimated from combat pay, or 32% above the BOG total; 294,000 in the Defense Manpower Data Center average strength or 56% above the BOG total; and 307,000 troops based on DMDC's Location Report, or 64% above BOG figures; (see Table 4 ). Generally, figures in Average Strength Reports are higher than once-a-month headcounts because they include all military personnel providing theater support in the region, reflect the time personnel are deployed, and capture those present throughout the month. It is not clear, however, that these reasons are sufficient to explain the difference of over 100,000 between Boots on the Ground and Average Strength Reports. Like the average strength measure, Location Reports are also inclusive measures because they capture all troops deployed at any point during a month. Location Reports are probably higher than Average Strength Reports because military personnel who are in-country for short periods of time are counted the same way as those present for the entire month. There are also substantial differences by service between BOG and the more inclusive Average Strength Reports. Average Strength Reports figures are about: 30,000 to 35,000 or over 20% higher for the Army; 13,000 to 20,000 or 60% to 90% higher for the Navy; about 8,000 or about 30% higher for the U.S. Marine Corps; and 6,000 to 7,000 or over 25% higher for the Air Force. Trends for both the Afghan and Iraq Wars Despite these substantial differences in the number of military personnel who are counted, the overall trends over time in troop levels are similar for the five DOD sources. Overall, troop levels jumped sharply with the initiation of combat operations for the Afghan war starting in FY2002 and with the Iraq invasion in FY2003. After that, troop levels generally remained fairly stable from FY2004-FY2006. The exception is Combat Pay Estimates, which are somewhat erratic probably because of the unreliability in DOD war cost reporting. CRS included this measure because, if accurately reported, combat pay is a good measure of average strength and is often used by the services in its budget justification materials, including the current FY2009 Supplemental. In FY2007 and FY2008, overall troop levels increased moderately in response to the troop surge in Iraq announced by former President Bush in January 2007 and continued increases in troop levels in Afghanistan (see Table 4 and Figure 2 ). Allocating Troops Between the Afghan and Iraq Wars Despite the wide differences among DOD sources in the number of troops deployed for OEF and OIF since FY2002, the allocation of troops between the two operations is similar. Before the invasion of Iraq in March 2003, all troops deployed in the theater were allocated to OEF. Since then, CRS found that the split for troops between the two operations was generally about 88% to 90% for the Iraq war and 10% to 12% for the Afghan war over the last several years based on an analysis of three DOD sources, the Joint Staff's Boots on the Ground, Central Command's Operations Reports, and DMDC's Location Report ( Figure 3 and Figure 4 ) . Roughly, six or seven of every eight troops have been dedicated to the Iraq War and one or two of every eight to the Afghan war. While troop levels increased in Iraq during the surge or temporary buildup of troops in 2007 and 2008, troop levels also rose in Afghanistan so that the percentages remained similar to previous years (see Table 4 and Table 5 and Figure 3 and Figure 4 ). CRS also calculated OEF and OIF troop shares using DMDC's Location Reports and guidelines developed primarily by the Joint Staff and Central Command that designate particular countries as part of OEF or OIF. This count showed the same proportions as the Boots on the Ground and Operations Report of about 12% for OEF and 88% for OIF for FY2006-FY2008. While allocating personnel to an operation by country has certain limitations because some military personnel in a particular country may support either or both OEF and OIF, personnel in particular countries generally support only one operation (see Box 1 ). Although JCS and Central Command have adopted guidelines for their own reporting that assign personnel to OEF and OIF by location, the Comptroller in the Office of the Secretary of Defense has not set specific guidelines for the Services about how or whether to use location as a way to assign war costs for military personnel. Because there is not a single standard for assigning personnel or other war costs to OEF or OIF, troop and cost allocations may not match. This appears to reflect the assumption in DOD's financial regulations that "Ultimately, each DOD Component is responsible for the accuracy and completeness of financial information in the reports which present the financial effects of its operations." Thus while the Comptroller's office works with the services to improve the accuracy of war cost reporting, and requires that each service develop and justify its method, it has not issued policy guidelines or regulations that would ensure commonality. Troop Levels for the Afghan War Since October 2001 After initial combat operations in FY2002 were complete, troop levels for the Afghan war increased steadily from FY2003 to FY2008 though the pace of increases varies among DOD sources. The lowest DOD figure, Boots on the Ground, tripled from an annual average of 10,400 in FY2003 to 30,100 in FY2008 while the more inclusive estimate, average strength, doubled from 21,000 in FY2002 to 42,000 in FY2008 (see Table 5 and Figure 5. ). These changes in troop levels in the Afghan war appear to reflect several stages of military operations: initial combat operations supporting the Northern Alliance that resulted in the overthrow of the Taliban forces by November 2001; relatively low-level U.S. operations against the remaining Taliban insurgents from FY2003 – FY2006; and adoption of a counter-insurgency approach in response to increasing levels of violence in 2006 as the Taliban regrouped and adopted the suicide and Improvised Explosive Device (IED) tactics of Iraqi insurgent groups. Initial Combat Operations The Afghan War, or Operation Enduring Freedom (OEF), began on October 7, 2001 with U.S. troops launching air strikes and Special Operations forces supporting operations by the Northern Alliance against Taliban forces in response to the 9/11 attacks. President Bush announced that major combat operations were complete with the overthrow of the Taliban regime in November 2001. Under UN sponsorship, a transition government was formed, succeeded by an elected government on November 3, 2004. During FY2002, the first year of the war, an average of 5,200 troops were deployed in Afghanistan according to Boots on the Ground figures, the report capturing troops most likely to face combat. For that same year, the Operations Report, which includes some but not all support troops in neighboring areas, shows an average of 8,800 troops. The higher figure in the Operations Report also more accurately shows the initial troop buildup beginning in October 2001 rather than in January 2002 as shown in the BOG reports. Neither of these headcounts of 5,200 in the Boots on the Ground Report or 8,800 troops in the Operations Report capture all troops deployed to launch Operation Enduring Freedom, particularly Air Force and Navy personnel operating offshore or outside of Afghanistan. A CRS allocation of the Average Strength Report suggests that some 83,400 troops participated in OEF in FY2002, including 33,000 Navy personnel on ships, and 30,000 Air Force personnel. The Operations Report shows only 100 Navy personnel and 2,000 Air Force personnel (see Table 5 and Figure 5 ). Troop Levels Grow Steadily From FY2003-FY2006 After initial combat operations were complete in November 2001, troop levels for the Afghan War grew gradually but steadily. Boots on the Ground headcounts increase by about 5,000 troops a year between FY2003 and FY2005, then inch upward to 20,400 in FY2006. According to the more inclusive Operations Report, OEF troop levels rose from 12,500 in FY2003 to almost 20,000 by FY2004, remaining at about that level for the next two years ( Table 5 and Figure 5 ). Because the Operations Report includes some military personnel in neighboring countries, these figures would be expected to be higher than Boots on the Ground reports, and generally OEF troop levels are between 1,000 to 5,000 higher than Boots on the Ground reports. This pattern is reversed for several months in FY2008, however, apparently because DOD changed the definition of personnel covered in the BOG report (see Table 5 and Appendix D and Table D -1 ). These variations suggest a need for better definitions that would clarify who is and is not counted as part of OEF and OIF. To capture all troops providing theater-wide support in the region or engaged in other OEF counter-terror operations, CRS applied the shares shown in the Operations Report to the more complete figures compiled in the Average Strength Reports. Because the Average Strength Reports reflect each service's reporting of benefits received and deployment dates, it is likely to be a more accurate measure of troop strength. At the same time, the similarity in OEF and OIF shares shown in BOG, Operations and Location Reports, suggests that applying shares to the Average Strength Reports would be a fairly reliable way to estimate OEF and OIF troop strength. According to this Average Strength estimate, OEF troops grew from 21,100 in FY2003 to 28,400 in FY2006 and 42,500 in FY2008. The Location Report shows similar figures (see Table 5 ). CRS also estimated troop levels by using Combat Pay reported in DOD's "Supplemental & Cost of War Reports." The sharp changes from year-to-year suggest that allocations between OEF and OIF may not be reliable, a criticism raised by GAO (see Table 5 and Figure 5 ). CRS includes this estimate despite its apparent inaccuracy because strength and combat pay would be expected to be consistent, and DOD uses this measure in its justification material for the FY2009 Supplemental. Further Increases As Violence Rises After 2006 In 2006 and 2007, the level of violence in Afghanistan grew as Taliban insurgents adopted the suicide attacks and roadside bombing of insurgents in Iraq. The renewed increase in troop levels in FY2006 and FY2007 appears to follow higher levels of violence as measured in: the number of security incidents and attacks, collected by DOD, the United Nations, and Central Command; attacks on non-combatants collected by the State Department; number of incidents involving IEDs and roadside bombs; number or suicide bombings; and number of U.S. and civilian casualties. All the different measures show increases in OEF troop strength in FY2007 and FY2008. After the modest increases in the prior two years, headcounts in both Boots on the Ground and the Operations Report rose by 10,000 between FY2006 and FY2008, reaching over 30,000. These figures probably do not capture all deployed troops. The more comprehensive Average Strength and Location Reports show an increase from 28,000 in FY2006 to 42,000 in FY2008, or roughly 5,000 more troops each year. (see Table 5 ). Since May 2008, in response to a congressional reporting requirement, DOD has included figures showing monthly headcounts for OEF as well as military personnel in Afghanistan in its Boots on the Ground report. For the last several months of FY2008, this new OEF figure shows an average of 47,790 for OEF, higher than either the Average Strength and Location Reports, and almost 18,000 above in-country headcounts. The reasons for these higher figures, submitted by the services, are not apparent (see Table 5 ). If these new DOD figures better reflect current OEF troop levels, then total troops for the Afghan War, including U.S. and coalition troops in Afghanistan, and U.S. troops in the region, would average 97,000 in FY2009. That total could grow to about 110,000 by the following year. Seasonal Variations While average monthly troop levels may more accurately reflect strength levels, once-a-month headcounts may better capture buildups and draw downs within a year as well as some longer-term trends. For example, between January and September 2002, troop levels shown in the Operations Report more than doubled from 4,100 to 10,400 as U.S. forces grew during initial combat operations. Despite month-to-month variations, a clear upward trend emerges for OEF in the Boots on the Ground and Operations Reports headcounts (see Figure 6 and Table D -1 ). During FY2003, U.S. troop levels hovered between 11,000 and 13,000 from month to month. Monthly variations may reflect seasonal variations and planned operations. For example, troop levels temporarily spiked in the fall and winter of 2003 and 2004 when the U.S. and Afghan forces conducted several operations against Taliban insurgents – Mountain Viper (August 2003), Operation Avalanche (December 2003) and Operation Mountain Storm (March-July 2004). In FY2004, troop levels grew to around 20,000 while the U.S. and Afghan troops continued operations against remaining Taliban insurgents at relatively low levels. Typically, troop levels have increased for several months of the year -- sometimes early in the year in order to prepare for spring Taliban offensives when the weather is better. Between FY2003 and FY2008, troop levels generally rose in the winter and spring, then declined slightly in the summer and fall, settling back at somewhat higher troop levels each year (see Figure 6 and Table D -1 ) . After falling by several thousand in the fall of 2006, U.S. troop levels rose to over 25,000 the following spring and summer as the situation in Afghanistan worsened. After a brief decline in the fall of 2007, troop levels resumed their upward climb reaching about 33,600 in the spring and summer of 2008 where they remained for the rest of the fiscal year (see Figure 6 and Table D -1 ) . Troops from Other Countries Just as U.S. troop levels have risen since 2006, contributions from other NATO countries have also increased. Average troop levels from NATO countries other than the United States have grown from about 20,000 in FY2007 to 28,000 in FY2008, and 31,000 in FY2009 thus far. While the United States has requested additional troops from NATO countries, increases are likely to be small. Troop Levels for the Iraq War Since the March 2003 Invasion In the fall of 2002, the United States began to build up troop levels in the Gulf region in preparation for the invasion of Iraq that took place in late March 2003. After peaking in the spring and summer of 2003, troop levels then fell rapidly. Between FY2004 and FY2006, average troop levels reached a steady-state of about 130,000 to 140,000 on the ground in Iraq and from about 210,000 to 230,000 for OIF as a whole according to estimates of DOD average strength. During the surge in troops initiated by President Bush in January 2007 and continuing through much of FY2008, troop levels in Iraq increased somewhat more steeply — from 140,000 to 158,000 in-country and from 233,000 to 248,000 (see Table 6 and Figure 6 ). Changes in troop levels in Iraq appear to be loosely related to changes in military strategy including: a quick peak for the invasion itself followed by a rapid drawdown; limits on troop strength reflecting the military strategy endorsed by General Abizaid, the commander in-country, to minimize military presence in order to prevent insurgents from using the U.S. occupation as a way to gain popular support; a shift in the U.S. strategy in October 2005 announced by Secretary of State Condoleezza Rice to "clear, hold, and build" so as to "clear areas from insurgent control," that would gradually be implemented as U.S. troops moved out of large bases to work more closely with Iraqi forces; and the surge in troops announced by President Bush in January 2007 that temporarily increased the number of troops by 30,000 and the number of Brigade Combat Teams from 15 to 20 in order to implement the new counter-insurgency policy to help Iraqis clear and secure neighborhoods. Initial Combat Operations While Boots on the Ground headcounts show average strength of 67,00 in FY2003, other measures that capture Navy and Air Force personnel outside Iraq show strength levels that are almost two or three times as high (see Table 6 and Figure 7 ). Month-to-month headcounts show the buildup for initial combat operations, followed by a fairly rapid draw down. Troop levels for the invasion peaked at 149,000 according to DOD's Boots on the Ground reports while troop levels for OIF reached a highpoint of 285,000 in April 2003 — almost twice as high as the number of U.S. troops in-country (see Table D -2 ). Troop levels in Iraq itself may not have reached the 285,000 peak deployed in the region partly because many U.S. troops who were en route, at sea, or deployed to Kuwait may not have been sent into Iraq. For example, Secretary Rumsfeld and General Franks decided to turn back the 1 st Cavalry Division, which had been scheduled to enter Iraq. Although monthly averages smooth out the peaks and valleys of the invasion and its aftermath, the OIF Operations Report for FY2003 is still twice as high as the Boots on the Ground (see Table 6 ). After former President Bush declared an end to major combat in Iraq on May 1, 2003, troop levels in Iraq dropped from the invasion peak of 149,000 to 130,000 in September 2001. OIF troop levels fell from 285,000 in April to 170,000 in October 2003. The gap between those in Iraq and those part of the OIF operation narrowed from 140,000 during the invasion to 40,000 by that summer, possibly because of the re-deployment of forces (see Table D -2 ). In March 2004, OIF troop levels spiked again to 270,000 compared to 120,000 in Iraq for reasons that are not clear. One possibility is that additional troops may have been deployed to the region in anticipation of problems with the transfer of power from the U.S. occupation force to an Iraqi government by June 30, 2004. Based on the Average Strength estimate, troop levels for OIF reached about 216,000 in FY2003, considerably higher than either headcount measure, probably because this approach captures troops outside Iraq. The estimate for OIF based on Imminent Danger Pay may be unreliable because of inaccurate war cost reporting (see Table 6 and Figure 7 ). Troop Levels Plateau From FY2004-FY2006 From FY2004 through FY2006, average troop levels for the Iraq War changed little under all measures, generally varying by several thousand to about 10,000 from year to year. While Boots on the Ground headcounts grew from 130,600 to 141,100, the Operations Report for OIF fell from 196,900 to 181,300 in those years for reasons that are unclear. The OIF share of average strength rose by over 20,000, from 211,600 in FY2004 to 234,100 in FY2006 (see Table 6 ). The gap between Boots on the Ground and the Average Strength estimate ranged from about 70,000 in FY004 to 90,000 in FY2006. This gap probably reflects the buildup of in-theater support as the war continued. For OIF, the major regional support and headquarters countries include about: 45,000 to 50,000 in Kuwait; 16,000 to 20,000 on ships afloat; 9,000 to 10,000 in the Qatar headquarters base; 2,000 in the United Arab Emirates; 4,000 in Bahrain, a Navy regional headquarters; and 500 to 600 in Saudi Arabia. While troop levels were relatively stable --- hovering around 140,000 in Iraq itself and around 230,000 for OIF, the number of security incidents per week grew from about 500 in March 2005 to about 900 in September 2005. After the Samarra mosque bombing in March and April of 2006, security incidents rose more steeply to 1,000 per week, almost twice the level of the previous year. Troop Surge in FY2007 and FY2008 By October 2006, weekly security incidents in Iraq reached 1,400, peaking at close to 1,600 in June 2007. In reaction, then-President Bush announced in January 2007 that there would be a surge in the number of troops deployed to Iraq, an increase of 30,000 or five brigade combat teams over the next several months. Because the Army plans deployments six to 12 months in advance in order to prepare and train units, the services have limited options to increase troop levels quickly in reaction to a deteriorating situation. One option, unpopular with the troops but which was used during the surge is to extend the tours of troops already deployed or to assign specialized troops for short assignments. To carry out this troop increase, Secretary Gates formally extended tour lengths for all active-duty Army units in-country and those slated to deploy from 12 to 15 months, and coupled that extension with an assurance that troops would have 12 months "dwell time" at home between tours. Because the increase in troop levels took place gradually over seven months and then was gradually reversed over the next ten months, average monthly troop strength for the Iraq War does not show an increase of 30,000. Between FY2006 and FY2007, average troop strength grew from 234,000 to 243,00 or by 9,000 for the year. Because the drawdown was also gradual with higher troop levels maintained for most of the fiscal year, the monthly average in FY2008 reached 251,000 or about 7,000 more than the previous year (see Table 6 and Figure 7 ). In April 2008 as the number of Brigade Combat Teams was falling from 20 to 15, President Bush announced that the Army would return to 12 month tours. DOD withdrew one additional Brigade Combat Team from Iraq in the fall of 2008, bringing the total to 14 BCTs as of FY2009 and deployed an additional combat brigade of about 9,000 troops to Afghanistan in January 2009. Further troop increases are underway in Afghanistan. Changes from Month-to-Month While Boots on the Ground figures do not capture all personnel dedicated to OIF operations, these are the figures, along with the number of Army Brigade Combat Teams, that are typically cited by policy makers in describing changes in troop levels. Although monthly reports give the most up-to-date information, the variations from month-to-month tend to reflect rotation patterns rather than military plans with increases in the fall and winter generally offset by decreases in the following months in Iraq (see Figure 8 ). During the surge, the number of troops for the Iraq War grew by 30,000 from 138,000 to 169,000 in Iraq itself and from 185,000 to 219,000 for OIF between February and September 2007 (see Table D -2 ). By June 2007, with most of the first new troops in place, the military launched a series of operations to clear insurgents from other areas. Between September 2007 and September 2008, this increase was gradually reversed with troop levels falling from 169,000 to 147,000 in Iraq itself and from 219,000 to 181,000 for the operation as a whole (see Figure 8 and Table D -2 ). Using Different Troop Strength Figures For those most concerned about the number of troops present in Afghanistan or in Iraq at a point in time or those most likely to be exposed to combat, Boots on the Ground Reports may be the best measure. On the other hand, these reports do not capture Navy and Air Force personnel operating from outside Afghanistan or Iraq, troops providing regional support for the Afghan or Iraq Wars or troops not present on the day of the head count. While the Operations Report gives a more complete picture of those involved in OEF and OIF than the BOG Reports because it includes some personnel deployed outside of Afghanistan and Iraq, it excludes personnel who are not assigned to Central Command, and also has the limitations of once-a-month headcounts. To capture the full demand for manpower, a key factor in estimating costs, Average Strength Reports—which measure person-years—may be the best measure because they capture not only all deployed troops in each fiscal year but also how long each one stays, as well as short-term tours (e.g., Air Force personnel flying mission, personnel assigned for special tasks). DOD routinely uses average strength in its budgeting for military personnel. On the other hand, the Average Strength Reports do not allocate service members between OEF and OIF, requiring CRS to estimate those allocations using other DOD figures. While Location Reports capture all deployments for OEF and OIF, these reports are not reliable for each operation prior to FY2006, a disadvantage in looking for trends over time. If DOD were to require that the services followed a standard set of guidelines about allocating military personnel between OEF and OIF, measures of troop strength would be more reliable and consistent. That, in turn, would give Congress and DOD better tools to assess troop demands for the Afghan and Iraq Wars, as well as the effects of changes in troop levels. Few would dispute that changes in troop levels have a significant effect on war costs, whichever measure is used. The following section discusses potential ways that troop levels may be used to assess future war cost requests. Service Roles and Readiness Concerns Many observers and military spokesmen have raised concerns about frequent deployments of units for the Afghan and Iraq Wars, characterizing the Army, in particular, as "stressed" or "almost broken." Long and frequent deployments are cited as harming readiness not only because of effects on morale, but also because of the effects on having other units available and ready if another crisis arises. Although how often a unit is deployed is one way to look at the burden, it is useful to look at the effect on service members because the make-up of a unit changes between deployments as individuals leave for other assignments, or retire and are replaced by new personnel. Concern has focused primarily on the Army, both active-duty, guard, and reserve units. Reflecting the ground focus of both wars, Army troops (active-duty, National Guard, and Reserves) made up 61% of all OEF and OIF troops in FY2008 with Marine Corps troops contributing another 12%. The remaining 27% are split between the Navy (15%) and the Air Force (12%) (see Figure 9 ). Overall, active-duty forces made up 80% and reserve forces 20% of average strength during FY2008. For example, 47% were active-duty Army, 10% Army National Guard, and 5% Army Reserve. The Air Force made up another 12%, the Marine Corps another 12%, and the Navy 15%, almost all active-duty personnel (see Figure 9 ). Measuring the Burden of Deployment Looking at the share of each service and component that is deployed gives one measure of the burden of deployment. Active-duty forces had substantially higher deployment rates than reservists. Of the 2.2 million active-duty and reserve U.S. military personnel serving in FY2008, some 12% or 260,000 troops were deployed for OEF and OIF based on average strength reports. Overall, some 17% of active-duty forces are deployed compared to 7% of reserve forces (see Table 7 ). The highest deployment rate is for Army active-duty forces where over one-quarter are deployed (26%). Some 7% of Army National Guard and Army Reserve strength are deployed, similar to the overall rate for reservists. Deployment rates are lower for the other services including: 16% for the Marine Corps; 12% for the Navy; and 8% for the Air Force (see Table 7 ). Deployment rates for reserves in the other services were generally half or less than the rate for active-duty forces. For example, about 7% of the Army National Guard and the Army Reserve were deployed compared to 26% for active-duty Army in FY2008. Similarly, 4% of the Air Force Guard and Air Force Reserve were deployed compared to 8% for active-duty (see Table 7 ). Deployment rates alone, however, do not capture the full impact of OEF and OIF on the services. In addition to those currently deployed, other troops are preparing or "training up" to deploy or recovering from a recent deployment. Taking those troops into account suggests that roughly twice as many troops are affected by OEF and OIF as the number deployed. In the case of the active-duty Army, probably half of the active-duty Army is either deployed, undergoing intensive training to deploy, or recovering from a deployment, and about one-third in the case of the active-duty Marine Corps. The large share of the Army active-duty forces dedicated to OEF and OIF presumably underlies concerns about the Army's readiness to carry out other operations should they arise. Appendix A. Actual and Estimated Troop Levels in Afghanistan and Iraq, FY2007-FY2012 CRS estimated average monthly troop levels in Afghanistan and in Iraq for FY2009-FY2012 based on the announcements made by the White House on February 17, February 27, and March 27, 2009, and Department of Defense press releases and conferences. Where future levels have not been identified, CRS made the conservative assumptions described below. According to these announcements, the Administration is deploying 21,000 more troops to Afghanistan in FY2009. These troops are in addition to a combat brigade with support of about 9,000 that was approved by President Bush in December 2008. Together, this would increase troop levels in Afghanistan by 30,000 by the end of FY2009. Because Department of Defense Secretary Gates suggested that increases beyond that are unlikely, CRS assumes continuation of that level through FY2012 in this table. In the case of Iraq, the Administration plans to reduce troops in Iraq by two Brigade Combat Teams in FY2009 by not replacing two brigades coming home in June 2009. In addition, several smaller units were withdrawn between December 2008 and April 2009. DOD is also planning to downsize some replacement units. According to Administration statements, troop levels in Iraq would decline to 35,000 to 50,000 by August 31, 2010, which CRS estimates as 45,000 troops or 5 BCT-equivalents (roughly the midpoint). These troops would be withdrawn by the end of 2011 as required by the Security Agreement between the United States and Iraq. Conservatively, CRS assumes that these U.S. troops remain in-country until the last five months of 2011, the latest possible date that would meet the December 31, 2011 deadline for the withdrawal of all U.S. troops in the U.S.- Iraq Security Agreement. Based on that assumption, two BCTs would be withdrawn at the end of FY2011 (August and September 2011) and three in the first quarter of FY2012 (October – December 2011). Based on these plans, CRS set up a schedule that estimates how long BCTs will be in-country. Taking into account the number of troops and their time in-country, CRS calculates the number of weighted average Brigade Combat Team equivalents in Afghanistan and Iraq in each fiscal year in Table A -1 . CRS assumes that each BCT has 9,000 troops, 1,000 less than the Army's planning assumption in order to reflect the fact that Marine Corps units are generally smaller. The schedule also assumes that troops are added or withdrawn at the end of each month, and that all Navy and Air Force troops in-country are providing support to Army and Marine Corps. This schedule does not reflect changes in the number of troops deployed to countries in the region or related operations. To check the validity of this approach, CRS used this method to estimate troop levels in Iraq in FY2007 and FY2008 and then compared the estimate with reported BOG figures. The CRS estimates were close to reported average monthly Boots on the Ground. Estimates for FY2009-FY2012 build on the reported numbers of Boots on the Ground as of September 1, 2008, close to the beginning of FY2009 (see Table A -1 ). Appendix B. The Cost of an Average Brigade Combat Team: FY2005 and FY2008 To estimate future war costs, budgeters typically look to past experience, and then make adjustments for changes in troop levels, new requirements, savings in infrastructure costs already covered or one-time expenses, or pricing changes. To estimate the effect of increases and decreases in troop strength, CRS used the cost of an average Brigade Combat Team in FY2008. Between FY2005 and FY2008, overall war costs rose more rapidly than increases in the number of troops in-country so the cost of an average BCT has risen. This reflects both higher operational costs, and particularly rapid growth in investment spending. In some cases, such as the rise in investment spending, the Administration's new policy to limit war-related procurement to replacement of war losses and replenishment, is likely to reduce future costs. In other cases, such as the rise in infrastructure spending in Iraq, it is not clear whether to expect that experience to be duplicated in Afghanistan. Because the Administration only provided information about future changes in the number of troops in Afghanistan and Iraq, CRS spread all war costs over the number of troops in-country. This essentially assumes that changes in the number of troops in-country will be matched by proportional changes in troops in the region, which may or may not be the case. While it is likely that Navy and Air Force personnel who support ground operations, and some of the Army support personnel in Kuwait would change in tandem with changes in forces in-country, other headquarters personnel may not change proportionately. Definition of War Costs War requests cover funding intended to cover the incremental or additional costs tied to paying and deploying U.S. military personnel to a war zone. For military personnel, this has included: the costs of special pays like Imminent Danger Pay and Separation Allowances; recruiting and retention bonuses; activating reservists (paying full-time rather than part-time salaries and benefits); and growing the size of the Army and Marine Corps. Some of these expenses, like "growing the force" are to be transferred to DOD's baseline budget in FY2010, reducing war costs. Recruiting and retention bonuses could also be transferred and are likely to be lower because of the recession. For Operations and Maintenance (O&M), war costs include: transporting personnel and equipment to and from the war zone; higher operating tempo in a war zone; repairing war-worn equipment; providing force protection gear to personnel; setting up and operating communication and intelligence assets; and building, maintaining and providing security at bases. For procurement and Research, Development, Test & Evaluation (RDT&E) war costs have included the following types of items: replacement and upgrading of a wide range of war-worn equipment, defined broadly to include replacement with new weapon systems and upgrading of current systems already part of DOD's modernization plans (e.g. F-22s, Stryker brigades); equipment to accelerate the Army's plans to convert to more standardized modular units and the Marine Corps' plans to restructure its units; equipment for additional units in the Army and Marine Corps as part of DOD's "Grow the Force" initiative; new and upgraded force protection equipment based on experience in the field (e.g. Mine-Resistant Ambush Protected, or MRAPs and up armored High Mobility Wheeled Vehicles, or HMMWVs); and RDT&E related to war-related threats such as Improvised Explosive Devices (IEDs). In its FY2009 Supplemental Request, DOD significantly changed its definition of reconstitution, restoring the traditional criteria which limited procurement to replacement of war losses and replenishment of war munitions and stocks. This resulted in a halving of DOD's procurement request in FY2009. For military construction, war costs include not only building and upgrading bases in Afghanistan with new air strips, generating and water purification plants, and other structures, but also building roads. Changes in Afghanistan Costs Between FY2005 and FY2008 Between FY2005 and FY2008, average monthly troop strength in Afghanistan rose by 58% while overall Operation Enduring Freedom (OEF) war costs almost doubled from $14.6 billion to $27.5 billion. Because costs outstripped the rise in troop levels, the average cost of a BCT in Afghanistan rose by 19% from $6.9 billion to $8.2 billion (see Table B -1 ). Operational costs in Afghanistan — covering both military personnel and Operation & Maintenance (O&M) — rose less rapidly than investment costs. The 10% increase in overall operational costs reflects an increase of almost 50% in O&M costs offset by an 8% decrease in military personnel costs. The decline in average personnel costs in FY2008 may reflect less reliance on activating reservists, the largest single personnel cost. In Afghanistan, O&M costs more than doubled for combat-related expenses (e.g. fuel and spare parts, depot maintenance) and trebled for base support costs, increasing far more rapidly than troop strength. Increases in operating tempo costs may reflect the U.S. response to rising levels of violence while higher support costs may reflect the build-up of infrastructure in-country. It is not clear whether average costs will continue to rise or fall as the number of troops in-country increases. Investment costs for replacing and upgrading equipment also more than trebled in the past three years, which may reflect the expanded definition of war-related costs more than changes in the operating tempo (see discussion of reconstitution below). Changes in Iraq Costs Between FY2005 and FY2008 Between FY2005 and FY2008, average monthly troop strength in Iraq grew by 10% in Iraq while the average cost of deploying a BCT rose by 72%. The average cost of a BCT in Iraq rose from $4.6 billion to $7.2 billion, a 57% increase, a steeper increase than in Afghanistan (see Table B -1 ). Like Afghanistan, overall average operating costs in Iraq rose by about 40% though both military personnel and O&M costs grew faster than troop strength. Unlike Afghanistan, average military personnel costs also increased, primarily because of the cost of growing the size of the Army and Marine Corps (no longer considered a war cost, transferred to DOD's FY2010 baseline budget). O&M costs in Iraq grew at about the same rate as in Afghanistan – about 50%, with growth concentrated more in support than combat-related operating expenses. For example, the cost of base support rose by 41% while troop strength grew by 10%. Most dramatically, investment costs doubled over three years, again more a reflection of a re-definition of war-related reconstitution rather than more intense wartime operating tempo (see discussion below). Future War Costs There are a variety of possible explanations for increases in average costs — higher benefits for deployed personnel, differences in combat intensity, rising spending to repair equipment, substantial support costs for large, well-developed bases, or expanded definitions of reconstitution. Some of these increases may continue in the future and some may not. Dramatic Growth in Reconstitution Costs Ends The steepest increase in costs has been in investment accounts, particularly procurement, where the definition of resetting or reconstituting units after their war-related deployments was substantially changed between 2004 and 2008. These changes led to a dramatic increase in war-related procurement from $5 billion in to $7 billion in FY2004 to $45 billion in FY2008.CBO, GAO, CRS, and the Center for Strategic and Budgetary Assessment (CSBA) have all questioned whether much of this funding in supplemental appropriation acts for procurement, in fact, reflected war-related needs. Beginning in 2005, the definition of war-related procurement was broadened to include paying for the conversion and upgrading of Army and Marine Corps units to a new modular or more standardized composition. In FY2005 and FY2006, DOD requested and received $5 billion each year for these restructuring initiatives underway before the Afghan and Iraq wars. The services argued that these changes would make rotations easier because of the greater similarity among units though the impact appears to be small. A further expansion in the definition of war-related procurement also occurred in 2006 when the services were given new guidance that permitted them to include in war requests items needed for the "long war" and not be "strictly limited to Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF)." This made it easier for the services to request and receive funding for new and upgraded equipment rather than to replace war losses or replenish munitions or other war stocks. DOD also changed its traditional guidance that limited reset or reconstitution to restoring units to their pre-war condition (e.g. with replacements for war losses) to upgrading equipment to meet new threats. In a study of the Army's reset , CBO estimated that more than 40% of the Army's reset funding was not, in fact related to the repair and replacement of war-worn equipment. A December 2008 CSBA study concluded that the adoption of the "long war" framework for evaluating war-related requirements "allows the Services to include virtually anything in their request for war-related appropriations," and "removed any principled distinction between what should be included in special war-related appropriations and what should be included in the base defense budget." DOD also allowed the services to include in war funding requests some of the cost of increasing the size of the Army and Marine or "growing the force," which was originally intended to be temporary with a return to pre-war strength once the conflicts were over. With President Bush's decision in January 2007 to make these increases permanent, the rationale for considering these war costs weakened. In its FY2009 Supplemental Request and FY2010 War Request, the Obama administration reversed this policy and limited war-related procurement to replacing war losses and replenishing war supplies, war-related procurement requests dropped in half in the FY2009 Supplemental and FY2010 war request. In addition, DOD has objected to some Congressional additions for C-17 transport and C-130 aircraft, additional equipment for reserves, and other items contending that these systems are not related to war-time needs, and has not included those systems in its requests. Operational Cost Increases Slow On the operational side, there are some indications that increases in operational costs may be slowing or in some cases, decreasing. For example, in the past two fiscal years during the surge, O&M costs rose only somewhat faster than in-country troop strength. The initial months of FY2009 also show decreases in OIF operational costs outpacing decreases in strength, which may reflect either lower levels of violence or consolidation of bases. At the same time, some operational costs for OEF continue to rise more rapidly than troop strength, which may reflect more intense combat and expansion of bases for more troops. Estimating the average cost of a BCT based on troop strength in Afghanistan or Iraq could also overstate costs and savings if the number of troops deployed in the region did not rise or fall at the same rate as those deployed in-country. In FY2008, an additional 7,300 U.S. troops were deployed outside Afghanistan as part of OEF, and an additional 80,000 were deployed outside of Iraq as part of OIF. At the same time, if troop levels are increased or reduced primarily in Afghanistan or Iraq, those costs are generally higher than the average because of combat and security costs associated with a hostile environment. Potential Cost Effects of Changes in Troop Levels In Afghanistan where troop levels rose substantially and combat has intensified, the average cost of a BCT rose more moderately than in Iraq. If this experience continues, the average cost of a BCT in Afghanistan could be expected to rise slightly unless there are offsetting savings as infrastructure costs are spread over more troops. On the other hand, if additional facilities are needed for higher troop levels and if Afghanistan becomes a more developed theater like Iraq, then the cost of support could grow. In Iraq, it's not clear how quickly savings from withdrawals will match or be proportional to changes in troop strength. If about one-third of the average cost of a BCT did not decrease in the first year, then savings would not be proportional to changes in troop strength. Those savings, however, would be likely to occur the following year. So each year, savings from the previous year could make up, at least in part, for lags in savings in the current year. It is also possible that costs may become proportional, or even exceed changes in troop strength, as the pace of redeployments from Iraq picks up. Although there are some additional costs associated with the withdrawal itself, such as repair and replacement of equipment that has remained in-theater rather than rotating with units, these costs do not appear to be as large as some have suggested and could be spread over two to three years (see discussion of withdrawal costs above). Appendix C. CBO's Projections of War Costs, FY2009-FY2018 The Congressional Budget Office (CBO) has published widely used ten-year projections of war costs for the past several years. CBO projects future costs using two different scenarios assuming more and less gradual decreases in total number of troops deployed for OEF and OIF that some observers have suggested encompass the likely range of alternatives. CBO does not distinguish between OEF and OIF. Starting from a deployed troop strength of 210,000 (about 30,000 above Boots on the Ground report), CBO's scenarios assume: decrease to 30,000 by FY2011; or decrease to 75,000 by FY2013 (see Table C-1 ). In both the more rapid and the gradual drawdown, CBO's projections assume that savings initially fall slower than troop levels, catching up or exceeding changes in troop levels by the second or third year (see Table C-1 ). CBO does not provide explanations or rationale for its projections. Although CBO does not calculate a per person or per BCT-equivalent cost, it appears that a 9,000 troop BCT would initially save about $7 billion a year under the more rapid scenario, rising to $9.6 billion per BCT during a steady-state. In the more gradual drawdown, annual savings per BCT would grow from $7 billion to about $8.4 billion once a steady-state is reached. Based on DOD's reported obligations, CRS estimates that withdrawing an average BCT in Iraq would save about $7.2 billion and one in Afghanistan about $8.2 billion. CBO's figures may be higher because State/USAID and VA Medical costs may be included as well as DOD costs. While there is uncertainty about how costs change with troop increases and decreases, as well as whether the costs of an average BCT will remain the same, troop strength plays an important role in setting DOD's future costs (see Appendix A and Appendix B for further details). Appendix D. Headcounts in Boots on the Ground and Operations Reports The Defense Department makes a distinction between Boots on the Ground (BOG) or troops deployed in-country in Iraq and in Afghanistan and troops deployed for Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF) which also include troops deployed to neighboring regions or for other small counter-terror operations. Although DOD has not adopted a single definition of the countries included in either OEF or OIF, the Joint Staff and Central Command have both developed guidelines or "business rules" that allocate troops in individual countries to one or the other mission. The services follow individual guidelines in reporting war costs for each operation. In many cases, the Joint Staff and Central Command guidelines are the same. In other cases, the Joint Command guidelines cover countries outside of Central Command. In only three cases do the Joint Staff and Central Command allocations differ, affecting about 770 military personnel; in these cases, CRS selected the operation most closely associated with that country. In some cases, countries have assigned missions but no personnel are shown as deployed. The Joint Staff guidelines were developed to meet a new congressional reporting requirement to submit monthly "the total number of troops deployed in support of OIF and OEF, . . . delineated by service and component (active, Reserve or National Guard)." Although the services largely agreed with the country designations, there were some differences, and some concerns were raised that linking personnel and operations would not capture cases where military personnel at one location worked on both OEF and OIF (e.g. Qatar) or where the focus shifted over time (e.g., Navy Afloat personnel). According to these allocations, the OEF mission includes primarily troops deployed in Afghanistan and about 5,000 to 15,000 troops in other countries. The OEF operation includes military personnel deployed in the following countries: Afghanistan, Djibouti, Egypt, Ethiopia, Jordan, Kazakhstan, Kenya, Kyrgyzstan, Lebanon, Oman, Pakistan, Philippines, Seychelles, Sudan, Tajikistan, Turkmenistan, Uzbekistan, Egypt, and Yemen. For the OIF operation, while most troops are in Iraq, another 30,000 to 40,000 are deployed in Kuwait, about 15,000 other troops in Bahrain, Qatar, UAE, plus an additional 15,000 to 20,000 on ships afloat in the region. The OIF mission includes: Iraq, At Sea, Bahrain, Kuwait, Oil platforms, Qatar, Saudi Arabia, Spain, Turkey, and UAE, Israel, Jordan. Table D -1 and Table D -2 show monthly troop levels for the Joint Staff's Boots on the Ground in Afghanistan and Iraq and for OEF and OIF as reported in Central Command's Operations Reports to compare the number of military personnel located in-country and a total that also includes those providing theater-wide support, or conducting other counter-terror operations related to OEF. This data is also shown in Figure 6 and Figure 8 .

In February and March 2009, the Obama Administration announced its plans to increase troop levels in Afghanistan and decrease troop levels in Iraq. In Afghanistan, 30,000 more troops are deploying this year while in Iraq, troops will gradually decline to 35,000 to 50,000 by August 31, 2011 with all troops to be out of Iraq by December 31, 2011. The most commonly cited measure of troop strength is "Boots on the Ground" or the number of troops located in Afghanistan and in Iraq. Based on average monthly Boots on the Ground figures, the number of troops in Afghanistan and Iraq increased from 5,200 in FY2002 to a peak of 187,900 in FY2008 primarily because of increases in Iraq beginning with the invasion in March 2003. In FY2009, total troop strength is expected to remain the same as planned increases in Afghanistan offset declines in Iraq. By FY2012, overall troop strength for the two wars is likely to decline to 67,500 when the withdrawal from Iraq is expected to be complete. For Afghanistan, troops in-country grew gradually from 5,200 in FY2002 to 20,400 in FY2006. Between FY2006 and FY2008, average strength there jumped by another 10,000 to 30,100. Under the Administration's plans, CRS estimates that average monthly Boots on the Ground in Afghanistan may increase to 50,700 in FY2009 with a further increase to 63,500 the following year once all new units are in place. Currently, additional increases have not been approved. For Iraq, troops in-country nearly doubled between FY2003 and FY2004 reaching 130,600. By the following year, average strength grew by another 13,000 to 143,800, with that level maintained in FY2006. During the surge in troops initiated by President Bush, average troop strength in Iraq grew by 7,000 or 6% in FY2007 and another 9,500 or 9% in FY2008, reaching a peak of 157,800. CRS estimates that average troop strength in Iraq will decline to 135,600 in FY2009, 88,300 in FY2010, 42,800 in FY2011, and 4,100 in FY2012. While it is not clear whether war costs will change precisely in tandem with troop levels, these changes can provide a benchmark to assess requests. Based on changes in troop levels and other adjustments, CRS estimates that war costs could be about $8 billion less than the Department of Defense (DOD) $141 billion request for FY2009, and about $13 billion below its $130 billion request for FY2010. For the next year, FY2011, CRS estimates that DOD's requests could be $42 billion more than the current planning figure of $50 billion. And in FY2012, CRS estimates war costs could be $20 billion higher than the Administration's estimate of $50 billion. Although Boots on the Ground is the most commonly cited measure of troop strength, that measure does not include over 100,000 other troops deployed in the region providing theater-wide support for Operation Enduring Freedom (OEF), the Afghan War, and Operation Iraqi Freedom (OIF), the Iraq War. Before the 9/11 attacks, the United States had deployed about 26,000 troops in the Central Command region, which includes Afghanistan and Iraq. Based on the most comprehensive DOD measure of troop strength, 294,000 troops were deployed for OEF and OIF as of December 2008, a tenfold increase since 2001.This more inclusive measure may more accurately capture the overall demand for troops. The Administration has not indicated how its plans would affect troops providing support in the region. Using five DOD sources, this report describes, analyzes, and estimates the number of troops deployed for each war from the 9/11 attacks to FY2012 to help Congress assess upcoming DOD war funding requests as well as the implications for the long-term U.S. presence in the region.

Introduction Under federal law, an array of civil rights statutes is available to protect individuals from discrimination. Although these laws share similar features, the type of discrimination that they prohibit and the circumstances under which they operate vary from statute to statute. This report provides a brief overview of selected federal civil rights statutes, as well as information about other CRS products that discuss these laws. This report, however, is intended to provide an introductory overview and comparison of the selected statutes and therefore does not address additional civil rights protections that may be available under state or local statutes or federal or state constitutional law. Federal Statutes Civil Rights Act of 1964 The Civil Rights Act (CRA) of 1964 is perhaps the most prominent civil rights legislation enacted in modern times. The statute, which served as a model for subsequent anti-discrimination laws, greatly expanded civil rights protections in a wide variety of settings. Among other provisions: Title VII of the CRA prohibits discrimination in employment on the basis of race, color, religion, national origin, or sex. In addition, the Pregnancy Discrimination Act, which was enacted in 1978 as an amendment to the sex discrimination provisions of Title VII, made it unlawful to discriminate on the basis of pregnancy, childbirth, or related medical conditions. Title VII applies to employers with 15 or more employees, including the federal government and state and local governments. Individuals who believe they are the victims of employment discrimination must file a complaint with the Equal Employment Opportunity Commission (EEOC), which is responsible for enforcing individual Title VII claims against private employers. The Department of Justice (DOJ) enforces Title VII against state and local governments, but may do so only after the EEOC has conducted an initial investigation. Title VI of the CRA prohibits discrimination in federally funded programs or activities on the basis of race, color, or national origin. Individuals who believe they are victims of discrimination may file a complaint with the federal agency that provides funds to a recipient, or they may file a lawsuit in federal court. Each federal agency is responsible for enforcing Title VI compliance with respect to its funding recipients, but DOJ plays a role in coordinating federal Title VI activities. Title II of the CRA prohibits discrimination on the basis of race, color, religion, or national origin in public accommodations. Public accommodations, which are defined as establishments that serve the public and that have a connection to interstate commerce, include hotels and motels, restaurants and bars, and entertainment venues such as movie theaters or sports arenas. DOJ enforces Title II. For additional information on the CRA, see CRS Report RS22256, Federal Affirmative Action Law: A Brief History , by [author name scrubbed]; CRS Report RL30410, Affirmative Action and Diversity in Public Education: Legal Developments , by [author name scrubbed]; CRS Report RL30470, Affirmative Action in Employment: A Legal Overview , by [author name scrubbed]; CRS Report R41271, Timeliness of Disparate Impact Discrimination Claims Filed Under Title VII of the Civil Rights Act: A Legal Analysis of Lewis v. City of Chicago , by [author name scrubbed]; CRS Report R40697, Race Discrimination and the Supreme Court: A Legal Analysis of Ricci v. DeStefano , by [author name scrubbed]; CRS Report RS22686, Pay Discrimination Claims Under Title VII of the Civil Rights Act: A Legal Analysis of the Supreme Court's Decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc. , by [author name scrubbed]; CRS Report RL30253, Sex Discrimination and the United States Supreme Court: Developments in the Law , by [author name scrubbed]; CRS Report RL33736, Sexual Harassment: Developments in Federal Law , by [author name scrubbed]; CRS Report R40934, Sexual Orientation and Gender Identity Discrimination in Employment: A Legal Analysis of the Employment Non-Discrimination Act (ENDA) , by [author name scrubbed] and Cynthia Brougher; CRS Report 94-970, Awards of Attorneys' Fees by Federal Courts and Federal Agencies , by [author name scrubbed]; CRS Report RS22745, Religion and the Workplace: Legal Analysis of Title VII of the Civil Rights Act of 1964 as It Applies to Religion and Religious Organizations , by Cynthia Brougher; CRS Report RL33356, English as the Official Language of the United States: Legal Background , by [author name scrubbed]; CRS Report RS22492, Employment Discrimination and Retaliation Claims: A Legal Analysis of the Supreme Court Ruling in Burlington Northern and Santa Fe Railway Co. v. White , by [author name scrubbed]; and CRS Report RL31077, Private Actions to Sue for Civil Rights Violations in Federally Assisted Programs After Alexander v. Sandoval , by [author name scrubbed] (pdf). Equal Pay Act of 1963 The Equal Pay Act prohibits discrimination on the basis of sex with regard to the compensation paid to men and women for substantially equal work performed in the same establishment. The act is enforced by the EEOC. Pay discrimination claims may also be brought under Title VII of the CRA. For additional information on the Equal Pay Act, see CRS Report RL31867, Pay Equity Legislation , by [author name scrubbed] and [author name scrubbed]; and CRS Report 98-278, The Gender Wage Gap and Pay Equity: Is Comparable Worth the Next Step? , by [author name scrubbed]. Voting Rights Act of 1965 The Voting Rights Act, which was enacted shortly after the CRA and which was designed to prevent the disenfranchisement of black voters in the South, prohibits voting practices that discriminate on the basis of race, color, or membership in a language minority group. Specifically, the act prohibits the use of discriminatory redistricting plans or voter registration procedures and authorizes the use of federal voting observers to monitor elections. DOJ enforces the statute, but individuals can also sue in federal court. For additional information on the Voting Rights Act, see CRS Report R42482, Congressional Redistricting and the Voting Rights Act: A Legal Overview , by [author name scrubbed]; CRS Report RS22479, Congressional Redistricting: A Legal Analysis of the Supreme Court Ruling in League of United Latin American Citizens (LULAC) v. Perry , by [author name scrubbed]; and CRS Report RS21593, Redistricting and the Voting Rights Act: A Legal Analysis of Georgia v. Ashcroft , by [author name scrubbed]. Age Discrimination in Employment Act of 1967 Like Title VII of the CRA, the Age Discrimination in Employment Act (ADEA) prohibits discrimination in employment on the basis of age. The ADEA, which protects individuals who are age 40 or older, applies to employers with 20 or more employees and is enforced by the EEOC. For additional information on the ADEA, see CRS Report RL34652, The Age Discrimination in Employment Act (ADEA): A Legal Overview , by [author name scrubbed]; CRS Report R41279, Mixed-Motive Claims Under the Age Discrimination in Employment Act: A Legal Analysis of the Supreme Court's Ruling in Gross v. FBL Financial Services, Inc. , by [author name scrubbed]; CRS Report RS22170, The Age Discrimination in Employment Act and Disparate Impact Claims: An Analysis of the Supreme Court's Ruling in Smith v. City of Jackson , by [author name scrubbed] and [author name scrubbed]; CRS Report RS21845, Final Equal Employment Opportunity Commission (EEOC) Rules on Retiree Health Plans and the Age Discrimination in Employment Act (ADEA) , by [author name scrubbed]; CRS Report RL33004, Cash Balance Pension Plans and Claims of Age Discrimination , by Jennifer Staman and [author name scrubbed]; and CRS Report RL30364, Legal Issues Affecting the Right of State Employees to Bring Suit Under the Age Discrimination in Employment Act and Other Federal Labor Laws , by [author name scrubbed] (pdf). Fair Housing Act The Fair Housing Act (FHA), which was originally enacted in 1968, prohibits discrimination in the sale or rental of housing on the basis of race, color, religion, national origin, sex, disability, or familial status. The statute applies to both public and private housing and may be enforced by the Department of Housing and Urban Development (HUD), DOJ, and individuals who file suit in federal court. For additional information on the FHA, see CRS Report 95-710, The Fair Housing Act (FHA): A Legal Overview , by [author name scrubbed]. Title IX of the Education Amendments of 1972 Like Title VI of the CRA, Title IX's prohibition on discrimination is tied to federal funding. Specifically, Title IX prohibits discrimination on the basis of sex in federally funded education programs or activities. Although the Title IX regulations bar recipients of federal financial assistance from discriminating on the basis of sex in a wide range of educational programs or activities, such as student admissions, scholarships, and access to courses, the statute is perhaps best known for prohibiting sex discrimination in intercollegiate athletics. Individuals who believe they are victims of discrimination may file a complaint with the federal agency that provides education funds to a recipient, or they may file a lawsuit in federal court. As with Title VI, each federal agency is responsible for enforcing Title IX compliance with respect to its funding recipients, but DOJ plays a role in coordinating federal Title IX activities. For additional information on Title IX, see CRS Report RL31709, Title IX, Sex Discrimination, and Intercollegiate Athletics: A Legal Overview , by [author name scrubbed]; CRS Report RS22544, Title IX and Single Sex Education: A Legal Analysis , by [author name scrubbed]; CRS Report RL30253, Sex Discrimination and the United States Supreme Court: Developments in the Law , by [author name scrubbed]; and CRS Report RL33736, Sexual Harassment: Developments in Federal Law , by [author name scrubbed]. Rehabilitation Act of 1973 The Rehabilitation Act prohibits discrimination on the basis of disability in federally conducted and federally funded programs or activities, as well as in employment by the federal government and by federal contractors. In addition, the act authorizes an array of grant programs that support vocational rehabilitation services to assist individuals with physical or mental disabilities in achieving employment and social integration. DOJ is responsible for administering the provisions regarding discrimination in federally conducted and federally funded programs or activities, while the provisions regarding nondiscrimination in federal employment and nondiscrimination by federal contractors are enforced by the EEOC and the Department of Labor (DOL), respectively. For more information on the Rehabilitation Act's anti-discrimination provisions, see CRS Report RL34041, Section 504 of the Rehabilitation Act of 1973: Prohibiting Discrimination Against Individuals with Disabilities in Programs or Activities Receiving Federal Assistance , by [author name scrubbed]; and CRS Report R40123, Education of Individuals with Disabilities: The Individuals with Disabilities Education Act (IDEA), Section 504 of the Rehabilitation Act, and the Americans with Disabilities Act (ADA) , by [author name scrubbed]. Equal Credit Opportunity Act The Equal Credit Opportunity Act (ECOA), which was enacted in 1974, prohibits discrimination against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or source of income. DOJ enforces the statute, but individuals may also file a complaint with the federal agency that oversees the creditor, or they may sue in federal court. For more information on the ECOA, see CRS Report RL30889, The Consumer Credit Protection Act: An Overview of Its Major Components , by [author name scrubbed]; CRS Report RS20430, The Pigford Cases: USDA Settlement of Discrimination Suits by Black Farmers , by [author name scrubbed] and [author name scrubbed]; and CRS Report R40988, Garcia v. Vilsack: A Policy and Legal Analysis of a USDA Discrimination Case , by [author name scrubbed] and [author name scrubbed]. Equal Educational Opportunities Act of 1974 The Equal Educational Opportunities Act (EEOA) prohibits discrimination in educational opportunities on the basis of race, color, sex, or national origin. Specifically, the statute prohibits school segregation, as well as the failure of a school to take appropriate action to overcome students' language barriers. The statute is enforced by DOJ. For more information on the EEOA, see CRS Report RS22544, Title IX and Single Sex Education: A Legal Analysis , by [author name scrubbed]. Age Discrimination Act of 1975 The Age Discrimination Act prohibits discrimination on the basis of age in federally funded programs or activities. Individuals who believe they are victims of discrimination may file a complaint with the federal agency that provides education funds to a recipient, or they may file a lawsuit in federal court. As with Title VI and Title IX, each federal agency is responsible for enforcing Age Discrimination Act compliance with respect to its funding recipients, but the Department of Health and Human Services (HHS) plays a role in coordinating federal activities. Civil Service Reform Act of 1978 The Civil Service Reform Act (CSRA) prohibits discrimination in federal employment on the basis of race, color, national origin, religion, sex, age, disability, marital status, or political affiliation. Specifically, the statute prohibits discrimination in certain personnel practices, including, but not limited to, hiring, promotion, transfers, and pay and benefits. In addition, the statute prohibits discrimination on the basis of conduct that does not adversely affect the performance of an employee or job applicant. This provision has been interpreted to prohibit discrimination based on sexual orientation. The CSRA is enforced by both the Office of Special Counsel and the Merit Systems Protection Board. For additional information on the CSRA, see CRS Report RL30795, General Management Laws: A Compendium , by [author name scrubbed] et al. (pdf) Immigration and Nationality Act Under amendments adopted in 1986, the Immigration and Nationality Act (INA) prohibits discrimination in employment on the basis of national origin or citizenship status. The act, which prohibits discrimination against U.S. citizens and legal immigrants but not unauthorized aliens, also protects individuals from unfair documentary practices relating to the employment eligibility verification process. The statute is enforced by DOJ. There are several CRS products on the INA, although these reports do not focus on the act's anti-discrimination provisions. For more information, see the CRS website. Americans with Disabilities Act of 1990 The Americans with Disabilities Act (ADA) prohibits discrimination based on disability in employment, public services, public accommodations, transportation, and telecommunications. The ADA's employment discrimination provisions, which apply to employers with 15 or more employees, are enforced by the EEOC, while the public services and public accommodations provisions are administered by DOJ. Individuals may also sue in federal court for violations of the ADA, although they must first file a complaint with the EEOC before filing an employment discrimination claim in federal court. For more information on the ADA, see CRS Report 98-921, The Americans with Disabilities Act (ADA): Statutory Language and Recent Issues , by Cynthia Brougher and [author name scrubbed]. In addition, see the CRS website for multiple short reports on specific issues and cases that have arisen under the ADA. Uniformed Services Employment and Reemployment Rights Act of 1994 The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), which provides military servicemembers with the right to reemployment under certain circumstances, prohibits employment discrimination against individuals who serve in the armed services, including individuals who are members of, apply to be members of, perform, have performed, apply to perform, or have an obligation to perform in the military. The prohibition on discrimination covers a wide array of employment activities, including denial of employment, reemployment, retention of employment, promotion, and benefits. The statute is enforced by the Department of Labor (DOL). Congressional Accountability Act of 1995 The Congressional Accountability Act (CAA) applies several existing civil rights, labor, and workplace laws to employees of the legislative branch of the federal government. Specifically, with regard to civil rights laws, the act applies Title VII of the CRA, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Rehabilitation Act to the legislative branch. The act is administered by the Office of Compliance. For more information on the CAA, see CRS Report RL33668, The Speech or Debate Clause: Recent Developments , by [author name scrubbed] and [author name scrubbed] (available upon request). Genetic Information Nondiscrimination Act of 2008 The Genetic Information Nondiscrimination Act (GINA) prohibits discrimination based on genetic information by health insurers and employers. The Secretary of Health and Human Services (HHS) enforces the provisions relating to health insurers, while the remedies and enforcement mechanisms for the employment provisions are generally patterned on Title VII of the CRA. For additional information on GINA, see CRS Report RL34584, The Genetic Information Nondiscrimination Act of 2008 (GINA) , by [author name scrubbed] and [author name scrubbed]; CRS Report R41527, The Genetic Information Nondiscrimination Act (GINA): Final Employment Regulations , by [author name scrubbed]; and CRS Report R41314, The Genetic Information Nondiscrimination Act of 2008 and the Patient Protection and Affordable Care Act of 2010: Overview and Legal Analysis of Potential Interactions , coordinated by [author name scrubbed]. Reconstruction Statutes In the wake of the Civil War, Congress enacted a series of statutes—most notably the Civil Rights Act of 1866 and the Civil Rights Act of 1871—that were intended to enforce the Thirteenth, Fourteenth, and Fifteenth Amendments, which prohibited slavery and enshrined equal protection and voting rights in the U.S. Constitution. Designed to provide private remedies to individuals deprived of their civil rights, these statutes were written in general terms that have been interpreted broadly to protect individuals from a wide range of discriminatory conduct. The relevant provisions, as codified, include 42 U.S.C. Sections 1981, 1982, 1983, and 1985. 42 U.S.C. Section 1981 provides, in part, that all persons shall have the same right to "make and enforce contracts" as is enjoyed by white citizens. As a result, Section 1981's coverage extends to prohibit discrimination in a wide range of public and private contractual relationships, including the provision of services and the sale of goods. Indeed, since employment relationships are based on contracts, Section 1981 has been interpreted to prohibit intentional discrimination on the basis of race, color, or citizenship by private employers. Because Section 1981 refers to "white citizens," however, the provision does not prohibit discrimination on the basis of sex, religion, or national origin, unless a claim based on national origin or religion has a racial component. Under 42 U.S.C. Section 1982, "[a]ll citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property." Like Section 1981, Section 1982 prohibits intentional discrimination in both the public and private sectors, but unlike Section 1981, the coverage of Section 1982 is limited to discrimination on the basis of race and applies only to transactions involving real or personal property. 42 U.S.C. Section 1983, which provides a remedy for deprivation of rights under color of state law, creates no new substantive rights but rather provides relief where state law is inadequate. Thus, individuals who sue under Section 1983 must find a source of rights elsewhere. As a result, Section 1983 is most typically used to enforce constitutional rights, such as the right to equal protection. In general, Section 1983 suits alleging unlawful discrimination are limited to intentional claims of discrimination involving public, not private, actors and may apply to a discrimination based on a wide variety of factors, such as race, sex, religion, or citizenship. Like Section 1983, 42 U.S.C. Section 1985, which provides a remedy in cases involving conspiracy to interfere with civil rights, creates no new independent rights. Instead, Section 1985 is designed to give the injured party an opportunity to recover damages against the conspirators. Although Section 1985 may apply to private acts of discrimination, it is not clear whether it covers discrimination based on factors other than race.

Under federal law, an array of civil rights statutes is available to protect individuals from discrimination. This report provides a brief summary of selected federal civil rights statutes, including the Civil Rights Act, the Equal Pay Act, the Voting Rights Act, the Age Discrimination in Employment Act, the Fair Housing Act, Title IX of the Education Amendments of 1972, the Rehabilitation Act, the Equal Credit Opportunity Act, the Equal Educational Opportunities Act, the Age Discrimination Act, the Civil Service Reform Act, the Immigration and Nationality Act, the Americans with Disabilities Act, the Uniformed Services Employment and Reemployment Rights Act, the Congressional Accountability Act, the Genetic Information Nondiscrimination Act, and the Reconstruction Statutes.

Introduction Over the past decade, the United States has recognized the human immunodeficiency virus and the acquired immune deficiency syndrome (HIV/AIDS) as a key foreign policy priority. Congressional authorization of the President's Emergency Plan for AIDS Relief (PEPFAR) in 2003 brought unprecedented attention and funding to the epidemic and established a new and central role for donor governments in the fight against HIV/AIDS, particularly regarding the provision of AIDS treatment. The United States remains the largest single donor for global HIV/AIDS efforts in the world, providing over 50% of all government donor funds. In recent years, despite the continued challenge of HIV/AIDS around the world, international funding for HIV/AIDS—including U.S. assistance—has begun to level off. This report provides information on key components of the HIV/AIDS epidemic and the U.S. response to HIV/AIDS. Description of HIV/AIDS HIV is an infectious disease that damages human immune cells. The final stage of HIV is AIDS, which occurs when an individual's immune system is so damaged it can no longer fight off other infections. If left untreated, AIDS is fatal. HIV is spread through contact with the bloodstream or by passing through delicate mucous membranes, including the vagina, rectum, and urethra. Transmission primarily occurs in three ways: (1) unprotected sexual intercourse with an infected partner; (2) injections with a needle, syringe, or other equipment that has been used by an infected person; and (3) between a child and an infected mother, during pregnancy, birth, or breast-feeding. High-risk groups include sex workers, men who have sex with men, and injecting drug users. Global HIV/AIDS Statistics1 Prevalence : Prevalence measures the number of people living with a disease. Since the beginning of the epidemic, more than 60 million people have been infected with HIV. In 2010, there were an estimated 34 million people living with the virus. Women make up 50% of all adults living with HIV. The number of people living with HIV continues to rise as a combined result of new infections and improved access to antiretroviral treatment (ART) that has lowed AIDS-related mortality. Incidence : Incidence measures the number of people who contract a disease within a given time period (usually one year). In 2010, 2.7 million people contracted HIV, including 390,000 children under the age of 15. New infections are thought to have peaked in 1996 at 3.5 million ( Figure 1 ). Incidence has fallen by more than 25% in 33 countries between 2001 and 2009, including in 22 sub-Saharan African countries. Mortality : HIV continues to be a leading cause of death worldwide and the number one killer in sub-Saharan Africa. In 2010, 1.8 million people died of AIDS, including roughly 250,000 children. AIDS-related deaths are thought to have peaked in 2004 at 2.2 million and declined since then due to the improved access to ART. Regional Distribution of HIV/AIDS2 HIV/AIDS is a global phenomenon, but there are important regional and intra-regional differences in HIV prevalence, incidence, and mortality. Sub-Saharan Africa (SSA) is the region most affected by HIV/AIDS ( Figure 2 ). In 2010, an estimated 22.9 million people were living with HIV/AIDS in SSA, accounting for 68% of all people living with HIV worldwide. Southern Africa is home to the nine countries with the world's highest HIV prevalence rates worldwide and was home to an estimated 11.1 million people living with HIV in 2010. Swaziland has the world's highest prevalence rate (25.9%), and South Africa has the world's largest population with HIV (5.6 million). In 2010, about 1.9 million people in SSA contracted HIV and some 1.2 million people in the region died from AIDS. In 2010, an estimated 4.8 million people were living with HIV in Asia, including 360,000 people who became infected in 2010. Also in 2010, approximately 310,000 AIDS-related deaths occurred in the region, the largest number of deaths outside of sub-Saharan Africa. In Asia, the rate of HIV transmission is slowing and the death toll has remained stable, while the epidemic among men who have sex with men appears to be growing. In 2010, an estimated 1.7 million people were living with HIV in Latin America and the Caribbean, including 112,000 people who became infected in 2010. In the region, the Bahamas has the highest prevalence rate, while Brazil has the largest population living with virus. Overall, the epidemic in Latin America has stabilized and the rates of new infections and AIDS-related deaths in the Caribbean have slowed. Eastern Europe and Central Asia (EECA) has experienced the largest regional increase in HIV prevalence, most prominently in Russia and Ukraine. Since 2001, the number of people living with HIV in the region has increased by 250%. In 2010, an estimated 1.5 million people were living with HIV in EECA, including 160,000 people who were infected in 2010. The number of AIDS-related deaths in the region has also continued to grow, reaching 83,000 in 2010. HIV/AIDS Treatment, Care, and Prevention Treatment : Use of ART to treat HIV/AIDS has lowered the rate of AIDS-related deaths in much of the world. ART coverage—the percentage of people on ART among those eligible for treatment—was 47% in 2010, up from 7% in 2003. While lowering AIDS-related deaths, access to ART has also increased HIV prevalence around the world, as infected individuals are now living longer. ART also has preventive benefits as it lowers viral loads, consequently reducing the likelihood of transmission. Care Activities : Care for individuals infected and affected by HIV/AIDS constitutes a wide range of activities, including support for ART adherence, treatment of opportunistic infections, nutritional counseling, mental health services, prevention education, and livelihood activities, along with attention to orphans and vulnerable children. Prevention Activities : A number of prevention efforts are being used to combat HIV/AIDS, including male circumcision, reduction of mother-to-child transmission (PMTCT), behavior change programs (including advocacy of abstinence, being faithful, and using condoms), HIV testing, blood supply safety programs, harm reduction programs aimed at high-risk groups, and increased provision of antiretroviral therapy, which can reduce the potential of transmission. Prevention Research : Several studies published in 2010 and 2011 have demonstrated progress in developing new prevention technologies. Antiretroviral therapy has been shown to have important preventive benefits: among couples with one infected partner, early use of ART was shown to reduce transmission by at least 96%. Efforts to develop HIV preventive vaccines and microbicides—compounds that can be applied inside the vagina or rectum to protect against sexually transmitted infections—are also underway. Results from a 2010 study in South Africa, funded in part by the United States, showed that the use of a microbicide was 39% effective in reducing a woman's risk of contracting HIV during sex. Many health experts support microbicide research as it offers women vulnerable to violence and sexual coercion some degree of protection against HIV. Key U.S. Legislation on Global HIV/AIDS, 2003-2011 On May 27, 2003, President George W. Bush signed into law the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act, P.L. 108-25 ). The Leadership Act authorized $15 billion for global HIV/AIDS, TB, and malaria programs from FY2004 through FY2008. The act also authorized the creation of the Office of the Global AIDS Coordinator (OGAC) at the Department of State to oversee and coordinate all bilateral HIV/AIDS activities and funding. As part of the act, Congress recommended the following distribution of HIV/AIDS funds: 15% of funds be used for palliative care, and 20% of funds be used for HIV/AIDS prevention efforts. Congress further required the following distribution of HIV/AIDS funds for each fiscal year from FY2006 to FY2008: at least 55% of funds be used for AIDS treatment, of which at least 75% be used for the purchase and distribution of ART and at least 25% be used for related care; at least 33% of appropriated prevention funds be used for abstinence-until-marriage programs; and at least 10% of funds be spent on orphans and vulnerable children. Finally, the act mandated that from FY2004 to FY2008, the United States contribution to the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund, see, " Key Partners in the Response to Global HIV/AIDS ") not exceed 33% of the total amount of funds contributed from all sources. On July 24, 2008, President Bush signed into law the Tom Lantos and Henry J. Hyde U.S. Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 (Lantos-Hyde Act, P.L. 110-293 ). The Lantos-Hyde Act authorized $48 billion for U.S. global HIV/AIDS, TB, and malaria efforts from FY2008 through FY2013, including $2 billion for the Global Fund in FY2008. As part of the act, Congress removed the recommendations that 20% of funds be spent on prevention efforts and that 33% of these funds be used for abstinence-until-marriage programs, and required the following: for each fiscal year from FY2009 to FY2013, at least 10% of funds be spent on orphans and vulnerable children; for each fiscal year from FY2009 to FY2013, more than 50% of bilateral assistance be spent on treatment and care of individuals infected with HIV/AIDS; balanced funding for prevention activities including those that promote abstinence, delay of sexual debut, monogamy, fidelity, and partner reduction and country-specific implementation of such activities; and a report to Congress should less than 50% of prevention funds go to activities promoting abstinence, delay of sexual debut, monogamy, fidelity, and partner reduction in any country with a generalized epidemic. This legislation will be up for reauthorization in FY2013. U.S. Global HIV/AIDS Programs In 1999, the 106 th Congress authorized resources to support a proposal by the Clinton Administration to broaden U.S. activities related to global HIV/AIDS through the Leadership and Investment in Fighting an Epidemic (LIFE) initiative. LIFE sought to address HIV/AIDS in 14 African countries and in India and represented the first time agencies other than the United States Agency for International Development (USAID) were included in the U.S. response to HIV/AIDS. President George W. Bush launched two initiatives that built on the LIFE initiative. In 2002, President Bush announced the International Mother and Child HIV Prevention Initiative, which focused on preventing mother-to-child transmission of HIV in 12 African countries and in 2 Caribbean countries. In 2003, President Bush announced PEPFAR, proposing that the United States spend $15 billion over the course of five years to combat global HIV/AIDS. Both the LIFE initiative and the International Mother and Child HIV Prevention Initiative were replaced by PEPFAR. PEPFAR significantly increased attention to and funding for global HIV/AIDS. The President proposed that the majority of the funds ($9 billion) be concentrated in 15 focus countries, including 12 in sub-Saharan Africa. The proposal also allocated $5 billion to research and to other bilateral HIV/AIDS programs and $1 billion for contributions in FY2004 to the Global Fund. PEPFAR represents the largest commitment by any country toward an international health issue. At the time it was established, health experts were debating whether the international community had a responsibility to provide ART to HIV-positive people in developing countries and whether they could be safely administered in such environments. PEPFAR responded to calls from those advocating treatment for the world's poor and demonstrated that ART could be effectively provided in low-resource settings. Through the Leadership Act, Congress authorized the establishment of the Office of the Global AIDS Coordinator (OGAC), at the Department of State. OGAC oversees and coordinates all U.S. spending on bilateral global HIV/AIDS activities implemented by various agencies (see " PEPFAR Implementing Agencies "), as well as contributions to multilateral organizations. President Barack Obama has committed to continued support for PEPFAR, while working to transition PEPFAR from an emergency plan to a long-term and sustainable approach to global HIV/AIDS. On May 5, 2009, the President announced the Global Health Initiative (GHI), a new six-year effort to develop a comprehensive U.S. global health strategy. The GHI calls for a more integrated U.S. response to global health issues and for a shift in U.S. global health strategy from one focused on specific diseases to a more comprehensive approach to health. PEPFAR is the central component of the GHI and accounts for approximately 75% of the President's FY2013 budget proposal. As part of the GHI, PEPFAR has committed to supporting the following goals from FY2010 through FY2014: prevention of more than 12 million new HIV infections; treatment of more than 6 million people living with HIV/AIDS; care for more than 12 million people, including 5 million orphans and vulnerable children; and training and retention of more than 140,000 new heath care workers. PEPFAR Implementing Agencies PEPFAR programs are led by OGAC at the State Department and implemented by various U.S. agencies and departments, including the following: U.S. Agency for International Development : USAID supports HIV/AIDS programs in nearly 100 countries. These programs focus on providing treatment, care, and support to people infected with HIV/AIDS; strengthening primary health care systems; providing training, technical assistance, and commodities that reduce HIV transmission; reducing high-risk behaviors; and supporting international partnerships. Centers for Diseases Control and Prevention (CDC) : CDC's Global AIDS Program (GAP) operates in 38 countries and four regional programs. CDC HIV/AIDS programs assist ministries of health and local implementing organizations to implement HIV/AIDS prevention programs, analyze program impact and cost effectiveness, and build the capacity of public workforce, as well as public health information, laboratory, and management systems. National Institutes of Health (NIH) : NIH supports HIV/AIDS research and training in approximately 100 countries. This research focuses on tools to prevent HIV transmission, such as vaccines and microbicides; strategies to prevent mother-to-child transmission; and approaches to treating HIV and its associated opportunistic infections and co-infections in resource poor settings. Health Resources and Services Administration (HRSA) : HRSA provides education and training HIV/AIDS programs in more than 25 countries that increase rapid roll-out of ART, support health system strengthening and improvements in human resources for health, and facilitate innovative approaches to health data collection and evaluation. U.S. Food and Drug Administration (FDA) : FDA ensures the availability of safe and effective AIDS treatment. Since 2004, FDA has supported an accelerated review process for ARTs, including generic drugs and fixed dose combination drugs (FDCs)—multiple antiretroviral drugs combined into a single pill—for PEPFAR programs. As of 2011, 136 ART formulations had been approved or tentatively approved by FDA. Department of Defense (DOD) : DOD operates HIV/AIDS programs in 73 countries. DOD's primary role under PEPFAR is to support military-to-military HIV/AIDS prevention, treatment, and care efforts; assist in the development of military-specific HIV/AIDS policies; and provide HIV/AIDS counseling, testing, and care for military families. DOD also provides HIV prevention scientific and technical assistance to non-military PEPFAR programs. The DOD HIV/AIDS Prevention Program (DHAPP) manages DOD's HIV/AIDS programs for foreign militaries and oversees the use of PEPFAR funds by DOD. Department of Labor (DOL) : DOL implements HIV/AIDS programs in over 23 countries that facilitate the development of comprehensive workplace-based HIV prevention and education programs; assist governments, employers, and trade unions to develop and disseminate workplace policy countering stigma and discrimination; and support collaboration between government, business, and labor in countering HIV/AIDS. Peace Corps : Peace Corps volunteers support community-based HIV/AIDS care and prevention efforts over 66 countries. A number of Peace Corps volunteer projects related to HIV/AIDS received direct PEPFAR funding, while other Peace Corps posts benefited from activities organized by the headquarters using central PEPFAR funding. U.S. Department of Commerce (DOC) : DOC creates and disseminates sector-specific strategies to inform HIV trade advisory committees on how the private sector can help combat HIV/AIDS. The U.S. Census Bureau also contributes to PEPFAR by assisting with data management and analysis, estimating infections averted, and supporting mapping of country-level activities. U.S. Global HIV/AIDS Assistance Funds Congress provides funds for global HIV/AIDS assistance to several U.S. agencies through a number of appropriations vehicles: State-Foreign Operations (State-Foreign Ops); Labor, Health and Human Services and Education (Labor-HHS); and Department of Defense (Defense) ( Figure 3 ). Table 1 details all U.S. funding for global HIV/AIDS since FY2004. State-Foreign Operations Appropriations: The majority of PEPFAR funds are appropriated through State-Foreign Operations to the Department of State. In FY2012, Congress appropriated over 85% of all global HIV/AIDS funds to the Department of State. As the coordinator of global HIV/AIDS activities, the Department of State transfers the bulk of these funds to implementing agencies, including USAID and CDC, in support of bilateral HIV/AIDS programs. Per congressional proviso, the department also uses some of these funds to make contributions to other organizations that combat global HIV/AIDS, including the Global Fund. Congress also appropriates funds to USAID for bilateral HIV/AIDS activities through State-Foreign Operations appropriations. Labor, Health and Human Services, and Education Appropriations : Congress appropriates funds for global HIV/AIDS activities to HHS agencies, including CDC and NIH, through Labor-HHS appropriations. Historically, Congress has provided a second portion of the U.S. contribution to the Global Fund through Labor-HHS, although it did not do so in FY2012 or the FY2013 budget request. Congress used to appropriate funds to DOL for bilateral HIV/AIDS activities, but it has not done so since FY2005. Department of Defense Appropriations : Congress also appropriates funds to DOD for bilateral HIV/AIDS programs through DOD appropriations. Since the establishment of PEPFAR, U.S. funding for global HIV/AIDS has increased each year, with the largest increases between FY2004 and FY2008. U.S. funding for bilateral global HIV/AIDS programs has been decreasing since FY2010 ( Figure 4 ). The United States also supports global HIV/AIDS programs through contributions to the Global Fund, an international financing mechanism for the response to HIV/AIDS, TB, and malaria ( Table 2 ). U.S. contributions to the Global Fund support grants for HIV/AIDS, TB, and malaria. The United States is the single largest donor to the Global Fund. In low-income countries, the bulk of spending on HIV/AIDS is from international sources, approximately three-quarters of which is from bilateral donors, with the remaining quarter from multilateral donors. In 2010, U.S. funds made up over half of all donor government disbursements for global HIV/AIDS ( Figure 5 ) and 24% of global HIV/AIDS funds from all sources, including donor and domestic governments, multilateral organizations, and the private sector. When standardized to correspond to gross domestic product (GDP) per $1 million spent, six European countries spend more than the United States on global HIV/AIDS. UNAIDS estimates the funding gap—the difference between resources available and resources needed to combat global HIV/AIDS—to be $6 billion annually. Key Partners in the Response to Global HIV/AIDS The United States works with a range of partners to combat HIV/AIDS, including other national governments, multilateral organizations, non-governmental organizations (NGOs), and the private sector. Through authorizing legislation and annual appropriations, Congress provides funds to several multilateral organizations and international research initiatives that contribute to the fight against HIV/AIDS, including the Global Fund and the United Nations Joint Program on HIV/AIDS (UNAIDS). The Global Fund : The Global Fund was established in 2002 as a public-private partnership to provide financial support for global responses to HIV/AIDS, TB, and malaria. The United States contributes more to the Global Fund than any other country. The Global Fund has committed over $22.6 billion in grants in 150 countries since it was established, and was responsible for 21% of all international HIV funding in 2009. In November 2011, the Global Fund announced that due to limited funding available, it would postpone its 11 th round of funding. UNAIDS : UNAIDS is the main advocate for United Nations (U.N.) action on HIV/AIDS and is responsible for coordinating HIV/AIDS activities implemented by nine agencies, including U.N. Children's Fund (UNICEF); U.N. Development Program (UNDP); International Labor Organization (ILO); U.N. Population Fund (UNFPA); U.N. Office on Drugs and Crime (UNODC); U.N. Educational, Scientific and Cultural Organization (UNESCO); World Food Program (WFP); World Health Organization (WHO); and the World Bank. The United States is one of the largest contributors to UNAIDS. UNAIDS oversees a wide range of HIV/AIDS activities, which include efforts to reduce transmission of HIV; ensure access to ART; prevent death from HIV/TB co-infection; empower men who have sex with men; remove punitive law, policies, and practices that block effective responses to AIDS; reduce sexual and gender-based violence; and empower young people to protect themselves from HIV. Key Issues in Global HIV/AIDS The 112 th Congress will continue to be faced with a number of issues regarding the U.S. response to global HIV/AIDS, including how much assistance to provide and how to best apportion global HIV/AIDS funds. Given the United States' central role in the fight against HIV/AIDS, many experts assert that the future direction of the U.S. response to HIV/AIDS will have significant implications for the global response to HIV/AIDS as a whole. The 112 th Congress may consider the following issues as it considers the U.S. response to global HIV/AIDS: Treatment efforts : Without a vaccine or cure to HIV, people continue to contract HIV and require lifelong treatment. As such, despite efforts by the international community to expand access to treatment, the number of people in need of ART outpaces treatment resources. Global health experts have increasingly debated the sustainability of HIV/AIDS treatment programs and how to use limited resources to both treat those in need while also preventing new infections. Prevention efforts : There is widespread support within the global health community for intensifying prevention efforts, particularly in light of the persistent need for HIV/AIDS treatments. At the same time, experts disagree on what prevention efforts are most effective, how to measure the success of any one prevention activity, and how to incentivize leaders of developing countries to increase financial investment in prevention, particularly given its less immediate and dramatic results when compared with treatment. Recent scientific evidence regarding the preventive benefits of ART, as well as topical and oral antiretroviral pre-exposure prophylaxis, including microbicides, may increase support for and discussion of the use of these technologies. Health System Strengthening: Many global health experts argue that an effective long-term approach to global HIV/AIDS requires efforts to strengthen health systems (HSS) in low- and middle-income countries. However, there is little consensus within the global health community over how to define, implement, and measure HSS activities, and over whether PEPFAR has had a beneficial or detrimental impact on the broader functioning of health systems. Country ownership: Donor governments have increasingly supported the concept of country ownership as a way to promote sustainable and country-appropriate responses to the epidemic. To this end, a number of PEPFAR programs have implemented "Partnership Frameworks" with partner countries to clarify joint goals and strategies. Several issues related to country ownership are being debated within donor governments, including how to best align donor priorities and country priorities and how to maintain effective levels of oversight while shifting control to host governments.

The human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) is one of the world's most pressing global health challenges. Since the beginning of the epidemic, more than 60 million people have been infected with HIV, approximately 30 million of whom have died of HIV-related causes. At the end of 2010, an estimated 34 million people were living with the virus, the vast majority of whom live in sub-Saharan Africa. Expanded access to antiretroviral therapy (ART) over the past decade, due in large part to U.S. support, has contributed to declines in deaths among people living with HIV. Nonetheless, new infections continue to outpace access to treatment. The second session of the 112th Congress will likely be faced with determining how, and to what extent, the United States should respond to the continued challenge of global HIV/AIDS. The United States has recognized HIV/AIDS as a key foreign policy priority. Congress has passed several pieces of legislation related to global HIV/AIDS prevention, treatment, and care. In particular, in 2003, Congress enacted the U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (P.L. 108-25), authorizing $15 billion to combat global HIV/AIDS, tuberculosis (TB), and malaria through the President's Emergency Plan for AIDS Relief (PEPFAR), an initiative proposed by the George W. Bush Administration. In 2008, Congress enacted the Tom Lantos and Henry J. Hyde United States Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 (P.L. 110-293), authorizing $48 billion for HIV/AIDS, TB, and malaria programs from FY2009 through FY2013. PEPFAR is the largest commitment in history by any nation to combat a single disease and makes up the majority of donor funding for global HIV/AIDS. When PEPFAR was announced, health experts were debating whether the international community had a responsibility to provide ART in developing countries and whether they could be safely administered in such environments. PEPFAR responded to calls from those advocating treatment for the world's poor and demonstrated that ART could be effectively provided in low-resource settings. PEPFAR is coordinated by the Office of the U.S. Global AIDS Coordinator (OGAC) at the Department of State and is implemented by a range of U.S. agencies that include, among others, the United States Agency for International Development (USAID) and the Centers for Disease Control and Prevention (CDC). The United States also supports several multilateral organizations responding to HIV/AIDS, including the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) and the United Nations Joint Program on HIV/AIDS (UNAIDS). Due in part to the global response to HIV/AIDS, substantial progress has been made in combating the epidemic. New HIV infections fell by more than 25% in 33 countries between 2001 and 2009, and a total of 2.5 million deaths have been averted in low- and middle-income countries since 1995 due to antiretroviral therapy. At the same time, major challenges remain in the fight against HIV/AIDS. For example, with new infections outpacing available treatment, experts have increasingly debated how to best allocate limited resources. This report outlines basic facts related to global HIV/AIDS, including characteristics of the epidemic and U.S. legislation, programs, funding, and partnerships related to global HIV/AIDS. It concludes with a brief description of some of the major issues that might be considered by the 112th Congress in its response to the disease. The report will be updated as events warrant.

Is the Outgoing or Incoming President Required to Submit the Budget? The Budget and Accounting Act of 1921, as amended, requires the President to submit a budget annually to Congress toward the beginning of each regular session (31 U.S.C. §1105a). This requirement first applied to President Warren Harding for FY1923. The deadline for submission of the budget, first set in 1921 as "on the first day of each regular session," has changed several times over the years: in 1950, to "during the first 15 days of each regular session"; in 1985, to "on or before the first Monday after January 3 of each year (or on or before February 5 in 1986)"; and in 1990, to "on or after the first Monday in January but not later than the first Monday in February of each year." The 20 th Amendment to the Constitution, ratified in 1933, requires each new Congress to convene on January 3 (unless the date is changed by the enactment of a law) and provides a January 20 beginning date for a President's four-year term of office. Therefore, under the legal framework for the beginning of a new Congress, the beginning of a new President's term, and the deadline for the submission of the budget, all outgoing Presidents prior to the 1990 change were obligated to submit a budget. The 1990 change in the deadline made it possible for an outgoing President to leave the annual budget submission to his successor, an option which the three outgoing Presidents since then (George H.W. Bush, Bill Clinton, and George W. Bush) took. Because President George H.W. Bush chose not to submit a budget for FY1994 (and was not obligated to do so), President Bill Clinton submitted the original budget for FY1994 rather than budget revisions. Similarly, the budget for FY2002 was submitted by the incoming President George W. Bush, rather than by outgoing President Bill Clinton. The Office of Management and Budget (OMB) provided considerable advance notice of the plan for FY2002. President George W. Bush indicated early on that he would not submit a budget for FY2010. In announcing the decision, then-OMB Director Jim Nussle stated: The FY2010 budget will be submitted by the next President. In order to lay the groundwork for the next Administration, we intend to prepare a budget database that includes a complete current services baseline and to gather information to develop current services program estimates for FY2010 from which the incoming Administration can develop its budget proposals. President Barack Obama submitted an overview of his budget, "A New Era of Responsibility: Renewing America's Promise" on February 26, 2009, two days after delivering an address on his economic and budget plan to a joint session of Congress. He submitted his Appendix , which contained detailed budget information on May 7, 2009, and additional supplemental volumes, including the Analytical Perspectives and the Terminations, Reductions, and Savings volume, on May 11, 2009. Incoming Presidents, except for Warren Harding, Bill Clinton, George W. Bush, and Barack Obama, assumed their position with a budget of their predecessor in place. Under the 1921 act, Presidents may submit budget revisions to Congress at any time. Six incoming Presidents chose to modify their predecessor's budget by submitting revisions shortly after taking office: Dwight Eisenhower, John Kennedy, Richard Nixon, Gerald Ford, Jimmy Carter, and Ronald Reagan. Six incoming Presidents chose not to submit revisions: Calvin Coolidge, Herbert Hoover, Franklin Roosevelt, Harry Truman, Lyndon Johnson, and George H. W. Bush. Transition Budgets in Recent Years During the period beginning with the full implementation of the congressional budget process (in FY1977), six transitions of presidential administration have occurred. As Table 1 shows, the three outgoing Presidents required to submit a budget during this period (Gerald Ford, Jimmy Carter, and Ronald Reagan) did so on or before the statutory deadline. The three Presidents who were not required to submit an outgoing budget (George H.W. Bush, Bill Clinton, and George W. Bush) each chose to leave the budget submission to his successor. Once the original budget for a fiscal year has been submitted, a President or his successor may submit revisions at any time. Two incoming Presidents during this period (Jimmy Carter and Ronald Reagan) submitted budget revisions and one (George H.W. Bush) did not. The FY1978 revisions by President Jimmy Carter (a 101-page document) were submitted on February 22 and the FY1982 revisions by President Ronald Reagan (an initial 159-page document and a subsequent 435-page document) were submitted on March 10 and April 7, respectively. Statutory Deadlines In past years, Congress authorized the submission of a budget for a fiscal year after the statutory deadline by enacting a deadline extension in law. For example, the deadlines for submission of the budgets for FY1981, FY1984, and FY1986 were extended from mid-January to late-January or early-February by P.L. 96 - 186 , P.L. 97 - 469 , and P.L. 99 - 1 , respectively. Beginning in the late 1980s, however, several original budgets have been submitted late without authorization. For FY1991, the budget was submitted a week after a deadline that already had been extended by law ( P.L. 101 - 228 ). For FY1989, the budget was submitted 45 days after the deadline without the consideration of any measure granting a deadline extension. The three most recent transition-year budgets (FY1994, FY2002, and FY2010) were submitted 66, 63, and 98 days beyond the deadline, respectively, without the consideration of a measure granting a deadline extension. Presidents Clinton and George W. Bush submitted the original budgets for FY1994 and FY2002 (on April 8, 1993, and April 9, 2001, respectively), and President Obama submitted the FY2010 budget on May 7, 2009. Special Messages to Congress Although Presidents Reagan, Clinton, George W. Bush, and Barack Obama did not submit detailed budget proposals until April or May of their first year in office, each of them advised Congress regarding the general contours of their economic and budgetary policies in special messages submitted to Congress in February. Though President George H. W. Bush did not submit an official revision of President Reagan's FY1990 budget, he submitted a message to Congress that contained many of the same elements as budget revisions that had been submitted by previous incoming Presidents. In conjunction, each incoming President since Ronald Reagan has presented his special message on the budget to a joint session of Congress. Outgoing "Transition" Budgets Though the three Presidents who were not required to submit an outgoing budget (G.H.W. Bush, Clinton, and G.W. Bush) each chose to leave the budget submission to his successor, Presidents Clinton and George H.W. Bush helped facilitate the development of their successor's budget by providing a "transition budget" volume to Congress. On January 6, 1993, just prior to the inauguration of President Clinton, President George H. W. Bush submitted to Congress a 573-page, single-volume budgetary document, Budget Baselines, Historical Data, and Alternatives for the Future . Instead of constituting a budget in the usual sense, this document provided historical data, baseline budget projections under the status quo, and illustrations of budget projections using alternative economic assumptions and different broad policy outlines. Similarly, on January 16, 2001, President Clinton prepared a "transition budget" for incoming President George W. Bush, FY2002 Economic Outlook, Highlights From FY1994 To FY2001, FY2002 Baseline Projections . The volume was comparable in scope to the one issued for FY1994 by President George H. W. Bush just before he left office, providing revised budget projections and an economic and programmatic update.

At the time of a presidential transition, one question commonly asked is whether the outgoing or incoming President submits the budget for the upcoming fiscal year. Under past practices, outgoing Presidents in transition years submitted a budget to Congress just prior to leaving office, and incoming Presidents usually revised them. Six incoming Presidents—Dwight Eisenhower, John Kennedy, Richard Nixon, Gerald Ford, Jimmy Carter, and Ronald Reagan—revised their predecessor's budget shortly after taking office, while only two Presidents during this period, Lyndon Johnson and George H. W. Bush, chose not to do so. The deadline for submission of the President's budget, which has been changed several times over the years, was set in 1990 as "on or after the first Monday in January but not later than the first Monday in February of each year." The change made it possible for an outgoing President, whose term ends on January 20, to leave the annual budget submission to his successor. The three outgoing Presidents since the 1990 change—George H. W. Bush, Bill Clinton, and George W. Bush—exercised this option. Accordingly, the budget was submitted in 1993, 2001, and 2009 by the three incoming Presidents (Bill Clinton for FY1994, George W. Bush for FY2002, and Barack Obama for FY2010). Before President Barack Obama, the last three incoming Presidents that submitted a budget or revised their predecessor's budget (Ronald Reagan, Bill Clinton, and George W. Bush) did not submit detailed budget proposals during their transitions until early April; however, each of them advised Congress regarding the general contours of their economic and budgetary policies in a special message submitted to Congress in February concurrently with a presentation made to a joint session of Congress. President Barack Obama followed a comparable approach. He delivered an address on his economic and budget plan to a joint session of Congress on February 24, 2009, and submitted an overview document two days later. He submitted his detailed budget proposal on May 7, 2009, and submitted additional supplemental volumes four days later, on May 11, 2009. This report will be updated as developments warrant.

Introduction The American Opportunity Tax Credit (AOTC) provides financial assistance to taxpayers whose children (or who themselves) are pursuing post-secondary education. This report examines how the AOTC works, its impact on encouraging attendance at higher education institutions, and issues with administering the credit. This report provides both an in-depth description of this tax credit and an analysis of its economic impact. This report is organized to first provide an overview of the AOTC, followed by a legislative history that highlights the evolution of education tax credits from proposals in the 1960s through the recent permanent extension of the AOTC at the end of 2015. This report then analyzes the credit by looking at who claims the credit, the effect education tax credits have on increasing attendance at higher education institutions, and administrative issues with the AOTC. Finally, this report concludes with a brief overview of various policy options. Current Law The American Opportunity Tax Credit (AOTC) allows eligible taxpayers to reduce their federal income taxes by up to $2,500 per eligible student. The credit was enacted as part of the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), temporarily replacing the Hope Credit for 2009 and 2010. The Hope Credit was originally enacted in 1997 as part of the Taxpayer Relief Act ( P.L. 105-34 ). As outlined in Table 1 , the AOTC modified several parameters of the Hope Credit. The AOTC was extended for 2011 and 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). Subsequently, the AOTC was extended for five more years, through the end of 2017, by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ; ATRA). The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ), made the AOTC permanent, effectively eliminating the Hope Credit. Calculating the Credit The AOTC is calculated as 100% of the first $2,000 of qualifying education expenses plus 25% of the next $2,000 of qualifying education expenses for each eligible student. Hence, to claim the maximum value of the credit, an eligible student will need to have incurred at least $4,000 in qualifying education expenses. The AOTC phases out for taxpayers with income above certain thresholds. Specifically, the AOTC begins to phase out when income exceeds $80,000 ($160,000 for married taxpayers filing jointly) and is completely phased out when income exceeds $90,000 ($180,000 for married taxpayers filing jointly). Thus, taxpayers with income over $90,000 ($180,000 or more for married taxpayers filing jointly) are ineligible for the AOTC. The AOTC is a refundable credit, meaning taxpayers with little to no tax liability may still be able to benefit from this tax provision. A tax credit is refundable if, in cases where the credit is larger than the taxpayer's tax liability, the Internal Revenue Service (IRS) refunds all or part of the difference. The refundable portion of the AOTC is calculated as 40% of the value of the credit the taxpayer is eligible for based on qualifying education expenses. Therefore, if the taxpayer was eligible for $2,500 of the AOTC, but had no tax liability, they could still receive $1,000 (40% of $2,500) as a refund. For an example on how to calculate the AOTC, see Appendix B . Eligibility Requirements There are a variety of limitations concerning who can claim the AOTC and what expenses can be used to claim the credit. These provisions are outlined below. Qualifying Student A qualifying student is either the taxpayer, the taxpayer's spouse, or an individual whom a taxpayer can claim as a dependent (in many cases, the taxpayer's child). Other requirements include the following: Years of Postsecondary Education: The student must be in their first four years of post-secondary education, which for most students is the first four years of undergraduate education. Number of Years Credit Can Be Claimed per Student: For a given eligible student, the AOTC is only available for four years (including any years the Hope credit was claimed). Type of Degree: The student must be enrolled in a program that results in a degree or certificate. The credit cannot be claimed for courses that do not result in a degree or certificate. For example, it cannot be used for coursework that is used to improve jobs skills. Number of Courses: The student must be enrolled at least half time for at least one academic period (e.g., semester, trimester, quarter, or other period of study like a summer school session), which began in the tax year in which the credit is claimed. (Note that for most taxpayers tax years are equivalent to calendar years for the purposes of federal individual income taxes.) Felony Drug Conviction: The student must not have been convicted of any state or federal felony offense for possessing or distributing a controlled substance when they claim the credit. Qualifying Education Expenses Qualifying education expenses are tuition and certain expenses required for enrollment at a higher education institution, including the cost of course materials needed for a student's studies. A variety of common higher education expenses do not qualify for the AOTC (even if the educational institution requires such payments for attendance), including room and board; insurance; medical expenses (including student health fees); transportation; and similar personal, living, or family expenses. There are a variety of other requirements for education expenses used to claim the AOTC. First, qualifying education expenses used to claim the AOTC cannot generally be used to claim other education tax benefits. Second, qualifying education expenses must be reduced by the entire amount of tax-free education assistance, if that assistance can be used to pay for expenses that qualify for the AOTC. For example, if a taxpayer has $2,000 in qualifying tuition payments, but receives $500 in tax-free veterans' educational assistance, their qualifying education expenses for the AOTC are $1,500. Importantly, to the extent that the taxpayer chooses to report an otherwise tax-free grant, scholarship, or fellowship on their tax return (and hence it is subject to taxation), they may not need to reduce their education expenses by the amount of the award included in income. Third, qualifying expenses that are claimed in a given tax year must be incurred in that tax year. Those expenses must be for an academic period that begins either in the tax year for which the credit is claimed, or for an academic period that begins in the first three months of the following year. Finally, if any of the expenses used to calculate the credit value are refunded to the eligible student or taxpayer, even if they are refunded after the taxpayer files a tax return, the taxpayer must recalculate the value of the credit. Expenses Paid By Dependents In cases where the student is claimed as a dependent by the taxpayer, any qualifying expenses paid by the dependent are to be treated as if they were paid by the taxpayer. If a taxpayer does not claim an exemption for their dependent (even if entitled to the exemption), and the dependent is a qualifying student, then the qualifying student can claim the credit based on the expenses they have paid. At the end of 2017, President Trump signed into law P.L. 115-97 which made numerous changes to the federal income tax for individuals and businesses, including setting the amount of the dependent exemption equal to zero from 2018 through the end of 2025. However, this does not affect the credit. Identification Requirements of the Taxpayer, Student, and Educational Institution To claim the credit, the taxpayer and student (if different) must provide their name and taxpayer identification number. For most taxpayers, their taxpayer ID number is their social security number (SSN). Other taxpayers may use their individual taxpayer identification number (ITIN). For the taxpayer and the student (if different), the taxpayer ID number must have been issued before the due date of the return on which they are claiming the AOTC. Hence, if a taxpayer did not have a taxpayer ID by the due date for filing 2017 federal income tax returns for individuals (April 17, 2018), they could not claim the AOTC on their 2017 income tax return. In addition, if a ITIN is issued after the due date of the return, the taxpayer cannot amend their return and claim the credit. The taxpayer must also provide the employer identification number (EIN) of any institution to which qualified expenses were paid for the qualifying student. As with the ID requirements for the taxpayer and student, failure to provide the EIN may lead to the taxpayer being denied the AOTC. Disallowance of the Credit Due to Fraud or Reckless Disregard of the Rules A tax filer is barred from claiming the AOTC for a period of 10 years after the IRS makes a final determination to reduce or disallow a tax filer's AOTC because that individual made a fraudulent AOTC claim. A tax filer is barred from claiming the AOTC for a period of two years after the IRS determines that the individual made an AOTC claim "due to reckless and intentional disregard of the rules" of the AOTC, but that disregard was not found to be due to fraud. Legislative History Higher education tax credits—first enacted in 1997 by the Taxpayer Relief Act ( P.L. 105-34 )—originated decades earlier in the 1960s when Congress was considering federal financial support for higher education. During consideration of the Higher Education Act of 1965 (HEA; P.L. 89-329)—which provided financial assistance to low-income Americans in the form of grants, work study, and loans —"college tuition credits evolved as an alternative to financial aid programs." The Johnson Administration opposed tuition credits, believing that they would result in reduced revenues that could have otherwise been used for financial aid programs for the lowest-income Americans. They also believed the credit would have a limited impact in influencing whether a student did or did not attend college. According to media reports, then-Treasury Secretary Stanley Surrey stated that a tax credit for higher education "would not result in even a single additional student going to college." The $1 billion or so that the Treasury would lose in revenue by providing a credit or several hundred dollars annually to the parents of college students can be put to better use in the form of direct financial assistance to young people who would not otherwise get to college at all. In the late 1970s, Congress again considered higher education tax credits. At the time, college costs had risen sharply and many middle-class families were not eligible for federal financial aid programs to mitigate these costs. Ultimately, Congress did not enact higher education tax credits and instead expanded existing federal student aid programs, raising the income limits so that more middle-income families would qualify. Nearly two decades later, in a 1996 commencement address at Princeton University, President Clinton outlined a proposal that would later become the Hope Credit, stressing that additional education beyond high school was the key to prosperity for Americans. President Clinton believed that it was essential to make the 13 th and 14 th years of education as universal as the first 12 years. To make these first two years of higher education affordable, President Clinton proposed the creation of the Hope Credit. The credit would be structured so that "if you work hard and earn a B average in high school, we [the federal government] will give you a tax credit to pay the cost of two years of tuition at the average community college." This credit was modeled on and took its name from Georgia's Help Outstanding Pupils Educationally (HOPE) Scholarship, which entitles students in Georgia with at least a B average in high school to a scholarship that covers tuition expenses at state universities and colleges. (The Georgia Hope Scholarship is not a tax credit—it is a direct spending program that is not tied to Georgia's state tax system.) Some experts voiced concerns that the main purpose of education tax credits was to provide a tax cut that would be popular with voters, rather than actually increase college attendance. Ultimately, the Hope Credit was enacted as part of the Taxpayer Relief Act of 1997 ( P.L. 105-34 ), a law that included numerous other tax-cutting provisions. The Hope Credit (the key parameters of this provision are outlined in Table 1 ) provided eligible taxpayers with up to a $1,500 credit (adjusted for inflation) for tuition expenses for the first two years of higher education. Notably, the requirement that students maintain a B average in high school for eligibility was dropped. Beyond those first two years of higher education, the Taxpayer Relief Act of 1997 also created the Lifetime Learning Credit (see Appendix A for more information on this credit)—but for many taxpayers the value of the Lifetime Learning Credit was less than the Hope Credit. In 2008, then-candidate Barack Obama proposed replacing the Hope and Lifetime Learning Credits with the American Opportunity Tax Credit (AOTC). As originally proposed during the presidential campaign, the AOTC would be a credit equal to up to $4,000 (100% of the first $4,000 of qualifying higher education expenses) annually. Crucially, the proposed credit was fully refundable, meaning that certain taxpayers with no tax liability—which includes many low-income Americans—would be able to benefit from this provision and receive up to $4,000 as a refund. In addition, the proposed credit would be computed by the IRS using a taxpayer's previous year tax data and provided directly to the higher education institution, not the taxpayer. Students who benefited from the credit would be required to perform 100 hours of community service when they had completed their education. On a per capita basis, the value of the AOTC, as enacted ($2,500) as part of the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ), was not as large as originally proposed ($4,000), but it was a larger tax benefit than the Hope Credit ($1,800), which it replaced for 2009 and 2010. (The AOTC replaced the Hope Credit, but does not affect the Lifetime Learning Credit.) For more information on key parameters of the AOTC, see Table 1 . The AOTC as enacted had a maximum value of $2,500 and was partially refundable. Taxpayers with little or no tax liability were eligible to receive a part of the credit—40% of its value—as a refund. In addition, unlike the Obama-proposed AOTC, the actual credit did not go directly to educational institutions but instead was claimed by eligible households based on their qualifying education expenses. Finally, the community service requirement was not included as a provision of the final credit. The AOTC was extended for 2011 and 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). At the end of 2012, the AOTC was extended for five additional years, through the end of 2017, by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ; ATRA). The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ), made the AOTC permanent, effectively eliminating the Hope Credit. The PATH Act also included a number of provisions intended to reduce improper payments of the AOTC. These provisions included the disallowance of the credit due to fraud or a reckless disregard of the credit's rules and the ID requirements for the taxpayer, student, and educational institution. Analysis The enactment of the AOTC has resulted in a substantial increase in the amount of education credits claimed by taxpayers, as illustrated in Figure 1 . The increase in education tax credits underscores a broader trend, which began in 1997, of providing federal financial assistance for higher education through the tax code. In light of the budgetary implications of the AOTC, Congress may be interested in understanding the economic impact of this provision. The following sections provide an economic analysis of the AOTC. They include an examination of who claims the credit, its effectiveness in boosting college attendance, and a discussion of administrative issues concerning the AOTC. Analysis of who claims the AOTC indicates that it tends to provide the greatest benefit to middle-income and upper-middle-income taxpayers. From an economic standpoint, the AOTC is an effective tax policy if it causes individuals to engage in a desired behavior—in this case attaining a post-secondary education. Research suggests that the presence of the AOTC is not a major factor in increasing attendance at post-secondary institutions, especially for middle- and upper-middle-income taxpayers who are its primary beneficiaries. Hence, this credit may not be influencing behavior for many recipients and instead may be largely going to many taxpayers that would have pursued a higher education or sent their children to an institution of higher education absent the credit. In addition, the Treasury Inspector General for Tax Administration (TIGTA) has identified administrative issues with the AOTC and its predecessor, the Hope Credit. Who Benefits from the AOTC? When education tax credits were first enacted in 1997, they were expressly intended to provide financial assistance to middle-income taxpayers. Data confirm that the AOTC primarily benefits middle-income taxpayers, although lower-income taxpayers and upper-middle income taxpayers also receive the credit. Figure 2 illustrates the distribution of the AOTC by adjusted gross income (AGI) level, underscoring that this tax credit provides the majority of its benefits to taxpayers with income between $30,000 and $100,000. Specifically, in 2015, approximately 46.6% of AOTC dollars were claimed by taxpayers with income between $30,000 and $100,000. Two components of the AOTC make the credit available to certain low- and upper-income taxpayers. The first component of the AOTC that expanded its availability beyond middle-income taxpayers—in this case to low-income taxpayers—is its refundability. Tax credits reduce tax liability dollar for dollar of the value of the credit, but by definition cannot reduce tax liability below zero. Hence, to benefit from the credit, a taxpayer must have sufficient income to owe taxes. The AOTC is refundable such that taxpayers can receive up to 40% of the value of their AOTC—a maximum of $1,000 per qualifying student—as a refund, even if they have no tax liability. In 2015, taxpayers with income under $10,000 received 6.2% of AOTC benefits, while taxpayers with income between $10,000 and $20,000 received 12.2% of AOTC benefits. In both cases, the majority of the value of the credit was the AOTC's refundable portion. As further underscored in Table 2 , refundability of the tax credit benefits certain low-income taxpayers. For example, more than half (an estimated 55.3%) of the refundable portion of the AOTC is claimed by taxpayers with less than $20,000 of income. In contrast, a little over a twentieth (an estimated 7.1%) of the refundable portion of the AOTC is claimed by taxpayers with incomes between $50,000 and $200,000. The second component of the AOTC that expanded its availability beyond middle-income taxpayers—in this case to higher-income taxpayers—is the income level at which the credit phases out. As illustrated in Table 1 , the AOTC is available to taxpayers with income up to $90,000 ($180,000 for married joint filers). According to estimates provided in Table 2 , in 2015 taxpayers with income between $100,000 and $200,000 claimed an estimated $3.8 billion of the credit (22.9% of the total amount of the AOTC). In comparison to its predecessor—the Hope Credit—the AOTC has shifted more of its benefits to higher-income taxpayers, as illustrated in Figure 3 . For example, approximately one-fifth (18.4%) of AOTC dollars was claimed by taxpayers with income under $20,000, almost three times the share of Hope Credit dollars (6.8%) claimed by taxpayers in this income class. In contrast, more than a fifth (22.9%) of AOTC dollars was claimed by taxpayers with income between $100,000 and $200,000, more than six times the share of Hope Credit dollars (3.4%) claimed by taxpayers in this income class. Notably, these gains were accompanied by the reduction in the share of AOTC dollars (in comparison to the Hope Credit) that went to taxpayers with income between $20,000 and $100,000. Specifically, 89.8% of Hope Credit dollars was claimed by taxpayers in this income range, in comparison to 58.7% of AOTC dollars. Given that children of taxpayers at the upper end of the income scale are more likely to attend a post-secondary educational institution than their lower-income counterparts, providing education incentives to these taxpayers may not increase enrollment at higher education institutions, but instead reward behavior that would have occurred absent the incentive. Does the AOTC Increase Attendance at Post-Secondary Educational Institutions? One of the primary goals of the AOTC is to increase attendance at post-secondary educational institutions. (For brevity, this report may refer to institution of higher education as "college," although the AOTC is available for students attending eligible colleges, universities, and trade schools. ) Increased college attendance may not only lead to benefits for individuals in terms of higher wages, but also may provide societal benefits including increased productivity and innovation. , There are a variety of factors that may determine whether a student attends an institution of higher education, including family socioeconomic level, student educational aspirations, peer support, academic performance, and the cost of college. The AOTC, like other forms of traditional student aid and other forms of tax-based financial aid, subsidizes some of the costs associated with higher education and thus reduces its cost. The effect that a cost reduction has on post-secondary attendance will depend on how sensitive a student's (and his family's) decision to attend college is to price. Some students will be very sensitive to price and insofar as the AOTC reduces cost, this tax benefit would be expected to induce them to attend college. On the other hand, certain students will attend college irrespective of price. In this case, the AOTC rewards students and their families for an action—attending college—that they would have made regardless of the credit's availability, and the credit is simply a windfall gain to certain taxpayers. Historically, studies analyzing the effect of education tax incentives on college attendance were mixed. Because of the limited amount of data available concerning the AOTC, research instead focused more broadly on education tax incentives that lower tuition costs and that have been in effect for several years—namely the Hope Credit, the Lifetime Learning Credit, and the above-the-line tuition and fees deduction (see Appendix A for more information on these tax benefits). Analysis by the Congressional Budget Office (CBO) conducted two years after the Hope and Lifetime Learning Credits were enacted concluded that "tax credits are unlikely to cause substantial increases in college enrollment." A later study echoed the CBO's conclusion, finding that the Hope and Lifetime Learning Credits had no impact on college enrollment, although there were possible limitations with the analysis. More recent research has found that while tax-based aid did have an impact on college attendance, a significant proportion of recipients—93%—would have attended college in the absence of these benefits. One study noted which included analysis of the AOTC found that education credits had "a meager effect on college-going." Another succinctly states that "the tax credit and tax deduction [the tuition and fees deduction, see Table A -1 ], which account for most of the tax expenditures for postsecondary education, do not affect school decisions." Based on the available research and current data on who receives the AOTC, there may be several factors that limit the AOTC's impact on college attendance. Income Level of Beneficiaries: Research indicates that students from lower-income households are more sensitive to the price of college when deciding whether to attend college, in comparison to their higher-income counterparts. Policies that reduce the price of college, like the AOTC, would then be expected to increase enrollment if they were targeted towards lower-income students. However, as previously discussed, the AOTC primarily benefits middle-income taxpayers, and hence may result in a windfall to many of these taxpayers. Timing of Tax Benefit: Unlike aid and loans received before or at the time of attendance, the AOTC, like other education tax benefits (e.g., the Lifetime Learning Credit and tuition and fees deductions, see Appendix A ) may be received up to 15 months after education expenses are incurred. For families who have limited resources to pay education expenses up front (e.g., they have insufficient savings to pay for college costs), tax credits will provide little benefit in financing their college costs and so will play an insignificant role in whether they attend college or not. , However, the AOTC may enable families that do receive loans to ultimately reduce their loan balances by applying the credit amounts to loan balances. Complexity of Benefit: There are a variety of tax benefits that students or their families can claim when they file their taxes, including the AOTC, the Lifetime Learning Credit, and the tuition and fees deduction. These tax preferences differ in a variety of ways including eligibility criteria, benefit levels, and income phase-outs (see Table 1 and Appendix A ). The value of the tax benefit may also depend on the amount of student aid taxpayers or their children receive. Given these numerous factors, taxpayers may not know which tax preference provides the most benefit until they file their taxes—and calculating the tax benefit of each provision can "place substantial demands on the knowledge and skills of millions of students and families." This complexity may result in some taxpayers choosing not to claim a tax benefit like the AOTC, or not claiming the tax provision that provides the greatest benefit. Studies have found that between 27% and 37% of taxpayers failed to claim eligible education tax benefits. In addition, uncertainty in the amount of the credit they may receive may result in many families excluding the credit when making decisions about college attendance. Institutional Response: Some experts have expressed a concern that colleges and universities—especially those with tuition below the maximum amount subsidized by education tax credits—may respond to the availability of education tax credits like the AOTC by increasing their tuition. This would lessen the ability of education tax credits to lower the after-tax price of college. For example, if a student is eligible for a $2,000 credit, but their college increases tuition by $2,000, the price of college will effectively be unchanged and the credit will entirely benefit the college. If the college raises tuition for all students, irrespective of whether they are eligible for the credit, some students may actually see the cost of college rise. Studies of the Hope and Lifetime Learning Credits have found little evidence that they resulted in tuition increases. More recent research has also found no evidence of this effect. While there are a variety of factors that may limit the ability of the AOTC to increase college attendance, research indicates that other forms of student aid including Pell Grants may have a similar impact as the AOTC on college attendance. Hence, some of the limitations of the AOTC in increasing college attendance may apply more broadly to other forms of federal financial assistance. Finally, federal financial assistance for higher education may reduce the after-tax price of college, but cost is just one factor that influences college attendance. Other factors, like college preparedness, may also influence not only whether students attend college, but whether they graduate. Research indicates that college preparedness tends to be correlated with income, with lower-income students less prepared for college than their higher-income counterparts. Thus, other societal factors that exist prior to college may limit the impact aid has on increasing college attendance, especially among needier students. Are Ineligible Taxpayers Erroneously Claiming the AOTC? Taxpayers are more likely to claim tax benefits when they are simple and straightforward to claim. However, the trade-off for ease in claiming tax benefits is that it may result in increased errors—both intentional and unintentional—as illustrated in a 2015 Treasury Inspector General for Tax Administration (TIGTA) report on the AOTC. The 2015 TIGTA report examined 2012 income tax returns that claimed this credit and identified 3.6 million taxpayers who received more than $5.8 billion in AOTC credits that appeared to be erroneous. Of these potentially erroneous credits, the majority ($3.2 billion) were a result of the IRS being unable to confirm that the students claimed on the taxpayers' tax returns attended a college or university. In addition, the TIGTA report found that $1.3 billion in potentially erroneously claimed credits could be attributed to students not attending an eligible educational institution (i.e., they were not certified by the Department of Educations to receive federal student aid funding). One way the IRS could verify that a student attended a college or university would be to match information returns provided by colleges and universities—the 1098-T—with information provided on a tax return. The 1098-T provides the name and taxpayer identification number of the student and the name and employer identification number (EIN) of the college or university. On a federal income tax return, the taxpayer must fill out Form 8863 which also includes the name and taxpayer ID of the student and the name and EIN of the college or university. A discrepancy between these two forms could indicate an erroneous claim for the credit. However, as TIGTA noted in its report, the IRS does not always receive the 1098-T at the time tax returns are filed. For example, colleges and universities are required to file the form 1098-T electronically by March 31. The deadline for most taxpayers to file their federal income tax return is April 15, and many file earlier. Tax filing season generally begins at the end of January. TIGTA proposed the introduction of legislation to require that 1098-Ts be filed no later than January 31. To date, this proposal has not been enacted into law. TIGTA also suggested the IRS use Department of Education databases on education institutions to verify that a college or university listed on a Form 8863 is a qualifying institution for the credit. While the IRS does not currently have statutory authority to use these databases to verify AOTC claims and deny the credit before a refund is issued, TIGTA recommended using these databases in post-refund examinations of tax returns that claimed the AOTC. Reducing erroneous claims of the AOTC may require higher that education institutions provide information to the IRS before tax returns are filed. It may also necessitate that the IRS improve its compliance checks, perhaps by coordinating with the Department of Education to share additional information that can be used by the IRS to flag questionable returns for audit. However, as TIGTA highlights "the IRS does not have the audit resources it needs to make any significant reduction in the loss of funds to the Government resulting from paying erroneous claims." Hence even with better data, the IRS may still be limited in recovering erroneously claimed credits. While it may be more beneficial to use third-party data to verify taxpayer eligibility for the AOTC during the filing season, the IRS does not currently have the authority to do so. Legislation would be needed to provide the IRS with the authority to use databases—like those at the Department of Education—during tax filing so that erroneous claims are denied before tax refunds are issued. Policy Options Congress may also want to consider modifying the AOTC, or consolidating the AOTC with other education tax benefits. Finally, Congress may want to consider federal financial aid for higher education holistically, which could include alternative ways to reduce the cost of higher education. Modify the AOTC Policymakers may choose to modify the AOTC. The AOTC could be modified in a variety of ways. Policymakers may choose to either expand or limit certain parameters of the credit, for example, by using a different credit formula, changing the amount of qualifying expenses that can be used to claim the credit, adjusting the portion of the credit (currently 40%) that is refundable, modifying the income level at which the credit phases out, allowing taxpayers to claim the credit for either more or less than four years of post-secondary education, changing the definition of qualifying expenses (for example to include room and board), and providing nondegree-seeking students (such as students in job-training programs) eligibility for the credit. If desired, certain changes to the AOTC may expand the credit's availability to lower-income recipients. For example, policymakers could make a greater percentage of the credit refundable. They could also modify the credit such that a lower level of expenses would be necessary to claim the maximum credit (for example, the formula could be 100% of the first $2,500 of qualifying expenses). In contrast, other modifications, like increasing the income level at which the credit phases out, may expand the credit to additional upper-income taxpayers. These changes may increase confusion among taxpayers, especially when trying to determine which higher education tax credit (or the above-the-line deduction for tuition and fees) provides the greatest benefit. Consolidate the AOTC with Other Education Tax Benefits Policymakers may instead choose to consolidate the AOTC with other education tax incentives that reduce tuition costs—the Lifetime Learning Credit and tuition and fees deduction. Prior to enactment of the AOTC, there have been several legislative proposals to consolidate these tax benefits. For example, in the 109 th Congress, Senator Baucus introduced the Education Competitiveness Act of 2006 ( S. 3902 ), which repealed the Hope and Lifetime Learning Credits and replaced them with a fully refundable $2,000 higher education tax credit. In the 110 th Congress, the bipartisan Universal Higher Education and Lifetime Learning Act of 2007 ( H.R. 2458 ) consolidated the Hope and Lifetime Learning Credits and the tuition and fees deduction into one partially refundable credit with a maximum value of $3,000 (50% or up to $1,500 was available as a refund). In addition, this legislation set a lifetime limit of $12,000 per student for the credit (the credit could be claimed for no more than two years of graduate education). More recently, the House-passed version of H.R. 1 (the version of the bill which passed the House as amended on November 16, 2017) would have eliminated the Lifetime Learning Credit while simultaneously expanding the AOTC to a five-year credit, with a smaller credit in the fifth year. The Joint Committee on Taxation estimated that this change would have cost $17.8 billion between 2017 and 2028. (Policymakers could, however, consolidate and modify education tax credits in such a way that would increase revenue, decrease revenue, or remain revenue neutral.) Ultimately, this change was not included in the final bill, which was signed into law on December 22, 2017. Alternative Policies to Reduce the Cost of Higher Education The AOTC is one of a variety of policies designed to lower the cost of education to students and their families and hence increase accessibility to higher education. Policymakers may pursue several options concerning the AOTC. Alternatively, they may choose to reevaluate the federal government's role in higher education financing more broadly by considering education tax incentives like the AOTC in context with other forms of federal financial aid to develop a broader higher education financing policy. For example, policymakers could expand the types of expenses that would qualify for the AOTC such that a low-income student who uses a Pell Grant to pay for most or all of their tuition could still benefit from the AOTC. Or policymakers may choose to reformulate the federal government's role in higher education financing entirely by encouraging alternative financing mechanisms like human capital contracts, which allow a student to repay an investor a percentage of future earnings for a fixed period of time. Although there may be shortfalls with this particular proposal, approaching higher education policy holistically—instead of tax policy versus traditional financial aid—may provide more benefit to low- and middle-income students. Appendix A. Other Tax Provisions for Current-Year Higher Education Expenses Under current law, there are a variety of benefits available to taxpayers for current-year higher education expenses. A complete list can be found in CRS Report R41967, Higher Education Tax Benefits: Brief Overview and Budgetary Effects , by [author name scrubbed]. Of these benefits, the AOTC, the Hope Credit, the Lifetime Learning Credit, and the above-the-line deduction for tuition and fees are often discussed together as the main tax benefits for current-year higher education expenses (under current law, the tuition and fees deduction is scheduled to expire at the end of 2017). A taxpayer cannot claim both the deduction and an education credit (Lifetime Learning or AOTC) for the same student in the same year. Details on the Lifetime Learning Credit and the tuition and fees deduction are provided below. Appendix B. Calculating the AOTC: A Stylized Example The Smiths pay $8,000 of college expenses for Sarah. Of the $8,000 in expenses, $6,000 are for tuition and are considered qualifying expenses, while $2,000 are for room and board expenses, which are not qualifying expenses. The Smiths' daughter Sarah attends University X in the same year her parents incur the $8,000 in college expenses. The Smiths file their tax return as married joint filers. They have a combined income of $100,000, which is below the level at which the credit begins to phase out ($160,000). To help pay for these costs, the university gives Sarah a $4,000 tax-free scholarship (i.e., none of the scholarship is subject to taxation), which can be used to pay for any part of Sarah's university expenses. The remainder of the cost is paid for with student loans. Sarah is a first-year undergraduate at University X enrolled full-time in a degree program and is eligible to claim the AOTC. She is claimed as a dependent by the Smiths. Step 1. Qualifying Expenses: Sarah has $6,000 in qualifying expenses that are reduced by the entire value of her tax-free scholarship. Importantly, even though the tax-free scholarship can be used for expenses aside from tuition and fees, because it is tax-free, she must reduce her qualifying expenses by the total value of the award. If she had used the $4,000 award to pay for room and board (not a qualifying expense) and she had also reported it on her (or her parent's income tax return), she would not need to reduce her qualifying expenses by the value of the award. However, because the award is entirely tax-free, her $6,000 in qualifying expenses are reduced by $4,000 and she has $2,000 in qualifying expenses. Step 2. Calculating the AOTC: Because Sarah has $2,000 in qualifying expenses, her parents can claim a $2,000 AOTC (100% x first $2,000 of qualifying expenses).

The American Opportunity Tax Credit (AOTC)—originally enacted on a temporary basis by the American Recovery and Reinvestment Act (ARRA; P.L. 111-5) and made permanent by the Protecting Americans from Tax Hikes Act (PATH; Division Q of P.L. 114-113)—is a partially refundable tax credit that provides financial assistance to taxpayers (or their children) who are pursuing a higher education. The credit, worth up to $2,500 per student, can be claimed for a student's qualifying expenses incurred during the first four years of post-secondary education. In addition, 40% of the credit (up to $1,000) can be received as a refund by taxpayers with little or no tax liability. The credit phases out for taxpayers with income between $80,000 and $90,000 ($160,000 and $180,000 for married couples filing jointly) and thus is unavailable to taxpayers with income above $90,000 ($180,000 for married couples filing jointly). There are a variety of other eligibility requirements associated with the AOTC, including the type of degree the student is pursuing, the number of courses the student is taking, and the type of expenses which qualify. Before enactment of the AOTC, there were two permanent education tax credits, the Hope Credit and the Lifetime Learning Credit. The AOTC replaced the Hope Credit (the Lifetime Learning Credit remains unchanged). A comparison of these two credits indicates that the AOTC is both larger—on a per capita and aggregate basis—and more widely available in comparison to the Hope Credit. Data from the Internal Revenue Service (IRS) indicate that enactment of the AOTC contributed to an increase in both the aggregate value of education credits claimed by taxpayers and the number of taxpayers claiming these credits. Education tax credits were intended to provide federal financial assistance to students from middle-income families, who may not benefit from other forms of traditional student aid, like Pell Grants. The enactment of the AOTC reflected a desire to continue to provide substantial financial assistance to students from middle-income families, while also expanding the credit to certain lower- and upper-income students. A distributional analysis of the AOTC highlights that this benefit is targeted to the middle class, with approximately half (46.6%) of the estimated $17 billion of AOTCs in 2015 going to taxpayers with income between $30,000 and $100,000. One of the primary goals of education tax credits, including the AOTC, is to increase attendance at higher education institutions (for brevity, referred to as "college attendance"). Studies analyzing the impact education tax incentives have had on college attendance are mixed. Recent research that has focused broadly on education tax incentives that lower tuition costs and have been in effect for several years, including the Hope and Lifetime Learning Credits, found that while these credits did increase attendance by approximately 7%, 93% of credit recipients would have attended college in their absence. Even though the AOTC differs from the Hope Credit in key ways, there are a variety of factors that suggest this provision may also have a limited impact on increasing college attendance. In addition, a recent report from the Treasury Department's Inspector General for Tax Administration (TIGTA) identified several compliance issues with the AOTC. There are a variety of policy options Congress may consider regarding the AOTC. (The credit was not modified or changed in the recent tax law enacted at the end of 2017, P.L. 115-97.) Alternatively, Congress may want to examine alternative ways to reduce the cost of higher education. This report discusses these issues and concludes with an overview of selected proposals to modify the AOTC.

Introduction On August 1, 2004, the Department of Homeland Security (DHS) issued a terrorism alert forcritical financial institutions in New York, Washington, DC and Newark, NJ. Press reports indicatedthat these institutions employed security guards, and that surveillance by terrorists included thelocation, armament, and activity of those guards. (1) Widely deployed among transportation hubs, power plants, andother nationally important facilities, such security guards are viewed by many as both a vital elementof terror deterrence and the first line of response to terrorist attacks. The Bush Administration sharesthis view. In the National Strategy for the Physical Protection of Critical Infrastructures and KeyAssets the administration identifies security guards as "an important source of protection for criticalfacilities." (2) The nation'sdependence on security guards for critical infrastructure protection gives rise to questions as to thestatus and capability of these guards, and federal efforts to help them combat terrorism. In 2003, there were approximately one million security guards (including airport screeners)employed in the United States -- compared to 650,000 U.S. police officers. (3) Nearly half of these guardswere employed directly by the institutions they served; the rest, approximately 53% of all guards,worked for contract guard companies providing outsourced guard services. This report provides background information concerning security guards in the United Statesand their role in critical infrastructure protection. It analyzes trends in the number and deploymentof security guards, including effects of the terror attacks of September 11, 2001 (9/11). It discussesthe wages paid to security guards compared to similar workers, and the relationship between pay andworkforce effectiveness. The report reviews the qualifications and training of security guards, including background checks, highlighting recent changes related to counter terrorism andstate-to-state differences in qualification requirements. Finally the report discusses policyconsiderations of potential interest to Congress. Issues Facing Congress The role of the federal government in protecting the nation's critical infrastructure has beena fundamental concern of Congress since 9/11. Part of this concern involves the potential impositionof federal security requirements, including guard requirements, on infrastructure which lies largelyin the private sector. Among nuclear power plants, for example, the federal government has requiredmore training and staffing of private guards since 9/11. Airport screeners have been federalizedoutright. As U.S. homeland security policy evolves, direct federal intervention in the protection ofother critical infrastructure, including chemical plants, banks, and communications networks, isbecoming an increasingly important issue. Critical infrastructure is found in many congressional districts. By definition, a terroristattack on such infrastructure would affect not only local communities, but the nation as a whole. Faced with the widely perceived need for greater critical infrastructure protection, some in Congressare examining the adequacy of current U.S. counter-terrorism activities, including the role andcapabilities of security guards. If Congress concludes that the effectiveness of security guards couldbe enhanced, Congress may consider additional guard-related legislation (such as H.R. 4830 of the 108th Congress), or may exercise its oversight authority in other ways to influencesecurity guard capabilities and deployment. Background What is "Critical Infrastructure"? What U.S. policy makers consider to be "critical infrastructure" has been evolving and isoften ambiguous. Twenty years ago, "infrastructure" was defined primarily with respect to theadequacy of the nation's public works. In the mid-1990's, however, the growing threat ofinternational terrorism led policy makers to reconsider the definition of "infrastructure" in the contextof homeland security. Successive federal government reports, laws, and executive orders haverefined, and generally expanded, the number of infrastructure sectors and the types of assetsconsidered to be "critical" for purposes of homeland security. Currently, the USA PATRIOT Actof 2001( P.L. 107-56 ) defines "critical infrastructure" as: systems and assets, whether physical or virtual, so vitalto the United States that the incapacity or destruction of such systems and assets would have adebilitating impact on security, national economic security, national public health or safety, or anycombination of those matters (Sec. 1016e). This definition was adopted, by reference, in the Homeland Security Act of 2002 ( P.L. 107-296 , Sec.2.4) establishing the Department of Homeland Security (DHS). The National Strategy also adoptsthe definition of "critical infrastructure" in P.L. 107-56 , and provides the following list of specificinfrastructure sectors (and assets) falling under that definition: The critical infrastructure sectors in the National Strategy contain many physical assets, butonly a fraction of these could be viewed as critical according to the DHS definition. For example,out of 33,000 individual assets cataloged in DHS's "national asset database," the agency considersonly 1,700, or 5%, to be nationally critical. (4) The 33,000 assets in the DHS database themselves constitute onlya subset of all assets in the critical infrastructure sectors. (5) Because federal agencies, state agencies and the private sector oftenhave different views of what constitutes criticality, compiling a consensus list of nationally criticalassets has been an ongoing challenge for DHS. The implications of this challenge as it relates tosecurity guards is discussed later in this report. Security Guards and Critical Infrastructure Protection Protecting people and property from accidents and crime is the principal role of securityguards. They monitor, patrol, and inspect property to protect against fire, theft, vandalism, and otherillegal activity. They may enforce laws on their employer's grounds, conduct incident interviews,prepare incident reports, and provide legal testimony. Guards may work at one location, or maypatrol among multiple locations to conduct security checks. Security guards typically use radios andtelephones to call for assistance from police, fire, or other emergency services as required. They maybe armed, as required by specific duty assignments, consistent with state and federal laws governingprivate ownership and use of firearms. Although security guards, in general, share many common responsibilities, they may alsoface unique duties at particular institutions. In banks, for example, guards protect customers, money,safety deposit boxes, and records. They may work with bank detectives to prevent theft andapprehend criminal suspects before police arrive. By comparison, transportation terminal guards(e.g., airport screeners) protect travelers, freight, luggage, and equipment. They may screenpassengers for weapons and explosives, ensure no property is stolen while being loaded or unloaded,and watch for fires and criminal activity. (6) Security Guard Police Powers. Although securityguards have long supplemented public law enforcement, they typically have more limited authoritiesthan police and other law officers. Specific powers vary by jurisdiction, but they generallycorrespond to the police authorities of private citizens. In most states, citizens may make arrests only when acrime is committed in their presence; suspicion that a crime has taken place is not enough. And insome states, citizens may only make arrests for felonies, and then must immediately turn the suspectover to a police officer. Even those guards who do see felonies in progress are advised to arrest withcaution. Unlike police officers, civilians who accidentally take innocent suspects into custody areliable for false arrest. (7) Security guards may have other authorities or may face further limitations to their policepower according to state licensing or other regulation, where it exists. For example, the followingauthorities are listed in California's security guard training manual: As an agent of the employer, a security guard can question an individual on theemployer's property and may prevent entry to the property by standing in the individual'sway. Although a security guard has the power of citizen's arrest, a guard is notobligated by law to make arrests. A security guard should never touch a criminal suspect except for self defense,or when necessary to use reasonable force in an arrest. If a security guard believes an arrested person is armed, the guard may searchfor weapons only. A suspect may not be legally searched for weapons unless he is actuallyarrested. A security guard cannot legally carry a firearm or baton without a state permitand a valid security guard license. (8) Critical Infrastructure Protection Responsibilities. Since the terror attacks of 9/11, protecting against terrorism has been an additional responsibility formany security guards -- especially for guards associated with critical infrastructure. Security guardsare viewed by many as a necessary supplement to the counter terrorism activities of public lawenforcement agencies, which have limited resources and broad responsibilities. According tocongressional testimony by one guard company executive, Law enforcement agencies [have] been called upon tofulfill two fundamentally different and competing missions -- to deter domestic crime while alsobeing engaged in the fight against potentially new and devastating terrorist attacks orchestrated fromabroad. Unfortunately, there are simply neither the public resources nor the personnel to do the job....Consequently ... security officers are being asked to fill the gap. (9) The increased counter terrorism role for security guards has become apparent in many privateand public sector security plans. In the refinery industry, for example, security guidelines during aDHS "orange" alert call for engaging a "trained and knowledgeable" security workforce, increasingpatrols, inspecting vehicles, and other security activities that may rely on security guards. (10) Counter terrorismactivities of security guards in other key sectors are discussed later in this report. Guards Deployed at Critical Infrastructure. According to the Bureau of Labor Statistics (BLS) there were approximately 1,022,000 securityguards working in the United States in 2003 ( Table 1 ). For the purposes of policy analysis, theseguards may be separated into two categories of employment and three categories of service."Contract" guards work directly for private guard companies and are deployed under contract to otherinstitutions. "Staff" guards are employed directly by institutions as regular line employees. Bothcontract and staff guards may work either at private facilities, government facilities, or airports. (Guard forces at airports are mostly "airport screeners," whose duties and employment characteristicswarrant their distinction from other guards.) The approximate number of contract and staff guardsworking at all three types of institutions in 2003 is summarized in Table 1 . The BLS reports that over 14% of all security guards work part-time. The number ofpart-time employees is higher among contract guards than among staff guards. According to a 2002survey of major contractors, 20% to 30% of contract guards worked part-time. (11) A significant number ofthese part-time guards are off-duty police officers supplementing their incomes. (12) Table 1. 2003 Total U.S. Security GuardEmployment Source: CRS analysis of Bureau of Labor Statistics (BLS) and trade press data. (13) Critical Infrastructure Guards. How many securityguards actually protect critical infrastructure? Only a rough estimate can be made. Although thereis no source of data detailing the number of contract security guards serving specific industry andgovernment sectors, the BLS does report such data for staff guards. By totaling 2002 BLSemployment figures for the appropriate industries, CRS estimates that approximately 122,000 (28%)of staff guards (excluding airport screeners) worked in industries corresponding to the NSPP criticalinfrastructure sectors. (14) As noted above, however, critical assets typically comprise only a fraction of a sector's total assets. Assuming, for simplicity, that guards are found only among assets in DHS's national asset database,and that guards are uniformly distributed across those assets, it may be reasonable to estimate that,consistent with DHS's critical asset ratio, up to 5% of staff guards actually protect criticalinfrastructure. Further assuming that contract guard deployment reflects staff guard deployment, thetotal number of security guards protecting critical assets could be on the order of 50,000. Such a"critical" guard force would be comparable in size to the 55,000 Transportation SecurityAdministration (TSA) and contract screeners working at the nation's commercial airports in 2003. Note that airport screeners are also considered to be critical infrastructure guards for purposes of thisreport. The Contract Guard Industry. Table 1 shows thatcontract security guards accounted for approximately 53% of all guards working in the United Statesin 2003. As a business, contract guard services is one of the largest segments of the broader securityindustry in the United States; its revenues of approximately $11 billion accounted for 30% of totalsecurity industry revenues in 2003. (15) Contract guarding is a somewhat fragmented industry, however,with several large national companies and thousands of smaller regional and local companies. (16) Table 2 summarizes 2003operating statistics for the largest U.S. guard contractors. As Table 2 shows, the four largestcontractors account for 50% of industry revenues and 35% of contract employees. These fourcontract guard companies are profiled in Appendix 1 . The top two contractors, Securitas U.S.A. andWackenhut, are foreign-owned. Table 2. U.S. Private Guard Contractor Key Operating Statistics2003 Source: CRS Report RL32523(pdf) , The U.S. Contract Security Guard Industry: an Introduction toServices and Firms , by [author name scrubbed]. Financial reporting period may vary by company due todiffering accounting practices. * Statistics include North American guard operations outside the United States. Contract guards are widely deployed to protect critical infrastructure and key assets. Wackenhut, for example, provides guard services to 30 of the country's nuclear plants. (17) Akal Security providesguard services at U.S. Army bases and weapons depots. (18) The U.S. Federal Protective Service, which safeguards allfederally owned and leased facilities nationwide, including certain critical facilities, employs 10,000contract security guards. (19) Although there are several very large U.S. guard contractors,critical infrastructure guards are found in both large and small companies. For further informationabout the U.S. contract guard industry, see CRS Report RL32523(pdf) , The U.S. Contract Security GuardIndustry: an Introduction to Services and Firms , by [author name scrubbed]. U.S. Security Guard Employment Trends One basic measure of security guard activity is year-to-year change in employment. Analysisof the available data shows that overall employment of U.S. security guards (excluding airportscreeners) has declined over the last five years, although guard employment has increased in certaininfrastructure sectors. Total U.S. Guard Employment Trends. TotalU.S. police and security guard employment (excluding screeners) from 1999 to 2003 is shown in Figure 1 . As the figure shows, the number of guards fell by approximately 124,000 (11%) between1999 and 2003, while the number of police increased by approximately 34,000 (6%) during the sameperiod. Source: Bureau of Labor Statistics (BLS). National Occupational Employment and Wage Estimates(1999-2003). "Protective Service Occupations." Published annually, 2000-2004. Figure 1. Total U.S. Police and Guards (except Screeners) A decline in overall guarding jobs since 2001, notwithstanding the nation's heightenedconcerns about terrorism, would appear to contradict popular perceptions about U.S. guarddeployment. Many analysts have assumed that private guard contractors, in particular, would seean increase in business as infrastructure owners stepped up guarding of their facilities under moreprotective security plans. One reason this increase may not have occurred is because private sectorreactions to 9/11 may have been short-lived. As one major guard contractor noted in a recentinvestor publication: "Following September 11, 2001, there was a sharpincrease in demand for security, particularly in the USA .... Most of this additional demand hasproved to be short-term.... Total market growth in 2003 was around zero percent." (20) Others have suggested that, due to the U.S. economic recession which followed 9/11, manycompanies were forced to cut discretionary expenses, including security guard expenses, to maintainprofitability. Although the total number of U.S. guards appears to have declined over the last several years,it is not clear to what degree the number of guards at critical sites reflects this trend. It is possiblethat the deployment of critical infrastructure guards increased, but that these increases were offsetby larger reductions in non-critical infrastructure guards. The following examples suggest that thereare more critical infrastructure guards, at least in several infrastructure sectors. Airport Screener Trends. The employment trendfor airport screeners has differed from that of other guards. Figure 2 shows total U.S. employmentof airport screeners from 1999 to 2004. When airport screening was federalized after September 11,2001, the number of screeners more than doubled to approximately 60,000 in November, 2003. (21) The TSA has subsequentlyreduced the screening work force to 44,000 workers, although this number of screeners is still 57%higher than in 2001. Sources: General Accounting Office (GAO). Aviation Security. GAO/RCED-00-75. June 2000.p18; O'Rourke, L.M. "Air Safety Bill OK'd by House." Sacramento Bee . Nov. 2, 2001;Transportation Security Administration (TSA). Internal database. June, 2003 and April, 2004. Note:Because screener employment estimates are only available for specific months during the 1999-2004period, annual averages may differ from these values. Nuclear Plant Guard Trends. Nuclear powerplants have long been recognized as potential terrorist targets. Consequently, their security isregulated by the Nuclear Regulatory Commission (NRC). In response to the terror attacks of 9/11,and specific intelligence about potential attacks on U.S. nuclear facilities, the NRC has increasednuclear plant guard staffing requirements, along with other security requirements. As a result, thetotal number of guards deployed among the nation's 67 nuclear sites reportedly increased from 5,000in 2001 to 8,000 in 2004. (22) Guard Trends in Other Critical Sectors. Thereis little public information available on security guard employment trends at the sector level forinfrastructures other than airports and nuclear plants. Anecdotal reports within sectors suggest someincrease in guards at other potentially critical facilities. It may not be appropriate to generalize theseanecdotes to all other critical facilities, nor is it clear whether these guard increases have beensustained. Nonetheless, the following examples do illustrate a range of guard deployment policiesamong critical infrastructure sectors since 9/11. Figure 2. Total U.S. Airport Screeners Security costs at four downtown Los Angeles skyscrapers, including the U.SBank Tower, reportedly increased 25% between 2001 and 2002, primarily due to additional guardexpenses. Security at these buildings was budgeted "slightly" lower for 2003. (23) In a 2002 security review of 15 financial market organizations (including 7"critical" ones), the GAO found increased deployment of security guards over pre-9/11 deployment. Some organizations used more guards for patrols, others for greater armed response, and one toinitiate vehicle screening. (24) In 2003, the GAO found that seven chemical facilities visited by GAO staffhad increased the number of security guards in response to chemical industry security guidancedeveloped after 9/11. Nineteen other chemical facilities were unwilling to host GAO visits. (25) The GAO did not indicateif any of the facilities might be considered critical. The Los Angeles Department of Water & Power (LADWP), spent $7 millionto "double" its city and ground-based security patrols in FY2001. This patrol budget decreased to$5 million in both FY2002 and FY2003, although the utility proposed increasing it again to $7million for FY2004. (26) The American Petroleum Institute (API) has reported that, since 9/11, someoil pipeline operators, including operators of critical systems, have "used guard patrols at certainfacilities under certain threat conditions." (27) The API does not report a baseline increase in guards amongpipeline operators. The Jamestown-Surry (Virginia) ferry system hired 12-15 guards under asix-month contract for passenger and vehicle screening beginning July, 2004. (28) The examples above indicate that the timing, level and duration of changes in guard employmentmay vary considerably within and across critical infrastructure sectors. Policy Issues In considering the role of security guards in U.S. critical infrastructure protection, policyanalysts have focused on several key issues: staffing, pay, background checks, and training. A fewadditional policy issues, such as counter-terrorism support and contract guard cost-effectiveness,have also received some public attention. Guard Staffing Levels The relationship between the size of a guard force stationed at a critical facility, and its effecton facility security is the subject of debate. Many policy analysts assume that the security of acritical asset is proportional to the number of guards protecting it (i.e., more guards means bettersecurity). For example, in a 2002 campaign speech, one U.S. presidential candidate called forCongress to "require much better physical security for [chemical] plants, including more securityguards." (29) PresidentBush's National Strategy likewise calls for "recruiting and training more skilled ... security personnelto protect our critical infrastructures." (30) Significant increases in the number of airport screeners andnuclear plant guards since 9/11 appear to be based, at least in part, on similar thinking. (31) While in many cases it may be true that increasing guard numbers can make a facility moresecure, in other cases the relationship between guard deployment and facility security may be lessclear. In guarding, quantity does not necessarily ensure quality. Analysts have suggested severalreasons why increasing the number of guards at a given facility might not make it more secure, ormight even make it less secure. Guards can only meet "guardable" threats, such as physical intrusion orsurveillance by potential terrorists. Any number of guards could not be expected to prevent attackby a commandeered airliner, or a remote cyber-attack on facility safetysystems. If the nature of a terrorist attack is potentially "guardable," but guards are nottrained to recognize it, additional guards may be no more likely to respond to it effectively thanfewer guards. (32) If an increase in the number of guards at a facility is accomplished by makingthe existing force work more hours, the guards may become fatigued, disgruntled, and, consequently,less effective. (33) Increasing the size of a guard force may lead to confusion about individual responsibility and reporting relationships, which may reduce guard effectiveness. (34) Expanding a guard force may increase opportunities for hostile "insiders" toinfiltrate that force. (35) Having a larger guard force, however, might make it more difficult for such an insider to successfullyconduct hostile activities. Debate about the relationship between guard numbers and security suggests that enhancingcritical facility security may not be as simple as posting more guards. As a practical matter, theeffectiveness of guards in countering a terrorist attack also depends on the specific types of threatsthe guards may face, the training they receive, their organization, the conditions of their employment,and background checks. When these factors are taken into account at a given facility, analysts mayconclude that increasing the size of its guard force may not significantly increase its security againstterrorism, or that the facility operators might realize greater security benefits from additionaltraining, better organization, or security technology investments. Pay for Critical Guards Policy analysts often assert that security guard employment pays too little and offers too fewbenefits to sustain a well-qualified pool of workers. (36) Pay advocates claim that the U.S. guard force could attract"better" workers, and consequently, could be more effective, if guards were better compensated. These claims have been directed especially at critical infrastructure guards. In its 2000 report onairport security, for example, the GAO linked "long-standing" problems with airport screenerperformance to "personnel factors" including low pay and associated high turnover. (37) The subsequentfederalization of the nation's airport screeners included a pay increase of more than 100% from nearminimum wages of $12,000 per year in 2000. These pay increases appear to have improved bothemployee quality and retention. Some policy analysts suggest that a similar reconsideration of guardpay might be warranted for other critical infrastructure guards. Guard Salaries and Qualifications. Analysis ofthe available data demonstrates that security guards are relatively low paid workers. According to Figure 2 , contract guard salaries averaged $19,400 per year in 2003, less than half of the averagesalary for police and well below the average U.S. salary for all occupations. Staff guards earnednearly 25% more than contract guards in 2003. Pay for both government and contract airportscreeners in 2003 is estimated to have averaged over $28,700, nearly 50% higher than contractguards but still $16,000 less than police officers. There is no publicly available report on averagepay for all nuclear plant guards, although one study in 2002 found that salaries among five specificnuclear plants started at $19,364 to $32,117, and ranged up to $40,393 after three years ofemployment. (38) Contract security guards who work full time often also receive benefits such as health insurance, paidleave, and retirement plans. Low pay for guard employment reflects the minimal qualifications required by guardemployers. According to the BLS, many contract guard companies have no specific educationalrequirements, although they prefer high school graduation or equivalent certification for armedemployees. Armed guards must be licensed by appropriate government authorities and may receivespecial police certification allowing them to make some types of arrests. Figure 3. Average Annual Salaries for U.S. Occupations, 2003 Sources: Bureau of Labor Statistics (BLS). May 2003 National Occupational Employment andWage Estimates . "All Occupations" and "Protective Service Occupations." 2004; Screener data from Magaw, John., Under Sec. of Transportation for Security. Statement before the HouseAppropriations Committee, Transportation Subcommittee. June 20, 2002. Note: 2002 screener payis adjusted by 4.1% federal pay increase for 2003. Higher Pay for Critical Infrastructure Guards? Airports and nuclear plants are nationally critical facilities, and are perceived to be at greater risk forterrorist attack than many other facilities. Consequently, airport and nuclear plants are deemed torequire guards with better qualifications, experience, and counter-terror training than other guards. Given their presumed experience and skills, airline screeners and nuclear plant guards are paid more,on average, than other contract or staff guards. It is possible that an informed assessment of security needs across all critical assets woulddemonstrate a need for more capable guards and associated higher salaries. In such a case, higherguard salaries would impose added security costs on the critical asset owners. For purposes ofillustration, if 50,000 critical infrastructure guards had their salaries increased from the averagecontract guard salary ($19,400) to the average airport screener salary ($28,732), total annual guardcosts would increase by $466 million. Imposition of such costs on guard employers, especiallyprivate guards contractors, might be met with resistance, however, since the provision of guardservices is a highly cost-competitive business. Background Checks The potential for terrorists to infiltrate critical facilities by hiring on as security guards haslong been a concern in specific critical infrastructure sectors. The NRC, for example, requiresexhaustive background checks of nuclear plant guards under the Atomic Energy Act (P.L. 83-703). The Federal Aviation Administration (FAA) began requiring "background investigations andcriminal history checks" for airport screeners in 1998. (39) Since 9/11 heightened concern about terrorism has promptedsome legislators to call for increased federal background screening of other security guards to help"determine whether or not employees ... pose a threat to the facilities and persons they are supposedto protect." (40) Similarly,the Bush Administration's National Strategy states that "time-efficient, thorough and periodicbackground screening ... is an important tool for protecting against the 'insider threat.'" (41) Congressional interest in federal background checks for security guards stems, in part, frominconsistent or incomplete screening requirements at the state level. According to a 2004 survey,23 states (including the District of Columbia) have licensing requirements which authorize federalcriminal background checks for contract security guards. An additional 12 states authorize only statecriminal checks. The remaining 16 states had no background check regulations. (42) Even in states withauthorizing regulations, however, federal background checks are not necessarily performed on allprospective guards. Consequently, as one legislator has stated, background checks of both State andFederal criminal history for private security guards "are the exception rather than the rule." (43) The Private Security Officer Employment Authorization Act of 2004 ( P.L. 108-458 , Sec.6402) facilitates federal background checks of private security guard company employees (or jobapplicants) by authorizing employer access to Federal Bureau of Investigation (FBI) criminalrecords. Under P.L. 108-458 , FBI backgrounds checks could presumably be made for both contractand staff security. The act includes provisions for states that either do or do not have stategovernment standards for security guard qualification (Sec. 6402d1Dii). Other legislation proposedIn the 108th Congress would have required private security guard companies to perform federalcriminal background checks, and would have prohibited the hiring of guards who failed such checks( H.R. 4022 , Section 5a). Criminal Backgrounds and Terrorism. From thestandpoint of crime prevention and employee reliability, many analysts have argued that screeningguards specifically for criminal history is only prudent. It might be unwise, for example, to hireconvicted bank robbers to guard banks. Furthermore, Al Qaeda and other terror groups have beenknown to recruit disgruntled U.S. citizens, such as alleged "dirty" bomber Jose Padilla, from withinthe U.S. criminal justice system. (44) However, there is also evidence that sophisticated terror groupsdeliberately recruit operatives without criminal histories. The Irish Republican Army (IRA), forexample, viewed new recruits with no criminal records as ideal to undertake missions which wouldbe difficult for members known to security authorities. (45) United States officials cite similar recruiting preferences forterror groups like Al Qaeda. (46) It appears, therefore, that the direct relationship between criminalhistory and terrorism is debatable. Background Check Limitations. Both U.S. andinternational experience suggest that federal criminal background checks may be valuable forweeding out some security guard job applicants with terrorist connections. However, the FBI cannotreadily estimate how many prospective guards might fall into this category due to limitations in thefederal criminal records database. (47) Moreover, federal background checks may not identify "cleanoperatives" specifically recruited for their lack of a criminal or terror record, so such checks may beonly partially effective. Note that background checks for nuclear security guards extend beyondcriminal offenses to "any ... circumstances which tend to show that the individual is not reliable ortrustworthy, or ... may be subject to coercion, influence, or pressures ... to act contrary to the nationalinterest" (10 CFR 10.2-10.11). Airport screeners likewise are reportedly subject to "an analysis todetermine whether candidates present ... or may be associated with potential terrorist threats." (48) Even these higherstandards, however, which are comparable to federal security clearance requirements, might not beeffective against carefully selected terrorist operatives. Finally, if background screening laws applyonly to state-licensed contract guards, hostile insiders may still find infiltration opportunities asunlicenced staff guards. Federal criminal background checks may also be limited by incomplete state records. TheGAO recently reported that, as of 2001, 11% of state criminal records had not been automated andmade available nationally. The agency further found Figure 4. Hours of U.S. and E.U. Required Guard Training 2002 that automated information on the dispositionof felony and other arrests , as opposed to convictions , is not always widely available. (49) FBI officials have statedthat resource limitations among law enforcement agencies and state identification bureaus limitstheir ability to conduct "thorough and timely" background checks for prospective employees. (50) Given the potential relationship between criminal history and terrorist activity, federalcriminal background checks are viewed by some as potentially important, but not insurmountable,hurdles to terrorist infiltration of critical facilities. Furthermore, as stricter criminal screening isimposed on critical infrastructure guards, terrorist groups may divert recruitment and collaborationaway from convicted criminals in a greater effort to circumvent these screening requirements. Because federal criminal checks may only be partially effective, policy makers may need to draw oncomplementary measures, including guard supervision and access controls, to help reduce the terrorthreat should a terrorist insider penetrate a critical guard force. Counter-Terrorism Training Counter-terrorism training is an important part of the professional development of effectivecritical infrastructure guards. As the National Strategy states, "there is an urgent need for ongoingtraining of security personnel to sustain skill levels and to remain up-to-date on evolving terroristweapons and tactics. (51) Since 9/11, counter-terrorist training has increased for law enforcement, broadly, and for airportscreeners and nuclear guards. At this time, however, there are no U.S. federal requirements fortraining of other security guards. Twenty-two states do require basic training for licensed contractguards, but not for staff guards. Of the states with training requirements for security guards, fewspecifically require counter-terrorism training, and such training appears cursory. U.S. and European Guard Training Hours. Hoursof training required is viewed by some as a key measure of guard capability. In states that requireit, basic guard training consists of 1 to 48 hours of classroom or field instruction, in some casesfollowed by a qualification exam. Such training is typically limited to coverage of property rights,emergency procedures, and criminal detention. Training required in specific states is summarizedin Figure 4 . Additional weapons training is required for armed guards. Figure 5. Hours of Security Guard Training Required by State 2004 Source: Service Employees International Union (SEIU). "Report Card on Security Standards." Webpage. Oct. 12, 2004. http://www.seiu.org/building/security/statesecuritygrades.cfm . For purposes of comparison, Figure 5 provides data showing U.S. guard basic trainingrequirements with those in the European Union (E.U.). As the figure shows, training requirementsfor security guards are also highly variable in the E.U., although several E.U. countries require moretraining than the greatest U.S. state requirements ( Figure 5 ). Note that Spain, which has a longhistory of Basque separatist terrorism, has the highest training requirements in the E.U.. Informationon guard training in other countries is less readily available, although there is at least one non-E.U. country (Hungary) that requires even more training for private security guards -- 350hours. (52) Sources: Weber, T. "A Comparative Overview of Legislation Governing the Private SecurityIndustry in the European Union." ECOTEC Research and Consulting. Birmingham, U.K. Nov. 4,2002. * In the U.K., mandatory training is planned by 2005 under the 2001 Private Security Industry Act. Counter-Terrorism Curricula. In the UnitedStates, required guard training traditionally has included basic coverage of: security responsibilities;police powers; relations with police; inspection and observation; report writing; legalresponsibilities; liability; ethics; and professionalism. (53) Nuclear power plant guards are required to receive severalmonths of special training in areas such as firearms, first aid, alarms, and electronic securitysystems. (54) Counter-terrorism makes up a significant part of nuclear guard training. Although some states include counter-terrorism in their guard training curricula, timeconstraints typically allow them to cover the topic only at the most general level. For purposes ofillustration, Appendix 1 includes the entire "Terrorism" instruction section from California'smandatory initial 8-hour guard training manual. The section includes two pages of mostly definition. Although California requires an additional 32 hours of guard training for new guard employees, statelaw does not specifically require coverage of terrorism in this training. (55) Connecticut's 2004 guardtraining law requires only a brief terrorism discussion -- 90 minutes on "public safety" issues suchas bomb threats and terrorist attacks. (56) Perceived limitations in state-mandated security guard training have prompted some policymakers to specifically call for greater counter terrorism training requirements. For example, themayor of Los Angeles recently ordered security guards at the Los Angeles Department of Water andPower (LADWP) to attend three antiterrorism seminars taught by the Los Angeles PoliceDepartment (LAPD). The seminars include topics such as terrorism awareness, surveillancedetection, and vehicle-borne explosives detection. (57) According to the LAPD, this new utility guard training "isunique because it uses intelligence data on Al Qaeda tactics gleaned from detained terrorismsuspects" and includes the showing of seized videotapes. (58) DHS Guard Training. The DHS InformationAnalysis and Infrastructure Protection Directorate's Protective Security Division (PSD) does notcurrently have programs that specifically target private security guard companies. However, PSDhas invited private security companies to participate in its Soft Target Awareness and Buffer ZoneProtection training programs. PSD reports that 174 staff from 37 contract guard companies and otherinstitutions took this training as of October, 2004. These training attendees appear to have beenprimarily guard managers or guard training supervisors. In the future, PSD plans to make threeadditional counter-terrorism training programs available to private security companies: Web-Based Workforce Antiterrorism Awareness/Prevention -- a 2.5 hourself-paced program Surveillance Detection -- a three day program including classroom andhands-on training delivered by mobile training teams Physical Security -- a program involving both distance learning and five daysof classroom and hands-on training at a DHS Regional Field Office, Protective Center or TrainingFacility (59) The PSD did not provide projected schedules, budgets, or attendance for these programs. Training Legislation. Some policy makers havecalled for security guard terrorism training legislation. In the District of Columbia, the proposedD.C. Enhanced Professional Security Amendment Act of 2004 would have increased private guardtraining requirements, including terrorism training. (60) At the federal level, the Private Sector Preparedness Act of 2004in the 108th Congress ( H.R. 4830 ) would have directed the Secretary of HomelandSecurity to develop and conduct "training programs for security guards to implement emergencypreparedness and response plans and operations procedures" (Sec. 510b8). According to its leadsponsor, "emergencies" under H.R. 4830 was intended to include "acts of terrorism." (61) H.R. 4830would have applied to contract guards, but not staff guards. Opponents of expanded, government-mandated guard training standards question thepotential effectiveness of such training requirements, especially if they do not distinguish amongdifferent guard assignments. Job responsibilities, levels of oversight, exposure to thepublic, and state-granted powers vary to such a degree that ... no specific minimal trainingrequirements could meet the needs of some security officer assignments without substantiallyexceeding the level required for others. (62) These concerns reflect real differences in facility security needs as determined by vulnerabilityassessments, threat information, and criticality evaluation. Given the variability of these factorsacross many kinds of infrastructure, different facilities may need security guards in substantiallydifferent capacities. Telecommunications centers, for example, may require guards primarily foraccess control, whereas sports stadiums may require guards for screening and crowd monitoring. Certain electric power facilities may require no guards at all, relying instead on remote surveillanceand other means of physical protection. Because of these differences in facility guarding needs,some analysts argue that training policies for security guards may best be evaluated on asector-by-sector, or even facility-by-facility, basis. Opponents of federal training regulation may, instead, wish to rely on private companiesvoluntarily providing such training to their workers. There is little public information, however, onhow many guard employers have been doing so. A 2002 survey of security guards in Californiafound that, since 9/11, 60% of guard employers had issued new "procedures," 52% had conductedsome kind of emergency drill, and 33% had conducted a bomb-threat drill. (63) A 2004 survey of 125facilities storing hazardous chemicals found that, in the prior 12 months, 68% had providedemergency response training, 59% had conducted emergency response drills, and 38% had improvedtraining and procedures "to prevent possible terrorist attacks." (64) Securitas, the largest U.S.guard contractor provides "specialized training for ... guards for high-rise buildings, nuclear powerplants and other so called high-risk objects." (65) Other major contractors do not publicly report changes to theiremployee training, although such training is increasingly available from a number of security firmsand other institutions. (66) Counter-Terror Training for Critical Guards. Given the importance of critical infrastructure protection in the nation's homeland security strategy,some analysts have suggested that critical infrastructure guards, specifically, should be encouragedby federal agencies to receive additional counter-terrorism training. The National Strategy , forexample, directed DHS to "initiate a dialogue with state and local counterparts, private-sectorinfrastructure owners and operators, and private security firms concerning the creation of a trainingand certification regime for private security officers." (67) Likewise, a panel of drinking water experts convened by theGAO identified "specialized training of utility security staff" as one of the water system securityenhancements "most deserving of federal support." (68) Nuclear power plant guards, for example, are required to receiveseveral months of special training in areas such as firearms, first aid, alarms, and electronic securitysystems. (69) One barrier to special critical guard training is cost. A 40-hour training course developed foroffice building security guards in Manhattan, for example, was projected to cost approximately $20per hour, or $800 per guard. (70) If such training were required for 50,000 critical infrastructureguards, total costs would be $40 million. Assuming the same average hourly cost, training 50,000guards to the 260-hour Spanish standard would cost $260 million. Increased training might alsorequire higher salaries for critical infrastructure guards, as noted earlier in this report. DHS Grants for Guard Training. The DHSFY2004 appropriations ( P.L. 108-90 ) allocated $2.9 billion for first responders and urban securitygrants, administered through the Office for Domestic Preparedness (ODP). These grants areintended to assist state and local law enforcement, fire service, emergency medical service,emergency managers, and other first responders with terrorism preparedness. According to theODP's program guidance for FY2004, grant funds may be used to establish counter-terrorismtraining programs and to cover "overtime and backfill costs" associated with employee attendanceof such programs. ODP's guidance specifically includes "private security providers" in the targetaudience for these programs. (71) Although CRS is not aware of any specific DHS grants awardedfor security guard training, it appears that such training programs may be eligible. ODP's guidancefor training grants is not expected to change for FY2005. Government Oversight of Staff Guards. Statesecurity guard training and other licensing requirements generally apply to prospective employeesof "private security companies," i.e., contract guards, but not to staff guards. Some proposed guardlegislation at the federal level, likewise, has been directed primarily at contract guards. Accordingto Table 1 , however, approximately 489,000, or 48% of all U.S. guards in 2003 were staff guardsand so would not be subject to such oversight. Many of these staff guards may be subject toscreening and training by their institutional employers, but these requirements would not necessarilybe related to any government-defined standards. As state and federal legislators consider greater training and other licencing requirements forcontract guards, they may need to address potential disparities between standards for contract andstaff guards. Contract and staff guards may protect the same types of critical facilities, so it couldbe argued that they should be subject to the same screening and capability requirements. This is thecase, for example, in nuclear power plants, where both contract and staff guards are subject to thesame NRC regulations. Contract and TSA airport screeners are likewise subject to the samebackground checks and training requirements. Other Security Guard Issues In addition to security guard deployment and overall qualification, several other guard issueshave emerged in infrastructure security discussions. Full analysis of these issues is beyond the scopeof this report, but they are mentioned briefly below for purposes of completeness. Contract vs. Staff Guard Performance. TSAofficials and other policy makers have begun to consider potential performance differences betweencontract guards and staff guards, or between private guards and government guards. (72) Such comparisons are notstraightforward, however, and there appears to be little research available on this specific topic. Arecent GAO study of airport screeners found, for example, that the post-9/11 TSA airport screeningprogram "was not established in a way to enable an effective evaluation of the differences in theperformance of federal and private screening and the reasons for those differences." (73) Additional informationmay be needed to shed light on this issue. Civilian Guards at Military Bases. In the 2003Defense Authorization Act ( P.L. 107-314 ), Congress authorized military bases to hire contractguards in place of military guards to meet new base security requirements (Sec. 332). Since thattime, contract guards have been hired at numerous U.S. military installations including Andrews AirForce Base (MD), Fort Hood (TX), and the U.S. Military Academy (NY). While the hiring ofcivilian guards to replace soldiers at U.S. military bases raises some interesting issues related toguard training and cost-effectiveness, the deployment of such guards may have more to do withoverseas U.S. troop demands than with critical infrastructure security per se . Nuclear Plant Guard Capabilities. The trainingand effectiveness of nuclear guards regulated by the NRC has been questioned in the national media. Specifically, the press has reported alleged lapses in nuclear guard performance, questions aboutNRC security tests, and perceived conflicts of interest in future guard testing by a securitycontractor. (74) Whilepotentially important, these issues appear unique to nuclear security and have been addressed inother policy forums. (75) Foreign-Owned Guard Contractors. A provisionin the Aviation and Transportation Security Act ( P.L. 107-71 ) allows only U.S. owned and operatedcompanies to provide contract screeners at U.S. airports, unless TSA cannot identify U.S. firms withsufficient capability to meet screening needs. This measure was presumably included in response toperceived inadequacies of airport screening contractors, several of which were foreign controlled,after the 9/11 attacks. (76) Some analysts have criticized the restrictions on foreign ownership since many foreign security firmsare located in countries that are close allies in the war on terrorism and have extensive internationalexperience in infrastructure security which could be valuable in U.S. critical infrastructureprotection. (77) (Note thatsome U.S. critical infrastructure in the private sector is actually owned and operated by foreign firms;a ban on "foreign" contract guards at such facilities might be difficult to implement (78) ) To date, there has beenlittle call for similar restrictions on guard contractors already serving other U.S. criticalinfrastructure. (79) Counter-Terrorism Support. Some analystsquestion whether or not critical infrastructure guards would benefit from more equipment,technology, or other resources in performing counter-terrorism functions. For example, advancedcommunications links directly to DHS information centers and local police could improve guards'ability to learn of imminent terrorist threats and could facilitate incident response. Identification andevaluation of such guard needs is an open issue. Conclusions This report addresses critical infrastructure guards as a distinctive group, but CRS is awareof no federal or state policy that explicitly makes a similar distinction. On the contrary, federalcriminal background legislation and state licensing regulations appear to apply uniformly to allguards under their jurisdiction, without consideration of differing guard assignments. As noted inthis report, uniform requirements for all one million U.S. guards may be excessive for some andinsufficient for others. Questions remain, however, about what is the appropriate role of the federalgovernment with respect to security guards, especially private guards, protecting criticalinfrastructure. While there appears to have been relatively little congressional debate on this subject,it may become increasingly important as homeland security strategy evolves and the distinctivesecurity requirements of U.S. critical infrastructure become better understood. If homeland security policy does evolve towards special treatment of critical infrastructureguards, responsible agencies may face a challenge in identifying those guards because ofuncertainties in identifying critical assets. In April, 2004, the DHS Information Analysis andInfrastructure Protection Directorate (IAIP) reported that it had compiled the list of 1,700 criticalU.S. assets referred to earlier in ths report, but confusion among private sector and state governmentpartners about what constituted a critical asset cast doubt on the validity of that list. (80) Among electric utilities,for example, there was some question as to why certain assets were considered critical by IAIP, sincesome of those assets were not in use and others did not support significant electric loads. (81) According to pressaccounts, subsequent classified briefings with Members of Congress to review lists of critical assetsin their states have continued to raise concerns about IAIP's critical asset identification. (82) Without clarity aboutwhich assets are critical, policies directed at critical infrastructure guards may be difficult toimplement. Counter-terrorism funding for critical infrastructure guards may also present a policychallenge because the overwhelming majority of these guards appear to be in the private sector. TheDHS Assistant Secretary for Infrastructure Protection recently stated that the department "will notprovide money to the private sector to remediate vulnerabilities." (83) But as Table 1 shows,approximately 87% of all U.S. security guards in 2003 were employed either by a private guardcompany or directly by a private institution. As one Member of Congress recently remarked,"private security workers play a vital role ... protecting critical infrastructure, both public and private,from threat of terrorism." (84) Even critical government facilities such as national laboratories,military bases, and courthouses, often rely upon private security guards for counter-terror protection. If the private sector could be relied upon to make socially warranted counter-terrorisminvestments in guards and training, federal funding for guards might not be an issue. However, assome analysts have suggested, there are economic reasons why private companies may not makesuch investments. In homeland security, private markets do notautomatically produce the best result. To be sure, private firms have some incentive to avoid thedirect financial losses associated with a terrorist attack on their facilities or operations. In general,however, that incentive is not compelling enough to encourage the appropriate level of security. (85) It is an open question whether private operators of critical infrastructure have hired, trained, andotherwise supported security guards to the degree warranted by the social value of the facilities theyprotect. At this time, there does not appear to be sufficient information to make such judgments. Furthermore, the overall balance between public and private funding of homeland security is anexpansive topic beyond the scope of this report. Nonetheless, as Congress continues its oversightof homeland security, funding for private guards may emerge as a security consideration wherepublic benefits and private resources may not align. Appendix 1. California Mandatory Security Guard Training Materials -- TerrorismSection Source: State of California, Bureau of Security and Investigative Services (BSIS). "Power to ArrestTraining Manual." West Sacramento, CA. Feb. 2002. pp. 2-3.

The Bush Administration's 2003 National Strategy for the Physical Protection of CriticalInfrastructures and Key Assets indicates that security guards are "an important source of protectionfor critical facilities." In 2003, approximately one million security guards (including airportscreeners) were employed in the United States. Of these guards, analysis indicates that up to 5%protected what have been defined as "critical" infrastructure and assets. The effectiveness of critical infrastructure guards in countering a terrorist attack depends onthe number of guards on duty, their qualifications, pay and training. Security guard employment mayhave increased in certain critical infrastructure sectors since September 11, 2001, although overallemployment of U.S. security guards has declined in the last five years. Contract guard salariesaveraged $19,400 per year in 2003, less than half of the average salary for police and well below theaverage U.S. salary for all occupations. There are no U.S. federal requirements for training ofcritical infrastructure guards other than airport screeners and nuclear guards. Twenty-two states dorequire basic training for licensed security guards, but few specifically require counter-terrorismtraining. State regulations regarding criminal background checks for security guards vary. Sixteenstates have no background check regulations. The federal government's role in protecting U.S. critical infrastructure has been a concern ofCongress since 9/11. Part of this concern involves the possible imposition of federal securityrequirements, including guard requirements, on infrastructure which is largely private. The PrivateSecurity Officer Employment Authorization Act of 2004 ( P.L. 108-458 , Sec. 6402) facilitatesemployer access to FBI criminal records to conduct background checks of security guard employees. Other legislation proposed in the 108th Congress would have required private security guardcompanies to perform criminal background checks, would have prohibited the hiring of guards whofailed background checks, or would have directed the Department of Homeland Security (DHS) toconduct security guard emergency training, including training for "acts of terrorism." The DHScurrently does not have counter-terrorism training programs specifically for private security guards. There appears to be no federal or state policy that explicitly addresses critical infrastructureguards as a distinctive group. If homeland security policy evolves towards special treatment ofcritical infrastructure guards, responsible agencies may face a challenge identifying those guardsbecause of uncertainties in identifying critical assets. Federal counter-terrorism funding for criticalinfrastructure guards may also present a policy challenge, since 87% of these guards are in theprivate sector. It is an open question whether private operators of critical infrastructure have hired,trained, and otherwise supported security guards to the degree warranted by the social value of thefacilities they protect. As Congress continues its oversight of homeland security, funding for privateguards may emerge as a security consideration where public benefits and private resources may notalign. This report will not be updated.

Introduction to the Troubled Asset Relief Program Following a boom and bust in residential real estate and a meltdown in financial markets, Congress enacted a program to purchase troubled assets from financial institutions in October 2008. The Troubled Asset Relief Program (TARP) was created by Division A of the Emergency Economic Stabilization Act (EESA). EESA authorized the Secretary of the Treasury to purchase up to $700 billion of real estate related assets, or any other asset that the Secretary, in consultation with the Chairman of the Federal Reserve, believes the purchase of which will contribute to financial stability. This broad definition of troubled asset gives the Secretary wide discretion in implementing TARP, although EESA also included two new oversight mechanisms—the Congressional Oversight Panel (COP) and the Special Inspector General for TARP (SIGTARP). Thus far, Treasury has exercised its broad discretion through the creation of several programs, including providing capital to banks, guaranteeing particular pools of assets for some large financial institutions, intervening on behalf of two large U.S. automobile manufacturers, providing financial support for a Federal Reserve lending facility for securities backed by consumer and small business loans, and compensating some mortgage servicers for modifying loan terms. By statute, Treasury is authorized to purchase assets under TARP until October 3, 2010. In its November 2009 monthly report to Congress, Treasury reported that $550 billion of TARP expenditures had been planned and $476 billion had been committed under signed contracts, signifying that Treasury has no plans at this time to use $150 billion of the funds authorized. The planned purchases of $550 billion do not take into account that some TARP funds have already been repaid. As a result of repayments, the amount outstanding under TARP has already begun to fall from its peak. Treasury's planned use of available TARP funds can change at any time, however. Redirecting TARP Funds Some policymakers have proposed redirecting funds under the Troubled Asset Relief Program to finance new policy proposals. One proposal, The Helping Families Save Their Homes Act ( S. 896 ), which was signed into law as P.L. 111-22 , redirected $1.3 billion from TARP to offset the cost of modifications to the Hope for Homeowners Program. The Wall Street Reform and Consumer Protection Act of 2009 ( H.R. 4173 ), which passed the House on December 11, 2009, would redirect $20.8 billion from TARP to offset $10.4 billion of the bill's various provisions. The Jobs for Main Street Act, 2010 ( H.R. 2847 ), which passed the House on December 16, 2009, would redirect $150 billion of TARP funds to offset $75 billion of the bill's spending and tax provisions, which include infrastructure spending, public service jobs, an extension of expanded unemployment benefits, an extension of the higher Medicaid match for doctors payments, an extension of the health insurance subsidy for unemployed workers, and an increase in the eligibility for the child tax credit. (The difference between the amount redirected from TARP and the amount offset is discussed below.) When TARP was created, the Treasury did not collect and set aside $700 billion of revenue to finance the program—the Treasury Secretary was simply given legal authority to purchase $700 billion of assets. Therefore, Treasury holds no unused money under TARP that can be redirected toward new policy proposals. Like most spending programs, TARP expenditures are financed from general revenues. When the budget is in deficit, additional expenditures are financed by additional borrowing. If the Treasury Secretary wished to purchase more TARP assets, it would be necessary to first issue federal debt (thereby increasing the budget deficit) to do so. The size of the actual deficit today is based on the cost of TARP expenditures taken during this fiscal year (the method for measuring the cost is described below); the projected size of the future deficit in budget projections is based on some assumption about how much the Treasury Secretary plans to increase the size of TARP in the future and how much these future expenditures will cost. Title I of EESA authorizes the Secretary of the Treasury to purchase troubled assets at any time up to the point that there are $700 billion in such assets outstanding. Although Title I also requires that proceeds from disposition of any assets acquired through TARP must return to the general fund, the authorization of Treasury to hold up to $700 billion outstanding is generally interpreted to mean that TARP asset repurchases or repayments of principal place the TARP balance further under its authorized ceiling, increasing Treasury's capacity to make new TARP acquisitions. The effect of this interpretation is that repaid TARP funds could be "reused" by Treasury to purchase additional assets, although to this point the question is largely moot, since well under $700 billion in troubled assets have been purchased. For purposes of this report, proposals to redirect funds received from repayment of loan principal or repurchase of assets can be thought of as having the same effect on the budget and budget deficit as reducing TARP's authorized limit. Some of the funds that have been outlaid under TARP result in payments of proceeds beyond the repayment of the initial outlay, such as dividends on TARP preferred share purchases and interest on TARP loans. These monies would not be considered a repayment of TARP funds and would not allow for the purchase of additional assets under TARP.  Under Title I, the funds would simply go to the general fund to reduce the deficit. Because dividends and interest payments do not grant TARP new spending authority, these revenues cannot be redirected to fund other policy proposals without increasing the deficit. Put differently, these revenues were included in the original estimates of the net cost of TARP, so redirecting them to other uses would be considered double counting. Proposals to redirect TARP funds to finance other proposals rely, in essence, on a reduction in the amount that the Treasury Secretary is authorized to purchase under TARP. The ultimate effect on the budget deficit of doing so depends on whether the redirected authority is more likely to result in future spending under its new use or was more likely to have resulted in future spending if it had remained in TARP. Since TARP is not near its ceiling today, any proposal that reduces TARP authority by less than $150 billion would not force TARP asset holdings to be reduced from the currently planned size. Thus, reducing the authorized size of TARP by less than $150 billion does not increase the revenues flowing to the Treasury because it does not force Treasury to sell any of the assets TARP currently holds. In effect, a new policy proposal that increases spending or reduces revenues would be deficit financed if it included a reduction in TARP authority of less than $150 billion under Treasury's current plan (since it would not result in any increase in revenues via a reduction in TARP assets outstanding). A separate issue is whether redirecting TARP funds to finance new proposals would increase the expected budget deficit in the future compared to projections of current policy. This measure would be relevant for scoring the proposal and for measuring the proposal's macroeconomic effects relative to a baseline of current policy. The answer to this question depends on what assumption is made about the future size of the TARP program under current policy baselines, which need not be the same as Treasury's announced plans since those plans are not binding. (Likewise, the effect on future deficits depends on what assumption is made about how much spending will increase or tax revenue will decline in the future as a result of the new policy proposal. The projected increase in the deficit will not necessarily be as much as the amount authorized in the proposal.) Through March 2009, the Congressional Budget Office (CBO) baseline assumed that the amount outstanding under TARP would reach $700 billion. In August 2009, CBO modified its baseline and assumed that TARP would peak at $600 billion, or $50 billion higher than the Treasury's current plans. That implies that reducing TARP by up to $100 billion would have no impact on future projections of the baseline deficit (because the baseline already assumed that the redirected money would not be spent by TARP), so redirecting TARP by up to that amount to finance a new proposal would be fully matched by an increase in the deficit. From a macroeconomic perspective, a new proposal to be financed by a decrease in TARP authority of up to $100 billion would have the same effect on economic projections compared to the August baseline as a deficit-financed proposal. For official scoring purposes in 2009, the 2009 budget resolution ( S.Con.Res. 13 ) instructs CBO to use the March baseline, even though a more recent baseline is now available. (The same baseline is used so that scoring will be consistent throughout the session.) Therefore, a bill financed by redirecting any TARP funds would be officially scored as being offset by a decline in overall anticipated federal spending via a smaller TARP program since the March baseline assumed all $700 billion of TARP authority would be used in the future. The offset would not be one-for-one, however, assuming money is being shifted from an income-earning investment under TARP to a use that does not earn income. Section 123 of EESA specified that the cost of asset purchases under TARP be determined as provided under the Federal Credit Reform Act of 1990 with a discount rate adjusted for market risk. Under these instructions, CBO reported that the federal budget would not record the gross cash disbursement for the purchase of a troubled asset (or cash receipt for its eventual sale) but instead would incorporate an estimate of the government's net cost (on a present-value basis) for the purchase. Broadly speaking, the net cost is the purchase cost minus the estimated market value of the assets, which is the present value—calculated using an appropriate discount factor that reflects the riskiness of the underlying cash flows associated with the asset—of any estimated future earnings from holding the asset and the proceeds from its eventual sale. Present value calculations allow one to compare costs and benefits over time. The discount rate or discount factor measures how much more present costs or benefits are valued compared to future costs or benefits. A risk adjustment is used because the expected return on TARP assets is more volatile than the government's borrowing cost. The subsidy rate under TARP can be calculated by dividing the net cost in present value terms by the government's initial expenditures. CBO has estimated that certain TARP programs, such as the Capital Purchase Program, have lower subsidy rates, while other programs, such as the Auto Industry Financing Program, have higher subsidy rates. For future TARP spending, CBO assumes a subsidy rate of 50%. Therefore, a dollar reduction in TARP authority reduces the official budget deficit by only 50 cents in a budget score. For example, CBO scored the $20.8 billion reduction in TARP authority in H.R. 4173 as a $10.4 billion reduction in the deficit in 2010. Likewise, the amount outstanding in TARP has not increased the budget deficit on a one-to-one basis, but rather by the present value of the subsidy. In August 2009, CBO estimated that, for expenditures already made, TARP would increase the budget deficit by $133 billion in 2009, and for future expenditures, by $80 billion in 2010 and $28 billion between 2011 and 2013.

Following a boom and bust in real estate and a meltdown in financial markets, Congress enacted a program to purchase troubled assets from financial institutions in October 2008. The Troubled Asset Relief Program (TARP) was created by the Emergency Economic Stabilization Act (EESA, P.L. 110-343). Under TARP, the Secretary of the Treasury is authorized to purchase up to $700 billion of "troubled" assets, including any asset that the Secretary, in consultation with the Chairman of the Federal Reserve, believes the purchase of which will contribute to financial stability. The amount outstanding under TARP is currently far below this limit, and Treasury has announced plans for no more than $550 billion to be outstanding in the future. Some policymakers have proposed redirecting funds under the Troubled Asset Relief Program to finance new policy proposals. The Helping Families Save Their Homes Act (S. 896/P.L. 111-22), redirected $1.3 billion from TARP to finance modifications to the Hope for Homeowners Program. The Wall Street Reform and Consumer Protection Act (H.R. 4173), which passed the House, would redirect $20.8 billion of TARP funds to offset $10.4 billion of various provisions of the bill. The Jobs for Main Street Act (H.R. 2847), which passed the House, would redirect $150 billion of TARP funds to offset $75 billion of the bill's spending and tax provisions. When TARP was created, the Treasury did not collect and set aside $700 billion of revenue to finance the program—the Treasury Secretary was simply given legal authority to purchase $700 billion of assets. Therefore, Treasury holds no unused money under TARP that can be redirected toward new policy proposals. Like most spending programs, TARP expenditures are financed from general revenues. If the Treasury Secretary wished to purchase more TARP assets, it would be necessary to first issue federal debt (thereby increasing the budget deficit) to do so. Proposals to redirect TARP funds to finance other proposals rely, in essence, on a reduction in the amount that the Treasury Secretary is authorized to purchase under TARP. Since TARP is not near its ceiling today, any proposal that reduces TARP authority by less than $150 billion would not force TARP asset holdings to be reduced from the currently planned size. Thus, reducing the authorized size of TARP by less than $150 billion does not increase the revenues flowing to the Treasury because it does not force Treasury to sell any of the assets TARP currently holds. In effect, a new policy proposal that increases spending or reduces revenues would be deficit financed if it included a reduction in TARP authority of less than $150 billion under Treasury's current plan (since it would not result in any increase in revenues via a reduction in TARP assets outstanding). The scoring of proposals to redirect TARP funds, however, differs from the actual effect of these proposals. For official scoring purposes, the 2009 budget resolution instructs CBO to use the baseline from March 2009. This March baseline assumed all $700 billion of TARP authority would be used in the future, as opposed to the $550 billion currently planned by Treasury. Therefore, a bill financed by redirecting any TARP funds would officially be scored as being offset by a decline in overall anticipated federal spending via lower future TARP purchases, although under current Treasury plans, future TARP purchases would not actually be reduced. The offset would not be one-for-one, however. Under Section 123 of EESA, the cost of asset purchases are scored as the net present value of the subsidy in the loan, modified for risk, and are not scored on a cash flow basis. For future TARP spending, CBO assumes a subsidy rate of 50%. Therefore, a dollar reduction in TARP authority is scored as reducing the official budget deficit by only 50 cents.

Introduction The Trans-Pacific Partnership Agreement (TPP) is a proposed regional free trade agreement (FTA) currently under negotiation among 12 Pacific Rim countries. Initiated under President George W. Bush, the TPP concept has wide bipartisan support. As the negotiations progress, provisions concerning textile trade have become a major point of contention, attracting considerable congressional attention and debate. This report examines the potential implications of a TPP agreement, if one is reached, for the U.S. textile manufacturing industry. In 2013, the United States exported about $14 billion in yarns and fabrics worldwide. More than half of this output was shipped to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Caribbean Basin Initiative (CBI). These FTAs provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.4 billion in yarns and fabrics in 2013. The TPP marks the first FTA negotiation for the United States initiated since the complete end of quotas on textile and apparel trade. Duty-free access to the U.S. market under TPP could be of considerable benefit to Asian manufacturers, which now face U.S. import duties on textiles and apparel of up to 32%. Textile industry trade groups have warned that, if approved, the TPP could lead to domestic job loss if it results in apparel producers in the Western Hemisphere, which often use U.S.-made textiles, losing U.S. market share to producers in Vietnam and other TPP countries. Aligned against them are retailers and apparel companies that want to be able to import apparel from producers wherever they are located, regardless of whether U.S. textiles are used; they urge full inclusion of textiles and apparel in any TPP agreement and favor preferential access for apparel cut and sewn from fabric made in countries not included in the TPP, such as China. The U.S. Textile Industry and Its Markets With nearly $57 billion in industry shipments in 2013, textile manufacturing, which produces yarns and fabrics from raw materials such as cotton and various man-made fibers, is a supplier industry to three industrial sectors. The apparel industry, which transforms textiles into clothing, consumed only 12% of U.S.-manufactured fibers in 2012. About 40% of textile output went into home textiles and floor coverings, while almost half was used in technical textiles such as conveyor belts and automotive floor coverings. Textile manufacturing occurs largely in highly automated factories, whereas apparel manufacturing is characterized by decentralized, globally dispersed production networks that are coordinated by lead firms that control design, branding, and other activities. Many of the world's largest apparel retailing and marketing firms are headquartered in the United States, but because it typically costs less to manufacture apparel abroad, the United States imports far more clothing than it makes domestically. U.S. apparel shipments totaled more than $13 billion, and apparel manufacturers directly employed 143,600 workers in 2013 (see Appendix A ). Unlike textile manufacturers, most U.S.-headquartered apparel firms have limited or no U.S. manufacturing capabilities. Some manufacture through a combination of facilities they own and third-party arrangements, often with foreign factories. Others rely entirely on arrangements with third-party suppliers, mostly in Asia. Large retailers frequently contract directly with apparel sourcing companies, which in turn portion out the production work to independent manufacturers. The United States was responsible for approximately 1% of the $460 billion of global apparel exports in 2013, according to statistics from the World Trade Organization. China, Vietnam, Indonesia, Bangladesh, and Mexico rank as the top apparel suppliers to the United States. Beyond apparel manufacturing, countless other functions related to apparel are done domestically, such as design, branding, and marketing of finished products. The U.S. home furnishings industry has fared far better against import competition than the apparel industry, mainly because manufacturing of carpets, curtains, and tablecloths is highly automated. For example, the development of larger, faster carpet-tufting machines contributed to a decline in employment at U.S. carpet and rug mills, from 49,000 workers in 2003 to 31,200 in 2013. Shipments from U.S. carpet and rug mills totaled $8.9 billion in 2012. The health of the carpet and rug mills industry is tied in large part to conditions in the domestic housing and commercial building markets, raw material prices, and competition from foreign producers. The output of technical textile mills is used across various industrial sectors. According to one recent estimate, automotive manufacturers use more than 200,000 tons of textiles for automotive interior fabrics, including upholstery, headliners, and door panels, excluding textiles for carpets, floor mats, tire cords, seat belts, or air bags. The Industrial Fabrics Association International (IFAI) estimated that in 2013 about 160,000 workers in the United States produced fabrics specifically for the technical textile market. The Textile Manufacturing Process Textile manufacturing begins with fiber, which can be harvested from natural resources (e.g., cotton, wool, silk, or ramie), manufactured from cellulosic materials (e.g., rayon or acetate), or made of man-made synthetic materials (e.g., polyester, nylon, or acrylic). After the raw fibers are shipped from the farm or the chemical plant, they pass through four main stages of processing (see Figure 1 ): yarn production, in which fiber is spun into filament or yarn; fabric production, which can take place at very small mills or large textile mill operations, and involves primarily either weaving or knitting; finishing, which prepares the textiles for further use by processes such as bleaching, printing, dyeing, and mechanical or wet finishing; and, fabrication, where the finished cloth is converted into apparel, household, or industrial products. Worldwide, in 2013, the textile industry produced 86.6 million metric tons of textiles. Man-made fibers accounted for more than two-thirds of total production, compared to the share of natural to man-made fibers at about half in the 1990s. Most of the global growth in man-made textile manufacturing has taken place in China, which by 2013 accounted for about two-thirds of total production. The United States was responsible for 5% of global production of man-made fibers in 2013. No other country produced more than 4% of the global total in 2013. Cotton is the most important natural fiber. In the 2013-2014 marketing year, China ranked as the world's largest producer of cotton at 7 million metric tons, followed by India and the United States. Other large cotton producers include Pakistan, Brazil, Uzbekistan, and Turkey. Many of the leading cotton producers are also leading mill users of raw cotton. The top four consumers of cotton are China, India, Pakistan, and Turkey, which together account for more than two-thirds of world consumption. Consumption of cotton by U.S. textile mills peaked in 1997. Since then, due to the decrease in domestic textile production caused by competition from imported textile and apparel products, U.S. mill use of cotton has dropped about 70%. As for other natural fibers, two TPP negotiating partners, Australia and New Zealand, are among the world's leading wool-growing nations. Vietnam is a top 10 producer of silk, but accounts for only a small portion of global production. China and India are the world's two largest silk producers. Domestic Textile Production U.S. textile output has not recovered from the severe downturn in 2008 and 2009. Production at textile mills remains about 25% below the 2007 level, and production at textile product mills is approximately 30% less than in 2007. The value of shipments totaled nearly $57 billion in 2013, a 5% increase over 2012. This amounted to 1% of total U.S. manufacturing shipments (see Appendix A ). According to government data, there were 2,555 fewer establishments manufacturing textiles in 2012 than in 2003. Appendix B provides an overview of selected U.S.-headquartered textile manufacturers. Although the National Council of Textile Organization (NCTO) reported in recent congressional testimony that "the textile industry has invested over $3 billion in new technologies, machinery, and manufacturing facilities since 2010," the most recent data, for 2012, show a continued drop in the number of establishments producing textiles. Domestic textile manufacturers have invested heavily in technology to reduce operating costs. For example, modern industrial looms incorporate air-jets to weave at speeds of 2,000 picks per minute (compared with 200 picks in 1980, which at the time was considered fast). Some modern textile mills have become almost completely automated, churning out thousands of square yards every hour with as few as 10 or 20 employees. According to the U.S. Census Bureau, the U.S. textile industry invested $18.9 billion in new plants and equipment between 2001 and 2012. Since then, several manufacturers, including Gildan Activewear, Parkdale Mills, Zagis USA, and Keer, have announced plans to increase U.S. production of yarns, nonwoven and technical fabrics, and other types of textiles by building new textile plants or expanding current facilities. Because yarn and fabric production are capital- and scale-intensive, they demand higher worker skills than apparel production. As a consequence, the textile industry has been less prone to relocation to lower-wage countries than apparel manufacturing. Significant production remains in the United States, Japan, and South Korea, where skilled labor is available and manufacturers can raise the capital to finance weaving mills costing an estimated $12 million to $25 million and spinning mills costing $50 million to $70 million. Among all U.S. manufacturing industries, textiles rank near the top in productivity increases. This can be attributed both to automation and to the closure of less efficient mills. While imports of textiles and apparel undoubtedly have contributed to lower industry employment, over the past decade more than 200,000 textile manufacturing jobs have been lost due to automation, according to private estimates. At the end of 2013, the domestic textile industry employed about 230,700 workers, accounting for fewer than 2% of the nearly 12 million domestic factory jobs (see Appendix A ). Average annual pay was $39,000 in 2013, far below the average of $61,096 for all manufacturing. Figure 2 shows employment has declined by two-thirds since 1990. Over time, employment has fallen most rapidly during economic downturns, but has failed to return to prerecession levels during the ensuing recoveries. The Bureau of Labor Statistics predicts overall textile manufacturing employment will shrink to around 180,000 by 2022. Domestic textile production is primarily located in the southeastern states and in California, although every state has some textile manufacturing. In 2013, more than one-third of all textile jobs were located in Georgia and North Carolina. Appendix C compares textile employment in the top 10 states, which accounted for more than two-thirds of all textile jobs, in 2003 and 2013. In related apparel manufacturing, employment has shrunk every year for more than two decades, resulting in 800,000 fewer U.S. apparel manufacturing jobs in 2013 than in 1990 as clothing manufacturers have transferred much of their production abroad. Some industry analysts assert that a "Made in the USA" label is being sought by more consumers, and a small and select group of apparel retailers, such as Brooks Brothers, has responded by resuming a portion of their manufacturing in the United States. In aggregate, however, apparel work has continued to diminish. Industry employment in 2013 dropped to nearly 144,000, representing a reduction of more than 55,000 jobs since 2008. Global Textile Trade Shifts For more than 40 years, developed countries, including the United States and the European Union, sought to protect their textile and apparel sectors from developing countries' exports through two multilateral agreements, the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC). Quotas on imports from more than 70 countries limited the quantities of textiles (such as cotton yarns and synthetic fabrics) and particular garments (such as t-shirts and sweaters) that could enter the United States and the European Union each year. This system made it necessary for buyers of textile and apparel products to source from countries for which quotas for particular products were available. This spread manufacturing to an ever-increasing number of countries, instead of concentrating it where production was cheapest. The expiry of the ATC on January 1, 2005, eliminated all textile and apparel quotas for members of the World Trade Organization (WTO). Since then, buyers have been able to source from any WTO member country, subject only to tariffs. However, U.S. tariffs on textile and apparel imports vary considerably from country to country, governed by bilateral and regional arrangements discussed in greater detail below. The average U.S. tariff rate in 2012 was 7.9% for textiles and 11.4% for clothing, but rates on particular products could be as high as 32% (see Appendix D ). According to the WTO, China was by far the world's largest exporter of textiles in 2013, with about a 35% global market share at $107 billion. China has been a major force in textiles for decades, but its export growth accelerated following its 2001 accession to the WTO and the expiration of the ATC. Now, more than 50,000 textile mills operate in China. China's textile exports have risen more than 550%, from $16 billion, since 2000 ( Figure 3 ). The European Union and India ranked as the world's second- and third-largest exporters of textiles in 2013. The European Union (based on extra-EU imports), the United States, China, Vietnam, and Hong Kong were the world's top five importers of textiles in 2013. Apparel trade is more diversified than textile trade, as many nations have been able to develop export-oriented apparel industries on the basis of imported fabrics, without having large domestic textile production. China, the EU-28, Bangladesh, Hong Kong, and Vietnam ranked as the top clothing exporters in 2013. Central America, the Caribbean, and Africa, and countries throughout Asia, including Malaysia, also export large quantities of apparel. U.S. Trade in Textile Products In 2013, approximately one-third of U.S. textile production was exported, with a value of $17.8 billion (see Table 1 ). The United States has posted a modest trade surplus in fabrics and yarns for 19 years, but when made-up textile articles (e.g., sheets and towels) are included, the United States ran a textile trade deficit of $17.2 billion in 2013. Import penetration—the share of U.S. demand met by textile imports—reached 37% in 2013, from 31% in 2008 (see Appendix A ). As Table 2 shows, the majority of yarns and fabrics exported from the United States are sold to NAFTA and CAFTA-DR countries. U.S. exports are often more expensive than those from other countries. Despite this cost differential, apparel producers in the NAFTA, CAFTA-DR, and CBI countries use U.S.-made textiles in products that are exported to the United States because the goods are free of U.S. tariffs. Mexico is the U.S. textile industry's largest foreign market, with exports of $4.2 billion in 2013. However, textile exports to Mexico have shrunk as a share of total U.S. yarn and fabric exports compared with 2000, as rising labor costs have made it a less attractive place to manufacture apparel and production has shifted to Central America. Less than $400 million of U.S.-made yarns and fabrics was exported to other prospective TPP member countries such as Japan, Malaysia, and Vietnam in 2013. China, Canada, and the EU-28, with a combined total of $6.2 billion, provided more than half of the yarns and fabrics imported by the United States in 2013. Textile imports are sensitive to the economy: between 2008 and 2009, imports of yarns and fabrics shrank by 24%, but they rose 26% in 2010 and another 14% in 2011 as the economy improved. They increased only 1% in 2012 and again by 1% in 2013. In the apparel sector, import penetration reached almost 90% of U.S. demand in 2013, up from 83% in 2008 (see Appendix A ). The U.S. trade deficit in apparel products was $77 billion in 2013. Nearly 40% of imported apparel came from China. Vietnam, a fast-growing source of apparel for the U.S. market, furnished 10% of imports, and Mexico accounted for 5%, but the other TPP participants shipped only small quantities of apparel to the United States. Almost all U.S. apparel imports from Central America, the Caribbean, Mexico, and Canada are made with textiles produced in the United States. Collectively, they accounted for 16% of U.S. apparel imports in 2013, down from a third in 2000. Sourcing in the Western Hemisphere Central America, Mexico, and the Caribbean have limited textile production, but ample cut, make, and trim apparel assembly capacity, or CMT production as it is known in the industry. CMT is a low-value-added production system, whereby a manufacturer produces garments for a customer by cutting fabric provided by the customer, sewing the cut fabric, trimming the thread, and packaging the garments according to the customer's specifications. Canada's higher-value-added textile sector differs substantially from the CMT operations in Latin America. U.S. textile exports to Canada, mainly specialty and industrial fabrics, totaled $1.8 billion in 2013. In Central America, virtually all fibers are imported. The Central America-Dominican Republic Apparel and Textile Council reports that the CAFTA-DR region has more than 600 apparel companies. About 90 textile mills produce knit and woven fabrics, man-made fibers, and mixtures. Several U.S. textile manufacturers have manufacturing capabilities in Central America, as have companies from South Korea, Taiwan, and China. Mexico is home to approximately 30 mills producing yarns and knitted and woven fabrics. U.S.-based firms produce significant amounts of denim there. Among the regional apparel suppliers that have free-trade agreements with the United States, Mexico is the only significant producer of fabric and the only significant source of yarn. Mexico's apparel industry relies almost entirely on the U.S. market for exports. Its cut and assembly operations often use U.S.-made fabrics to produce basic garments such as denim jeans and T-shirts, which are then exported to the United States. Mexico ranked as the largest yarn and fabric market for the United States in 2013 at $4.2 billion, with significant purchases of impregnated fabrics, felt and specialty yarns, and man-made fibers and filaments (see Figure 4 ). Competition from countries with lower wages appears to be reducing the competitiveness of Mexican apparel. U.S. clothing imports from Mexico dropped to $3.8 billion in 2013, from $6.3 billion in 2005. For U.S. textile exporters, Honduras, the Dominican Republic, El Salvador, and Guatemala represent the biggest yarn and fabric markets in the CAFTA-DR region. At $1.3 billion, Honduras was the largest of the four in 2013, absorbing 9% of total U.S. yarn and fabric exports. Cotton (yarn/woven fabric), man-made fibers, and man-made filaments, which are used to make basic apparel such as T-shirts, socks, and underwear, are among the top export categories from the United States to Honduras. The Dominican Republic, El Salvador, and Guatemala are also major assemblers of basic apparel for the U.S. market. Nicaragua benefits from a unique feature of the CAFTA-DR agreement: the inclusion of a tariff preference level (TPL) provision. The TPL allows U.S. trade preferences for Nicaraguan apparel that uses non-U.S. or non-CAFTA yarns and fabrics in limited amounts. Even with the TPL, which is scheduled to expire at the end of 2014, U.S. exports of yarns and fabrics to Nicaragua remain relatively tiny at less than $100 million in 2013. Costa Rica also has a TPL provision applicable to wool and certain women's swimwear. Apparel manufacturers in the Caribbean region also have preferential access to the U.S. market under the Caribbean Basin Initiative (CBI), now called the Caribbean Basin Trade Preference Act (CBTPA) program. Because production of yarn and fabric in the Caribbean is extremely limited, the region's cut and assembly factories mostly rely on U.S.-made fabrics and yarns, with U.S. exports totaling $75 million in 2013. Most textile production in the Caribbean is located in the Dominican Republic (also a CAFTA member). Other Caribbean countries such as Haiti have no domestic textile industries, but use U.S.-made textiles to produce apparel for the U.S. market. U.S. retailers buy most of their garments from Asia and tend to use Western Hemisphere producers for quick replenishment, especially if time is a critical factor. The major products sourced within the region are basic, low-value knitwear garments, such as shirts, pants, underwear, and nightwear, with a focus on men's and boys' wear. U.S. imports of industrial fabrics from the CAFTA-DR region are relatively minimal at $1.5 million in 2013. Apparel producers in the Western Hemisphere have two main comparative advantages in serving the U.S. market. One is geographic proximity, which confers lower transportation costs and faster delivery; transit times from the CAFTA-DR region to a U.S. port range from two to seven days, rather than about two weeks to a month from Asia. The other advantage is duty-free access for apparel manufactured from U.S. textiles. For example, manufacturers of cotton T-shirts or cotton twill trousers can avoid a 16.5% import duty if U.S. inputs are used. On the other side of the ledger, Mexico, Central America, and the Caribbean Basin have much higher wage rates than some Asian apparel suppliers, such as Vietnam, Cambodia, and Bangladesh. A 2010 study, for example, found the apparel industry's average hourly cost of labor to be $2.06 in Mexico, but only $0.51 in Vietnam. Tariff preferences appear to be important in keeping apparel producers in the Western Hemisphere competitive in the U.S. market, and thereby preserving export markets for U.S.-made textiles. A TPP agreement, if one is reached, has the potential to upset this situation. If apparel produced in Asian TPP countries gains duty-free access to the U.S. market, it could displace apparel manufactured with U.S. fabric in the Western Hemisphere, adversely affecting U.S. textile exports. Also, should Vietnam develop a larger textile industry, U.S. textile exports could be hurt if the TPP were to allow Western Hemisphere apparel producers to use textiles made in any TPP member country and still enjoy duty-free access to the U.S. market. TPP and Sourcing from Vietnam Vietnam, which had a negligible garment manufacturing sector a decade ago, is now the second-largest exporter of garments to the United States, behind China. As shown in Figure 5 , apparel imports to the United States from China, which is not involved in the TPP negotiations and is unlikely to enter the TPP in the near future, reached more than $31 billion in 2013. U.S. apparel imports from Vietnam, although far smaller, have grown even faster, rising from near zero in 2000 to $8.2 billion in 2013. U.S. imports of clothing from Vietnam in 2013 were more than twice the value of apparel imports from Mexico. U.S. imports of technical fabrics from Vietnam have also expanded in recent years, totaling $186 million in 2013, but are still far smaller than apparel imports. Among the Asian and Pacific countries in the TPP, Vietnam is the only one with significant textile and apparel trade with the United States. Generally, the main competitors to Vietnam in the U.S. clothing market are not Mexico and the CAFTA-DR nations, but China and other Asian nations. Vietnam tends to sell fewer basic apparel products (e.g., T-shirts and trousers) and more shirts, suits, and overcoats in the United States than do Western Hemisphere trading partners. For example, in 2013, Vietnam provided 18% of total U.S. imports of women's or girls' blouses, shirts, and suits, both knitted and woven. Vietnam's apparel sector buys the majority of its yarns and fabrics regionally, from China and other Asian suppliers such as South Korea and Taiwan, and purchases only a limited amount from the United States. The country does have a growing textile industry, comprising 145 spinning mills, 401 weaving mills, 105 knitting mills, 94 dyeing and finishing mills, and 7 non-woven mills. However, Vietnam has yet to develop a broad textile supply base and imports are estimated to account for the overwhelming majority of the fibers, fabrics, and yarns required by its apparel industry. One press report mentions that Vietnamese garment producers obtain only about 12%-13% of fabrics and other input materials, including raw materials such as cotton, from local textile manufacturers. The Vietnam National Textile and Garment Group, or Vinatex, is Vietnam's largest textile and garment producer. Vinatex, partially state owned, is one of several groups that are investing to increase fiber and fabric production in Vietnam. In 2013, Vinatex's exports were valued at $2.95 billion, with the aim of reaching $5 billion by 2016. Nationally, Vietnam's Ministry of Trade and Industry has set a development strategy for the textile and garment sector, aiming to increase fabric production to 2 million metric tons by 2020. Fiber production is targeted to increase to 500,000 metric tons in 2015 and 650,000 metric tons by 2020. Fiber factories to help reduce Vietnam's dependence on imported materials include a joint venture between Vinatex and PetroVietnam Petrochemical & Textile Fiber Joint Stock Company to build a polyester fiber plant at Dinh Vu. Additional Vinatex projects include a new textile complex for spinning, weaving, sewing, dyeing, and finishing, and a partnership with two Chinese companies to build a large garment and textile industrial park in Vietnam. Investments in chemical plants to generate the basic feedstocks required for the production of synthetic fabrics may follow. According to Vietnam Investment Review , "a new wave of foreign investments in the spinning, weaving, and dyeing sectors has been kicked off, since investors can see the profits they can gain from the TPP." According to one estimate, foreign manufacturers have invested more than $1 billion in Vietnam's textile and apparel sector in anticipation of a TPP agreement. For example, major Chinese companies, such as Texhong and Pacific Textile, are opening new textile plants in Vietnam, partly attracted by lower labor costs and lower tariffs under a potential TPP. Textile and garment manufacturers based in Japan, Hong Kong, South Korea, Taiwan, Austria, and Australia are also setting up new production or have expanded current production in Vietnam. Arguably, preferential access to the Vietnamese market under a TPP agreement could result in new business opportunities for U.S. fiber, yarn, and fabric producers. To date, however, Vietnam is not a significant market for U.S. yarn and fabric exporters, importing $59 million of such products in 2013. The United States' main textile-related export to Vietnam is raw cotton: U.S. exports supply about 60% of the cotton used in Vietnamese textile mills. Textiles and the TPP Negotiations Textile and apparel trade is governed by very specific rules. Extensive stipulations for textiles and apparel are included in most of the bilateral and regional FTAs and trade preference programs negotiated by the United States over the past two decades. The key issue is typically rules of origin (ROOs), which specify how much of the content of textile and apparel products must come from the region in order for the products to qualify for duty-free access. ROO requirements for textile and apparel products are usually based on the production process as shown in Figure 6 . Possible rules of origin generally stipulate how much processing must occur within the region if a product is to obtain trade benefits. The major distinctions are: Fiber Forward : Fiber must be formed in the FTA member territory. Natural fibers such as wool or cotton must be grown in the territory. Man-made fibers must be extruded in the trading area. Yarn Forward : Fibers may be produced in any country, but each component starting with the yarn used to make the textiles or apparel must be formed within the free trade area. This rule is sometimes called "triple transformation," as it requires that spinning of the yarn or thread, weaving or knitting of the fabric, and assembly of the final product all occur within the region. Fabric Forward : Producers may use fibers and yarns from any country, but fabric must be knitted or woven in FTA member countries. Cut and S ew : Only the cutting and sewing of the finished article must occur in FTA member countries, providing maximum flexibility for sourcing. The United States, most often, has applied the "yarn forward" standard for textiles and apparel, with the notable exceptions of agreements with Jordan and Israel. Most U.S. FTAs also include exceptions allowing limited quantities of fibers, yarns, and fabrics to be sourced from outside the FTA partner countries under certain conditions. Appendix D lists textile and apparel tariff rates of various countries. In general, U.S. tariffs increase with each stage of manufacturing, such that duty rates are usually higher on apparel than on its yarn or fabric inputs. The United States' TPP negotiating partners also tend to maintain steep tariffs. Vietnam's apparel tariffs range from 5% to 20%. U.S. negotiators have proposed that the TPP agreement incorporate a unified yarn-forward ROO, with perhaps some exemptions for inputs considered to be in short supply, or "not commercially available," in the region to assure that duty-free preferences only benefit countries that are part of the agreement. Press reports indicate that several TPP negotiating countries, including Vietnam, oppose U.S. demands for a "yarn forward" rule. Vietnam publicly supports a "cut and sew" rule that would allow it, and other TPP participants, to enjoy preferential access for apparel that has been cut and sewn from fabric made in China or other countries not included in the TPP. U.S. domestic interests disagree over what ROOs should be included in any TPP agreement. On one side are fiber, yarn, and fabric manufacturers who want rules that would require more U.S. or TPP content. Organized as the Textile and Apparel Alliance for TPP (TAAT), they have endorsed a basic "yarn forward" rule applicable to all TPP countries. They warn that without such a rule Vietnamese apparel manufacturers could use Chinese textiles, thereby giving Chinese textile manufacturers duty-free access to the U.S. market and undermining U.S. textile production. More than 165 Members of Congress have endorsed TAAT's position, sending a letter in support to the U.S. Trade Representative recommending a yarn-forward rule. On the other side are U.S. retailers and importers of apparel, many with no domestic manufacturing, along with the National Retail Federation (NRF) and the U.S. Chamber of Commerce. These interests formed the Trans-Pacific Partnership Apparel Coalition, which opposes the "yarn forward" ROO and calls for a "flexible, liberal, 21 st century ROO standard" for textiles and apparel. Their preferred rule would require only that the sewing of a garment be done in a TPP country to get duty-free status. This would permit use of yarns and fabrics from China and other countries in garments qualifying for duty-free access to all TPP countries. The TPP Apparel Coalition recommends that apparel qualify for preferential treatment if it meets a regional value content threshold, making it easier to switch sources of supply as fashions and relative costs change. Some Members of Congress support this position, and they asked President Obama in May 2012 to pursue "a flexible general rule of origin for apparel that maximizes the incentive to grow U.S. exports, value, and jobs in the TPP." Conclusion Concerns about the health of domestic textile manufacturing have influenced many past trade negotiations, and they now figure prominently in the regional TPP negotiations. For textile manufacturers, the inclusion of a significant apparel producer such as Vietnam in a free trade agreement holds the potential to dramatically shift global trading patterns. Depending upon its provisions, it is imaginable that a TPP agreement could result in apparel made in Vietnam displacing apparel from the Western Hemisphere in the U.S. market, weakening the export markets now served by U.S. textile producers in Mexico and Central America. An alternative scenario might allow apparel manufacturers in Mexico, a TPP participant, to use textiles made in any TPP country and still enjoy duty-free access to the U.S. market; while no Asian TPP participant currently has the textile production capacity to supply Western Hemisphere producers in this way, it is conceivable that such capacity could be installed in the future. U.S. textile manufacturing interests have urged U.S. negotiators to insist on a "yarn forward" rule in the TPP. This would require that for apparel, home furnishings, or technical textiles to benefit from duty-free access, they would have to be assembled in a TPP country from fabric manufactured in a TPP country out of yarn produced in a TPP country. Such a rule would severely limit the ability of countries such as Vietnam to use Chinese or Indian yarns and fabrics in apparel, home furnishings, or technical textile products for the U.S. market, although it would not constrain imports if Vietnam were to develop a more fully integrated textile industry. However, a "yarn forward" rule would also affect U.S. apparel consumers and the household textiles and specialty textiles markets, as these products made in TPP countries from yarns and fabrics produced elsewhere would not qualify for duty-free treatment. Domestic manufacturers of household and technical textiles seem less likely to be immediately affected by any TPP agreement. U.S. manufacturers appear to be internationally competitive in these sectors, and Vietnam's low labor costs will provide little comparative advantage in areas where production is highly automated. In the case of technical textiles, U.S. manufacturers also benefit from proximity to their industrial customers. Domestic technical textile manufacturers point out that Vietnam has been expanding its reach into industrial fabrics and higher-end textiles in recent years, including tire cord and coated fabrics, but Vietnam will probably not be a significant global competitor in the near future. Appendix A. Textile Industry Overview Appendix B. Selected U.S. Textile Manufacturers Appendix C. Top 10 States in Textile Employment Appendix D. Selected Apparel and Textile Duties

Textiles are a contentious and unresolved issue in the ongoing Trans-Pacific Partnership (TPP) negotiations to establish a free-trade zone across the Pacific. Because the negotiating parties include Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, the agreement has the potential to shift global trading patterns for textiles and demand for U.S. textile exports. Canada and Mexico, both significant regional textile markets for the United States, and Japan, a major manufacturer of high-end textiles and industrial fabrics, are also participants in the negotiations. U.S. textile manufacturers produce yarn, thread, and fabric for apparel, home furnishings, and various industrial applications. In 2013, the U.S. textile industry generated nearly $57 billion in shipments and directly employed about 230,700 Americans, accounting for approximately 2% of all U.S. factory jobs. More than one-third of U.S. textile production is exported, with the bulk of the exports going to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Caribbean Basin Initiative (CBI). These free trade agreements provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.4 billion in yarns and fabrics in 2013. The TPP has the potential to affect U.S. textile exporters in at least two ways. First, it could enable Asian apparel producers, principally Vietnam, to export clothing to the United States duty-free. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the U.S. market and, because Vietnamese manufacturers make little use of U.S.-made textiles, could reduce demand for U.S. textile exports. Second, if the TPP were to allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the U.S. market, an enlarged Vietnamese textile industry could, at some future time, compete with U.S. exporters in Mexico and Central America. Textile industry trade groups have urged the United States to insist on a strict "yarn forward" rule that allows a garment to enter the United States duty-free only if yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region. U.S. negotiators have also proposed that certain textile inputs "not commercially available" in TPP-member countries could be sourced from outside the region, including China. On the other side, retailers and apparel companies with extensive global supply chains want maximum flexibility for sourcing and are less concerned about whether textiles manufactured in the United States are used; they urge textiles and apparel to be treated like other products in any TPP agreement, and they want any apparel cut and sewn within the TPP area, regardless of where the fabric originates, to be eligible for duty-free entry. Members of Congress have voiced their support for both sides. The TPP seems likely to have less impact on those segments of the U.S. textile industry that do not supply apparel manufacturing. U.S. manufacturers of household and technical textiles appear to be internationally competitive, and it is not evident that lower-wage countries would have comparative advantage in these highly capital-intensive sectors.

Introduction Congressional interest in carbon capture and sequestration (or carbon capture and storage, CCS) has been renewed since the U.S. Environmental Protection Agency (EPA) re-proposed standards for carbon dioxide (CO 2 ) from new fossil-fueled power plants on September 20, 2013. As re-proposed, the standards would limit emissions of CO 2 to no more than 1,100 pounds per megawatt-hour of production from new coal-fired power plants and between 1,000 and 1,100 (depending on size of the plant) for new natural gas-fired plants. The standards would not apply to existing facilities. EPA proposed the standard under Section 111 of the Clean Air Act. According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standards without additional cost or the need for add-on control technology. However, new coal-fired plants only would be able to meet the standards by installing carbon capture and sequestration (CCS) technology. The proposed standard would allow an option of up to seven years for a new coal-fired plant to comply. But that option would require a more stringent standard for those plants and limit CO 2 emissions to an average of 1,000-1,050 pounds per megawatt-hour over the seven-year period. The promise of CCS lies in the potential for technology to capture CO 2 emitted from large, industrial sources, thus significantly decreasing CO 2 emissions without drastically changing U.S. dependence on fossil fuels, particularly coal, for electricity generation. The future use of coal—a significant component of the U.S. energy portfolio—in the United States will likely depend on whether and how CCS is deployed if legislative or regulatory actions curtail future CO 2 emissions. The September 20, 2013, proposed rule for limiting CO 2 emissions from new fossil-fueled power plants is one such action. In addition, Section 111 of the Clean Air Act requires that EPA develop guidelines for pollutants—which has been interpreted to include greenhouse gas emissions—for existing plants whenever it promulgates standards for new power plants. In a June 25, 2013, memorandum, President Obama directed the EPA to issue proposed guidelines for existing plants by June 1, 2014, and to issue final guidelines a year later. These proposed actions will likely draw additional congressional scrutiny of the viability of large-scale CCS as the primary technology for mitigating CO 2 emissions from coal-fired power plants. Unlike the other two components of CCS, transportation and geologic storage, the first component of CCS—CO 2 capture—is almost entirely technology-dependent. For CCS to succeed at reducing CO 2 emissions from a significant fraction of large sources in the United States, CO 2 capture technology would need to be deployed widely. Widespread commercial deployment would likely depend on the cost of capturing CO 2 , although other factors, such as incentives for reducing greenhouse gas emissions, would also influence deployment. The transportation and storage components of CCS are not nearly as technology-dependent as the capture component. Nonetheless, transportation and sequestration costs, while generally much smaller than capture costs, could be very high in some cases. They would depend, in part, on how long it would take to reach an agreement on a regulatory framework to guide long-term CO 2 injection and storage, and on what those regulations would require. CCS deployment would also depend on the degree of public acceptance of a large-scale CCS enterprise. Several CRS reports (see below) address these policy issues of CO 2 transportation and storage. Structure of this Report This report is a brief summary of a longer study—CRS Report R41325, Carbon Capture: A Technology Assessment —that provides a "snapshot" of technological development current through mid-2010. The technology assessment is both prospective and retrospective in that it examines emerging or advanced technologies that may affect future CCS deployment, and looks at lessons from past experience with large-scale technological development and deployment as guidelines that could be used to shape energy policy. The longer report consists of 10 chapters, together with figures and tables. This report and the longer CRS report focus on the first component of a CCS system, namely, the CO 2 capture process. The goal of these reports is to provide a realistic assessment of prospects for improved, lower-cost technologies for each of the three current approaches to CO 2 capture. The technology assessment was undertaken by Carnegie Mellon University, Department of Engineering and Public Policy, under the leadership of Edward S. Rubin, together with Aaron Marks, Hari Mantripragada, Peter Versteeg, and John Kitchin. The work was performed under contract to CRS, and is part of a multiyear CRS project to examine different aspects of U.S. energy policy. [author name scrubbed], CRS Specialist in Energy and Natural Resources Policy, served as the CRS project coordinator. CRS Report R41325, Carbon Capture: A Technology Assessment , was funded, in part, by a grant from the Joyce Foundation. Other CRS Reports on CCS CRS has written a suite of products on different aspects of CCS that complement this assessment of carbon capture technologies. These include: CRS Report R42532, Carbon Capture and Sequestration (CCS): A Primer , by [author name scrubbed]. CRS Report R42496, Carbon Capture and Sequestration: Research, Development, and Demonstration at the U.S. Department of Energy , by [author name scrubbed]. CRS Report R43028, FutureGen: A Brief History and Issues for Congress , by [author name scrubbed]. CRS Report R42950, Prospects for Coal in Electric Power and Industry , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL33971, Carbon Dioxide (CO2) Pipelines for Carbon Sequestration: Emerging Policy Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report R40103, Carbon Control in the U.S. Electricity Sector: Key Implementation Uncertainties , by [author name scrubbed]. CRS Report RL34316, Pipelines for Carbon Dioxide (CO2) Control: Network Needs and Cost Uncertainties , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34307, Legal Issues Associated with the Development of Carbon Dioxide Sequestration Technology , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34601, Community Acceptance of Carbon Capture and Sequestration Infrastructure: Siting Challenges , by [author name scrubbed]. CRS Report R43127, EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers , by [author name scrubbed]. Background Global climate change is an issue of major international concern and the focus of proposed mitigation policy measures in the United States and elsewhere. In this context, CCS technology has received increasing attention over the past decade as a potential method of limiting atmospheric emissions of CO 2 —the principal "greenhouse gas" linked to climate change. Worldwide interest in CCS stems principally from three factors. First is a growing consensus that large reductions in global CO 2 emissions are needed to avoid serious climate change impacts. Because electric power plants are a major source of CO 2 , curtailing their emissions has become a focus. Second is the growing realization that large emission reductions cannot be achieved easily or quickly simply by using less energy or by replacing fossil fuels with alternative energy sources that emit little or no CO 2 . The reality is that the world (and the United States itself) today relies on fossil fuels for over 85% of its energy use (including fuel for transportation, not just electricity generation). Changing that picture dramatically would take time. CCS thus offers a way to get large CO 2 reductions from power plants and other industrial sources until cleaner, sustainable energy technologies can be widely deployed. Finally, energy-economic models show that adding CCS to the suite of other GHG reduction measures significantly lowers the cost of mitigating climate change. Studies also have affirmed that by 2030 and beyond, CCS is a major component of a cost-effective portfolio of emission reduction strategies. Figure 1 depicts the overall CCS process applied to a power plant or other industrial process. The CO 2 produced from carbon in the fossil fuels or biomass feedstock is first captured, then compressed to a dense liquid to facilitate its transport and storage. The main storage option is underground injection into a suitable geological formation. At the present time, CCS is not commercially proven in the primary large-scale application for which it is envisioned—electric power plants fueled by coal or natural gas. Furthermore, the cost of CCS today is relatively high, due mainly to the high cost of CO 2 capture (which includes the cost of CO 2 compression needed for transport and storage). This has prompted a variety of government and private-sector research programs in the United States and elsewhere to develop more cost-effective methods of CO 2 capture. Overview The following is an assessment of prospects for CCS capture technologies; namely, post-combustion capture from power plant flue gases using amine-based solvents such as monoethanolamine (MEA) and ammonia; pre-combustion capture (also via chemical solvents) from the synthesis gas produced in an integrated coal gasification combined cycle (IGCC) power plant; and oxy-combustion capture, in which high-purity oxygen rather than air is used for combustion in a pulverized coal (PC) power plant to produce a flue gas with a high concentration of CO 2 amenable to capture without a post-combustion chemical process. Currently, post-combustion and pre-combustion capture technologies are commercial and widely used for gas stream purification in a variety of industrial processes. Several small-scale installations also capture CO 2 from power plant flue gases to produce CO 2 for sale as an industrial commodity. Oxy-combustion capture, however, is still under development and is not currently commercial. The advantages and limitations of each of these three methods are discussed in CRS Report R41325, Carbon Capture: A Technology Assessment , along with plans for their continued development. While all three approaches are capable of high CO 2 capture efficiencies (typically about 90%), the major drawbacks of current processes are their high cost and the large energy requirement for operation (which significantly reduces the net plant capacity and contributes to the high cost of capture). Another drawback in terms of their availability for greenhouse gas mitigation is that at present, there are still no applications of CO 2 capture on a coal-fired or gas-fired power plant at full scale (i.e., a scale of several hundred megawatts of plant capacity). Current Research and Development (R&D) Activities To address the current lack of demonstrated capabilities for full-scale CO 2 capture at power plants, a number of large-scale demonstration projects at both coal combustion and gasification-based power plants are planned or underway in the United States and elsewhere. These projects and the technologies they plan to employ are summarized in CRS Report R41325, Carbon Capture: A Technology Assessment . Many of these demonstrations are expected to begin operation in 2014 or 2015. Planned projects for other types of industrial facilities also are discussed. Also elaborated in the longer report are the substantial R&D activities underway in the United States and elsewhere to develop and commercialize lower-cost capture systems with smaller energy penalties. To characterize the status of capture technologies and the prospects for their commercial availability, five stages of development are defined: conceptual designs; laboratory or bench scale; pilot plant scale; full-scale demonstration plants; and commercial processes. The CRS report reviews current activities at each of these stages for each of the three major capture routes. Current R&D activities include development and testing of new or improved solvents that can lower the cost of current post-combustion and pre-combustion capture, as well as research on a variety of potential "breakthrough technologies" such as novel solvents, sorbents, membranes, and oxyfuel systems that hold promise for even lower-cost capture systems. Most of the latter processes, however, are still in the early stages of research and development (i.e., conceptual designs and laboratory- or bench-scale processes), so that credible estimates of their performance and (especially) cost are lacking at this time. Table 1 lists the major approaches being pursued for post-combustion capture, although many of these approaches apply to pre-combustion and oxy-combustion capture as well. Processes under development at the more advanced pilot plant scale are, for the most part, new or improved solvent formulations (such as ammonia and advanced amines) that are undergoing testing and evaluation. These advanced solvents could be available for commercial use within several years if subsequent full-scale testing confirms their overall benefit. Pilot-scale oxy-combustion processes also are currently being tested and evaluated for planned scale-up, while two IGCC power plants in Europe are installing pilot plants to evaluate pre-combustion capture options. In general, the focus of most current R&D activities is on cost reduction rather than additional gains in the efficiency of CO 2 capture (which can result in cost increases rather than decreases). A number of R&D programs emphasize the need for lower-cost retrofit technologies suitable for existing power plants. As a practical matter, however, most technologies being pursued to reduce capture costs for new plants also apply to existing plants. As the fleet of existing coal-fired power plants continues to age, the size of the potential U.S. retrofit market for CO 2 capture will continue to shrink, as older plants may not be economic to retrofit (although the situation in other countries, especially China, may be quite different). Future Outlook Whether for new power plants or existing ones, the key questions are the same: When would advanced CO 2 capture systems be available for commercial rollout, and how much cheaper would they be compared to current technology? To address the first question, CRS Report R41325, Carbon Capture: A Technology Assessment , reviews a variety of "technology roadmaps" developed by governmental and private-sector organizations in the United States and elsewhere. All of these roadmaps anticipate that CO 2 capture will be available for commercial deployment at power plants by 2020. Current commercial technologies like post-combustion amine systems could be available sooner. A number of roadmaps also project that novel, lower-cost technologies like solid sorbent systems for post-combustion capture will be commercial in the 2020 time frame. Such projections acknowledge, however, that this will require aggressive and sustained efforts to advance promising concepts to commercial reality. That caveat is strongly supported by a review of experience from other recent R&D programs to develop lower-cost technologies for post-combustion SO 2 and NO x capture at coal-fired power plants. Those efforts typically took two decades or more to bring new concepts (like combined SO 2 and NO x capture processes) to commercial availability. By then, however, the cost advantages initially foreseen for these novel systems had largely evaporated in most cases: the advanced technologies tended to get more expensive as their development progressed (consistent with "textbook" descriptions of the innovation process), while the cost of formerly "high-cost" commercial technologies gradually declined over time. The absence of a significant market for the novel technologies put them at a further disadvantage. This may be similar to the situation for CO 2 capture systems today. Thus, the development of advanced CO 2 capture technologies is not without financial risks. With regard to future cost reductions, based on past experience, the costs of environmental technologies that succeed in the marketplace tend to fall over time. For example, after an initial rise during the early commercialization period, the cost of post-combustion SO 2 and NO x capture systems declined by 50% or more after about two decades of deployment at coal-fired power plants. This trend is consistent with the "learning curve" behavior seen for many other classes of technology. It thus appears reasonable to expect a similar trend for future CO 2 capture costs once these technologies become widely deployed. Note, too, that the cost of CO 2 capture also depends on other aspects of power plant design, financing, and operation—not solely on the cost of the CO 2 capture unit. Future improvements in net power plant efficiency, for example, would tend to lower the unit cost of CO 2 capture. Other cost estimates for advanced CO 2 capture systems are based on engineering-economic analysis of proposed system designs. For example, recent studies by the U.S. Department of Energy (DOE) foresee the cost of advanced PC and IGCC power plants with CO 2 capture falling by 27% and 31%, respectively, relative to current costs as a result of successful R&D programs. No estimates are provided, however, as to when the various improvements described are expected to be commercially available. In general, the farther away a technology is from commercial reality, the lower its estimated cost tends to be. Thus, there is considerable uncertainty in cost estimates for technologies that are not yet commercial, especially those that exist only as conceptual designs. More reliable estimates of future technology costs typically are linked to projections of their expected level of commercial deployment in a given time frame (i.e., a measure of their market size). For power plant technologies like CO 2 capture systems, this is commonly expressed as total installed capacity. However, as with other technologies whose sole purpose is to reduce environmental emissions, there is no significant market for power plant CO 2 capture systems absent government actions or policies that effectively create such markets—either through regulations that limit CO 2 emissions, or through voluntary incentives such as tax credits or direct financial subsidies. The technical literature and historical evidence examined in CRS Report R41325, Carbon Capture: A Technology Assessment , strongly link future cost reductions for CO 2 capture systems to their level of commercial deployment. In widely used models based on empirical "experience curves," the latter measure serves as a surrogate for the many factors that influence future technology costs, including the level of R&D expenditures and the new knowledge gained through learning-by-doing (related to manufacturing) and learning-by-using (related to technology use). Based on such models, published estimates project the future cost of electricity from power plants with CO 2 capture to fall by as much as 30% below current values after roughly 100,000 megawatts (MW) of capture plant capacity is installed and operated worldwide. That estimate is in line with the DOE projects noted above. If achieved, it would represent a significant decrease from current costs—one that would bring the cost and efficiency of future power plants with CO 2 capture close to that of current plants without capture. For reference, it took approximately 20 years following passage of the 1970 Clean Air Act Amendments to achieve a comparable level of technology deployment for SO 2 capture systems at coal-fired power plants. Uncertainty estimates for these projections, however, indicate that future cost reductions for CO 2 capture also could be much smaller than indicated above. Thus, whether future cost reductions would meet, exceed, or fall short of current estimates will only be known with hindsight. In the context of this report and CRS Report R41325, Carbon Capture: A Technology Assessment , the key insight governing prospects for improved carbon capture technology is that achieving significant cost reductions would require not only a vigorous and sustained level of R&D, but also a substantial level of commercial deployment. That would necessitate a significant market for CO 2 capture technologies. At present such a market does not exist. While various types of incentive programs can accelerate the development and deployment of CO 2 capture technology, actions that significantly limit emissions of CO 2 to the atmosphere ultimately would be needed to realize substantial and sustained reductions in the future cost of CO 2 capture.

Carbon capture and sequestration (CCS) is widely seen as a critical strategy for limiting atmospheric emissions of carbon dioxide (CO2)—the principal "greenhouse gas" linked to global climate change—from power plants and other large industrial sources. This report focuses on the first component of a CCS system, the CO2 capture process. Unlike the other two components of CCS, transportation and geologic storage, the CO2 capture component of CCS is heavily technology-dependent. For CCS to succeed at reducing CO2 emissions from a significant fraction of large sources in the United States, CO2 capture technologies would need to be deployed widely. Widespread commercial deployment would likely depend, in part, on the cost of the technology deployed to capture CO2. This report summarizes prospects for improved, lower-cost technologies for each of the three current approaches to CO2 capture: post-combustion capture; pre-combustion capture; and oxy-combustion capture. CRS Report R41325, Carbon Capture: A Technology Assessment, provides a more detailed analysis of these technologies. While all three approaches are capable of high capture efficiencies (typically about 90%), the major drawbacks of current processes are their high cost and the large energy requirements for operation. Another drawback is that at present there are still no full-scale applications of CO2 capture on a coal-fired or gas-fired power plant; these plants produce over a third of total U.S. CO2 emissions from fossil fuel combustion. However, a number of large-scale demonstration projects at both coal combustion and gasification-based power plants are planned or underway in the United States and elsewhere. Substantial research and development (R&D) activities are also underway in the United States and elsewhere to develop and commercialize lower-cost capture systems with smaller energy penalties. Current R&D activities include development and testing of new or improved solvents that can lower the cost of current post-combustion and pre-combustion capture, as well as research on a variety of potential "breakthrough technologies" such as novel solvents, sorbents, membranes, and oxyfuel systems that hold promise for even lower-cost capture systems. The future use of coal in the United States will likely depend on whether and how CCS is deployed if legislative or regulatory actions curtail future CO2 emissions. Congressional interest in CCS was renewed when the U.S. Environmental Protection Agency (EPA) re-proposed standards for carbon dioxide (CO2) emissions from new fossil-fueled power plants on September 20, 2013. These re-proposed standards would not apply to existing power plants. As re-proposed, the standards would limit emissions of CO2 to no more than 1,100 pounds per megawatt-hour of production from new coal-fired power plants and between 1,000 and 1,100 for new natural gas-fired plants. According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standards. However, new coal-fired plants only would be able to meet the standards by installing CCS technology, which could add significant capital costs. In general, the focus of most current R&D activities is on cost reduction rather than additional gains in CO2 capture efficiency. Key questions include: when would advanced CO2 capture systems be available for commercial rollout; and how much cheaper they would be compared to current technology. "Technology roadmaps" developed by governmental and private-sector organizations anticipate that CO2 capture may be available for commercial deployment at power plants by 2020. Some roadmaps also project that some novel, lower-cost technologies may be commercial by 2020. Such projections acknowledge, however, that this will require aggressive efforts to advance promising concepts to commercial viability. Achieving significant cost reductions would likely require a vigorous and sustained level of R&D and also a significant market for CO2 capture. At present such a market does not exist. While various types of incentive programs can accelerate the development and deployment of CO2 capture technology, actions that significantly limit emissions of CO2 to the atmosphere ultimately would be needed to realize substantial and sustained reductions in the future cost of CO2 capture.

Most Recent Developments Gasoline and crude oil prices surged to record levels in May 2008, but as the summer driving season ended they moderated somewhat, and then plunged as economic worries cut consumption. (See Figure 1 .) Cumulative consumption of gasoline for the first 311 days of 2008 was about 3% less than the same period in 2007. Despite passage in December 2007 of the Energy Independence and Security Act ( H.R. 6 , P.L. 110-140 ), the main provisions of which were an increase in the Corporate Average Fuel Economy (CAFE) standards for automobiles and light trucks, and an increase in the requirement for the use of renewable fuels in gasoline, the Second Session of the 110 th Congress continued active consideration of various energy proposals. When the Congress broke for the November elections, it had passed legislation affecting oil and gas leasing on the Outer Continental Shelf (OCS), energy taxes, and the Strategic Petroleum Reserve (SPR), but it had also considered legislation regarding price gouging and speculation in energy futures markets, and also dealing with oil market manipulation by the Organization of Petroleum Exporting Countries (OPEC). Background and Analysis Legislative Activities The persistence of high gasoline prices led to a broad spectrum of proposed new legislation in the First Session of the 110 th Congress. Despite passage of the major Energy Policy Act of 2005 ( P.L. 109-58 ), many Members continued to explore a variety of measures to increase supply and reduce demand in the short term, and to reduce the impact of high prices on consumers, as well as revisit longer-term policies that were left behind in the process of reaching agreement on P.L. 109-58 . One such proposed policy was increasing CAFE standards for automobiles and light trucks, and the Energy Independence and Security Act of 2007 ( H.R. 6 , P.L. 110-140 ) resolved a decades-long debate by setting new standards and procedures for meeting them. P.L. 110-140 also increased the requirement to use renewable fuels in gasoline, including advanced biofuels such as cellulosic alcohol starting in 2016. However, a number of proposals included in one or more versions of energy legislation in 2007 were dropped from the final bill, and those issues remained of interest to the Congress during the Second Session. With gasoline prices soaring, a new wave of legislative proposals appeared in the Congress. Prominent among them were bills to suspend the federal gasoline and diesel transportation tax during the summer driving season, by presidential candidates Senators McCain and Clinton. Senator Domenici introduced a bill emphasizing U.S. petroleum production, including opening the Outer Continental Shelf (OCS) and part of the Arctic National Wildlife Refuge (ANWR) for oil and gas leasing and encouraging leasing of oil shale deposits. Senator Reid introduced a bill which, among other measures, would impose a windfall profits tax on oil companies. Another tax issue was the effort to extend tax credits for renewable energy production, and offset them by increasing taxes on the oil companies. Numerous bills were also introduced to deal with the possibility that speculation was unreasonably driving up oil prices. The House passed several bills identifying and prohibiting price gouging. President Bush's policy of continuing fill of the SPR was opposed in both Houses, and a bill suspending fill became law. Proposals to sell SPR oil in an effort to moderate oil prices were not adopted, however. The major debate in the Second Session was the proposal by Republicans to open up the OCS for oil and gas leasing. This report reviews the major legislative initiatives to deal with the gasoline price issue. To put these proposals in perspective, it first describes some of the factors that have led to the high prices of both crude oil and gasoline. Why Did Prices Go So High? The run-up of gasoline prices that began in spring 2004 (see Figure 1 ) climaxed a period of almost five years during which gasoline prices demonstrated a great deal of regional volatility but less of an increase at the national level. In 2004, a large number of factors combined to exert pressure on gasoline prices in all parts of the country. Some of these factors affected the price of crude oil, and others the cost of producing and marketing gasoline. Crude Oil Prices Past energy crises have demonstrated that oil is traded in a world market, in which events in remote areas affect the price of crude for almost everyone. As a result, the price of crude oil is set through the interaction of world demand and supply. Major factors in the run-up of crude oil prices were the sharply increased consumption of imported oil by China (see Figure 2 ) and the continuing possibility of a supply disruption, either from violence or terrorism in the Middle East, or from natural disasters like Hurricanes Katrina and Rita in 2005. World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile. Some observers have suggested that speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, were causing an unacceptable upward pressure on prices. Another factor in recent months was been the decline in the value of the dollar compared to other currencies. Since world prices of oil are quoted in dollars, this would have an upward effect on market prices. One of the major factors pushing crude prices higher is the perception that, as demand increases, production capacity will not increase with it. Most of the spare production capacity in the world market is located in OPEC countries, and, as Figure 3 shows, spare capacity in those countries has been lower than average over the past several years. Gasoline Prices Higher prices for crude oil tend to translate directly into higher prices for gasoline. At the peak of the market, crude oil accounted for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil's share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%. With the collapse of crude prices, contribution of crude costs to the gasoline price declined somewhat. This trend is illustrated in Figure 4 . Whether the crude oil a refiner processes is purchased on the open market or is produced by the oil company itself, higher costs for any element in the cost of gasoline are likely to be passed on to consumers. A number of factors aggravated the pressure on gasoline prices, including limited refining capacity in the United States, the range of fuel blends required to meet air pollution requirements, and the mandated use of ethanol as an additive. Perhaps most important, U.S. demand for gasoline increased as economic growth continued, at least through 2007. However, consumption of gasoline for the first 311 days of 2008 averaged 9.01 mbd, compared to 9.29 mbd during the same period in 2007. (See Figure 5 .) The 2004 price surge intensified discussion of energy policy and led to further calls for passage of energy legislation. However, until the climax of the Katrina disaster, the urgency of previous energy crises had been lacking. Throughout the period, U.S. gasoline consumption continued to rise. In part, this may be because although the price of gasoline in nominal terms set a record, in real terms it did not appear to be reaching the level of the Iranian crisis years of the early 1980s (see Figure 6 ); that is, until Katrina pushed it toward the $3.00-per-gallon mark. Further, unlike the earlier crises, there was no physical shortage of gasoline and there were no lines at the pump, except in local disaster-affected areas. As Figure 7 indicates, by the early 1990s the proportion of consumer expenditures on oil and gasoline had declined from the high levels of the 1970s and early 1980s. Data are not yet available to indicate what effect the price run-up starting in 2004 has had on this measure. Perhaps most important, the common view during the earlier crises was that oil prices not only were high, but were destined to become ever higher in the coming years, because world resources were probably beginning to level off and would decline in the future. This view is no longer widely prevalent, largely because world proved reserves have increased faster than production, and are currently more than twice the level at the time of the Arab oil embargo in 1973. At the beginning of the current crisis, the general expectation was that the price increase was a temporary phenomenon. In part, this may be due to the fact that there has been no physical shortage of gasoline or lines at the pump, as there were after the Arab oil embargo in 1973 and the Iranian revolution in 1979. But the continued and unrelenting increase in crude oil prices to record levels, even discounting inflation, is leading many to suggest that changing world market conditions may have led to permanent, or at least chronic, shortages of petroleum production capacity. The persistent increases in world demand for oil, despite higher prices, and the inability or unwillingness in many parts of the world, particularly in the Middle East, to develop known existing resources, appear to presage a continuing tight market, in which production capacity is only slightly greater than demand. Under those conditions, temporary interruptions in production, caused for example by local political crises or weather, are much more likely than normal to force prices upward. Others continue to expect that growth in demand will moderate, and production will increase to meet demand, as it did following the shortages of the 1970s. They argue that the market price of oil appears to be much higher than production costs, and is being sustained by the expectation of continued strong demand in the indefinite future. In addition, they point to large profits flowing to oil producers, and political pressure to invest those profits in increased production. Policy Options Congress has considered numerous energy policy initiatives and enacted many of them. With the continuing pressure of rising prices, however, energy policy has once again become the focus of attention, both in the Congress and on the campaign trail. Policy options include efforts to ameliorate the effects of high prices in the short term, and to attack the longer term problem. The latter options come in three major forms: to reduce consumption by increased efficiency without having a negative effect on the economy; to substitute alternative fuels at a cost comparable to the oil they replace; and to encourage production of more oil, either in this country or abroad. The choice of these options depends to a certain extent on how the future of the oil market is viewed. Those who consider it likely that the present tightness of the market is likely to continue, as described above, tend to support alternative fuels and increased efficiency, and to denigrate efforts to increase oil production as futile and ineffective compared to the growth in world demand, which they expect to continue indefinitely. Those who view the present tightness of the world market as an aberration that can be relieved with adequate investment in new production capacity view any move to increase supply, anywhere in the world, as a positive signal that the tightness and volatility of the world oil market can be eased and prices can more closely reflect the cost of production. Oil-Related Legislation Reducing Consumer Impacts and Regulating Oil Markets A number of proposals are aimed at easing the impact of high prices on consumers, or are aimed at the oil industry's price-making policies. Gas Tax Moratorium Bills introduced by Senator McCain ( S. 2890 ) and Senator Clinton ( S. 2971 ) would have suspended federal gasoline and diesel transportation taxes for the summer driving season, and the proposals were a topic in the presidential campaigns of the two candidates. Senator Obama, also campaigning for the Democratic presidential nomination, criticized both proposals. Similar bills were introduced in the House, but the issue was never taken up. (For details see CRS Report RL34475, Transportation Fuel Taxes: Impacts of a Repeal or Moratorium , by [author name scrubbed] and [author name scrubbed].) Price Gouging The rapid increase in gasoline prices following the Katrina disaster led to allegations of price gouging. P.L. 109-58 included a provision requiring the Federal Trade Commission (FTC) to conduct an investigation into price gouging in increased gasoline prices. The issue reemerged in the 110 th Congress as gasoline prices surged past $3.00 per gallon. On May 23, 2007, the House passed the Federal Price Gouging Prevention Act ( H.R. 1252 ). The bill would have banned the sale of gasoline at "unconscionably excessive" prices during energy emergencies declared by the president, and impose heavy fines and imprisonment for violations. The White House complained that the bill could result in gasoline price controls, and threatened to veto it, but the House vote of 284-141 indicated enough support to override a veto. The Senate, in passing its version of H.R. 6 , the Creating Long-Term Energy Alternatives for the Nation (CLEAN Energy) Act of 2007 on June 21, 2007, included a price-gouging provision similar to that in H.R. 1252 . However, the provision was not included in the final version of H.R. 6 , which became P.L. 110-140 . The Consumer-First Energy Act ( S. 2991 ) contained a provision on price gouging similar to the previously considered measures. Speculation in the Oil Market The possibility that speculation has unreasonably driven up oil prices, either because of illegal manipulation or because a speculative bubble is underway, has led to the introduction of much legislation to increase oversight or regulate speculation. The 2008 farm bill (Food Conservation and Energy Act, P.L. 110-234 ) contains provisions expanding the role of the Commodity Futures Trading Commission (CFTC), but many other bills were considered that would have addressed other perceived problems. On June 26, 2008, the House passed the Energy Markets Emergency Act ( H.R. 6377 ), which would direct the CFTC to curb excessive speculation, price distortion and other activity that is causing major market disturbances. In the Senate, Majority Leader Reid proposed consideration of S. 3268 , the Stop Excessive Energy Speculation Act of 2008, but disagreement on how to treat amendments on the floor blocked action. A similar bill, the Commodity Markets Transparency and Accountability Act of 2008 ( H.R. 6604 ), was approved by the House Agriculture Committee July 24, 2008. It failed to get 2/3 of the vote under suspension of the rules on the House floor July 30, but passed the House under regular rules September 18 by a vote of 283-133. (For details, see CRS Report RL34555, Speculation and Energy Prices: Legislative Responses , by [author name scrubbed] and [author name scrubbed].) Strategic Petroleum Reserve Authorized in 1975, SPR consists of caverns formed out of naturally occurring salt domes in Louisiana and Texas in which nearly 700 million barrels of crude oil are stored. Its current capacity is 727 million barrels, and it is authorized at 1 billion barrels. The purpose of the SPR is to provide an emergency source of crude oil that may be tapped in the event of a presidential finding that an interruption in oil supply, or an interruption threatening adverse economic effects, warrants a drawdown from the reserve. Program costs for the SPR in recent years have been dedicated principally to maintaining SPR facilities and keeping the SPR in readiness should it be needed. Since FY1999, any fill of the SPR has been with deliveries of royalty-in-kind (RIK) oil to the SPR in lieu of cash royalties to the federal government on offshore production. Through FY2007, royalty-in-kind deliveries to the SPR have totaled roughly 140 million barrels and forgone receipts to the Department of the Interior are estimated to be $4.6 billion. DOE has projected deliveries of RIK oil during FY2008 of 19.1 million barrels and $1.170 billion in forgone revenues. Continued fill of the SPR with royalty-in-kind oil became controversial in the 110 th Congress. Critics argued against adding oil to the SPR when markets are tight and prices remain high. They argued further that the additional oil adds little to U.S. energy security. Supporters of RIK fill argue that the fill rate is too little to have a discernible impact on markets, and that currently high refined-product prices are sustained by factors other than crude supply, which is more than ample at this time. Legislation was introduced in the Second Session ( H.R. 5146 , S. 2598 ) to suspend RIK fill. The House bill would also have mandated a sale of 13 million barrels of SPR oil during FY2008, with the proceeds to be spent on a number of energy efficiency and alternative fuel programs. Both bills established conditions, including a significant decline in crude oil prices, that would have to be satisfied before RIK fill could be resumed. On May 13, 2008, the House passed, 385-25, a similar bill, the Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act ( H.R. 6022 ), which would have suspended SPR fill until the end of 2008 unless the price of oil dropped below $75 per barrel. The Senate passed the bill on the same day, and it became P.L. 110-232 on May 19. A further move regarding the SPR was the Consumer Energy Supply Act of 2008 ( H.R. 6578 ), introduced by Representative Lampson. The bill would have required the President to release 70 million barrels of high-quality crude oil from the SPR over the next six months, a move which proponents said would lower gasoline prices. The House took up the bill on July 24, 2008, under suspension of the rules, which required a 2/3 vote in favor for passage. The vote was 268-157, not enough to pass the bill. (For details see CRS Report RL33341, The Strategic Petroleum Reserve: History, Perspectives, and Issues , by [author name scrubbed]). Energy Tax Proposals Several legislative proposals, including Senator Reid's Consumer-First Energy Act ( S. 2991 ), included a "windfall profits" tax on oil companies, reacting to the record profits recorded in recent years. The provision was not passed in either house, however. (For details, see CRS Report RL34689, Oil Industry Financial Performance and the Windfall Profits Tax , by [author name scrubbed] and [author name scrubbed].) Oil industry tax issues were indirectly involved throughout the Second Session during consideration of a large tax measure which included, among other measures, extension of tax credits for renewable energy. House sponsors of the tax proposals insisted on including measures to offset the costs of various provisions, and among the offsets were reductions in tax benefits previously granted oil and gas companies. The Senate declined to include offsets, and the tax bill appeared unlikely to pass, but the Senate attached it to its version of the Emergency Economic Stabilization Act of 2008 ( H.R. 1424 , P.L. 110-343 ), with only a small offset provision affecting the oil and gas industry, and that version was finally approved and became law. (For details see CRS Report RL33578, Energy Tax Policy: History and Current Issues , by [author name scrubbed].) Mid- to Long-Term Supply and Demand Most proposals affecting supply and demand of crude oil and gasoline would not affect the current short-term crisis but would be aimed at longer term trends. Fuel Economy Corporate average fuel economy (CAFE) standards also have a long history of controversy, going back to their establishment in the 1970s. When Congress passed the Energy Independence and Security Act ( H.R. 6 , P.L. 110-140 ) in the First Session, the issue was largely resolved for the time being, and did not emerge significantly during the Second Session. (For details see CRS Report RL33413, Automobile and Light Truck Fuel Economy: The CAFE Standards, by [author name scrubbed] and [author name scrubbed].) ANWR Oil and gas exploration and development of part of the Arctic National Wildlife Refuge (ANWR) has been controversial for many years. This was part of the early proposals for legislation that eventually became the Energy Policy Act of 1992 ( P.L. 102-486 ), but was dropped in the face of strong opposition in both houses. Support for the action grew gradually in the following years, along with technological developments that advocates claimed would reduce the environmental impact of development. Numerous attempts to open the region for leasing have been made, and both the House and the Senate at various times approved measures that included leasing provisions, but none of them have survived to become law. (For more details, see CRS Report RL32838, Arctic National Wildlife Refuge (ANWR): Votes and Legislative Actions, 95 th Congress through 110 th Congress , by [author name scrubbed] and Beth A. Roberts.) Savings Goals A number of legislative proposals would have set goals for reducing oil consumption. An example is the Enhanced Energy Security Act of 2006 ( S. 2747 ), introduced by Senator Bingaman May 4, 2006, which would have required the Director of the Office of Management and Budget to develop an action plan to save 2.5 million barrels per day (mbd) in 2016, 7 mbd in 2026, and 10 mbd in 2031. Alternative Fuels In his January 31, 2006 State of the Union message, President Bush asserted that the United States is "addicted to oil," and set the goal of replacing more than 75% of oil imports from the Middle East by 2025. The main thrust of the presidential initiative was to increase funding for research in producing ethanol from plant fiber biomass (rather than from corn), for improved batteries for hybrid automobiles, and for hydrogen fuels. In his next State of the Union speech, on January 23, 2007, the President went further, setting a goal of reducing gasoline consumption by 20% in 10 years, through a combination of more stringent fuel economy standards and setting a mandatory renewable fuels standards of 35 billion gallons of renewable and alternative fuels by 2017, about five times the current consumption. The Energy Policy Act of 2005 ( P.L. 109-58 ) set a target of 7.5 billion gallons by 2012. On June 21, 2007, the Senate passed its version of H.R. 6 , the Creating Long-Term Energy Alternatives for the Nation (CLEAN Energy) Act of 2007, including a provision requiring production of 36 billion gallons of ethanol in 2022. The final version of the bill, P.L. 110-140 , set a modified standard that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons is required to be obtained from cellulosic ethanol and other advanced biofuels. (For more details, see CRS Report RL34265, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart.) OCS Leasing The moratorium on oil and gas leasing in the Outer Continental Shelf (OCS), except in the central and western Gulf of Mexico and some parts of Alaska, was subject to increasing controversy during the Second Session. The moratorium was maintained both by a Presidential ban and by provisions included in the annual appropriations measures for the Department of the Interior, which administers oil and gas leasing on federal lands. On July 14, 2008, President Bush lifted the executive ban on the OCS imposed in 1990 by President George H. W. Bush. Republicans in Congress attempted to bring up measures that would open up some parts of the OCS for leasing, but were unable to bring their measures to the floor either as stand-alone bills or as amendments to other bills. Appropriations Committee Chairman Obey refused to bring the FY2009 Interior appropriations bill before the committee, preventing Republicans from introducing OCS amendments to it. On September 16 the House passed H.R. 6899 , the Comprehensive American Energy Security and Consumer Protection Act, which would have opened up the OCS for limited oil and gas leasing. The bill passed by a vote of 236-189, despite objections by Republicans that it was too restrictive. The Senate did not take up the bill. With most of the non-defense FY2009 appropriations bills, including Interior, not considered, the Congress took up a continuing resolution to fund those programs until March 6, 2009. On September 24, the House passed H.R. 2638 , the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, without a provision extending the OCS leasing ban. The bill passed the Senate September 27 and was signed by the President September 30 ( P.L. 110-329 ). (For details see CRS Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue Sharing , by [author name scrubbed].) Legislation H.R. 1424 (Patrick Kennedy). Emergency Economic Stabilization Act of 2008. Includes tax provisions including extensions of renewable energy credits, and offsets affecting the oil and gas industry. Became P.L. 110-343 October 3, 2008. H.R. 1596 ( Ferguson ). Clean and Green Renewable Energy Tax Credit Act of 2007. H.R. 2419 (Peterson). Food Conservation and Energy Act of 2008. Contains provisions expanding the role of the Commodity Futures Trading Commission for certain energy derivatives. Enacted May 22, 2008, over the President's veto ( P.L. 110-234 ). H.R. 2448 (Kuhl). Emergency Gas Price Relief Act of 2007. H.R. 2638 (Price). Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009. Appropriates funding for the Department of the Interior without the provision extending the moratorium on OCS oil and gas leasing. Became P.L. 110-329 September 30, 2008. H.R. 5146 (Lampson). Invest in Energy Security Act. Would suspend SPR fill, and sell SPR oil to finance an Energy Independence and Security Fund. H.R. 6022 (Welch). Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act. Passed the House and the Senate May 13, 2008. Became P.L. 110-232 on May 19, 2008. H.R. 6349 ( Marshall ). Increasing Transparency and Accountability in Oil Prices Act of 2008. H.R. 6377 (Peterson). Energy Markets Emergency Act of 2008. Passed the House June 26, 2008. H.R. 6578 (Lampson). Consumer Energy Supply Act of 2008. Would release oil from the Strategic Petroleum Reserve over the next six months. On July 24, 2008, in the House, on motion to suspend the rules and pass the bill, as amended, failed by the Yeas and Nays (2/3 required): 268-157. H.R. 6604 (Peterson). Commodity Markets Transparency and Accountability Act of 2008. On July 30,2008, in the House, on motion to suspend the rules and pass the bill, as amended, failed by the Yeas and Nays: (2/3 required): 276-151. S. 2598 (Dorgan). Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act of 2008. S. 2890 (McCain). A bill to amend the Internal Revenue Code of 1986 to provide for a highway fuel tax holiday. S. 2896 (Snowe). Diesel Tax Parity Act of 2008. S. 2958 (Domenici). American Energy Production Act of 2008. S. 2971 ( Clinton ). A bill to amend the Internal Revenue Code of 1986 to provide for a suspension of the highway fuel tax, and for other purposes. S. 2991 (Reid). Consumer-First Energy Act of 2008. S. 3268 (Reid). Stop Excessive Energy Speculation Act of 2008. Cloture motion on the motion to proceed to the measure presented in Senate 7/17/2008.

The high price of gasoline has been and continues to be a driving factor in consideration of energy policy proposals. Despite passage of the massive Energy Policy Act of 2005 (EPACT 2005, P.L. 109-58), and the Energy Independence and Security Act of 2007 (H.R. 6, P.L. 110-140), numerous other proposed initiatives came under active consideration in the Second Session of the 110th Congress. Measures proposed included opening the Outer Continental Shelf for oil and gas drilling, regulation of speculation in energy markets, and policies concerning the Strategic Petroleum Reserve. A large number of factors combined to put pressure on gasoline prices, including increased world demand for crude oil and limited U.S. refinery capacity to supply gasoline. The war and continued violence in Iraq added uncertainty, and threats of supply disruption added pressure, particularly to the commodity futures markets. Concern that speculation added volatility and upward pressure was frequently cited. In recent months, a decline in the value of the dollar compared to other currencies increased the dollar price of oil on futures markets. The gasoline price surge stimulated much legislative activity, but until the last year or so there was not the sense of the extreme urgency of previous energy crises. In part, this may be due to the fact that there was been no physical shortage of gasoline or lines at the pump, as there were after the Arab oil embargo in 1973 and the Iranian revolution in 1979. At that time there was expectation that prices were destined to grow ever higher, and many believed that the world's supply of oil was running out. Such views have been less prevalent during the current run-up. But the continued and unrelenting increase in crude oil prices to record levels, even discounting inflation, led many to suggest that changing world market conditions may cause permanent, or at least chronic, shortages of petroleum production capacity. Others continued to expect that growth in demand would moderate, and production increase to meet demand, as it did following the shortages of the 1970s. The continuing high prices led to a further search for legislative remedies. This report, after analyzing factors that have contributed to high gasoline prices, describes the major legislative initiatives and discusses the issues involved.

Introduction Federal officials, policy analysts, and homeland security experts express concern about thecurrent state of chemical facility security. Referring to them as "the single greatest danger of apotential terrorist attack in our country today," some experts fear these facilities are at risk of apotentially catastrophic terrorist attack. (1) The Department of Homeland Security (DHS) identifies chemicalfacilities as being one of the highest priority critical infrastructure sectors. (2) Currently, chemical facility security efforts include a mixture of local, state, and federal laws,industry trade association requirements, voluntary actions, and federal outreach programs. The DHShas identified this composite as being insufficient in addressing security for the entire chemicalssector. Additionally, various costs and requirements may act as disincentives to stakeholdersattempting to create uniform, effective security against terrorist attack. Many in the public and private sector call for federal legislation to address chemical facilitysecurity. (3) Still,disagreement exists over whether federal legislation is the best approach to securing chemicalfacilities, and, if legislation is deemed necessary, what approaches best meet the security need. Sincethe population potentially affected by a chemical release generally resides near specific facilities,some experts may argue that chemical facility security concerns should be dealt with by state or localauthorities. Other experts claim the potentially catastrophic nature of a terrorist attack and thewidespread distribution of chemical facilities make chemical facility security an issue of nationalconcern. Policymakers may decide that chemical facility security is a matter of national homelandsecurity and is best addressed at the federal, rather than state level. Critical issues surrounding chemical facility security legislation include determining whichchemical facilities should be protected, which involves analyzing and prioritizing chemical facilitysecurity risks, identifying which chemical facilities pose the most risk, and establishing whatactivities could enhance facility security to an acceptable level. Because of the widespread use ofchemicals in U.S. society, determining which chemical facilities to protect is a challenge. Selectionmight be based on relative risk, but it is not clear how this risk might be determined. Mechanismsfor assessing security risk might include weighing the known or theoretical terrorist threat faced bya particular facility, the chemical hazards held at a facility, the quantities of those chemicals, and thelocation of those chemicals relative to the surrounding population. Security regulation of some chemical facilities is established under certain statutes, includingthe Maritime Transportation Security Act (MTSA) ( P.L. 107-295 ) and the Safe Drinking Water Act(SDWA), as amended by the Bioterrorism Preparedness Act ( P.L. 107-188 ). Several states haveestablished homeland security statutes and three, New Jersey, Maryland, and New York, have statelaws or regulations specifically addressing chemical facility security. Potential chemical facilitysecurity enhancement might be achieved through a range of policy approaches: providing grants toincrease security at high risk facilities; mandating site vulnerability assessments; compellingvulnerability remediation; establishing federal security standards; or requiring the consideration oruse of specific technologies. Proposed legislation may aim to complement existing law or tooverride it. In the 109th Congress, legislation has been introduced in both chambers addressing concernsregarding chemical facility security. In the Senate, S. 2145 , the Chemical FacilityAnti-Terrorism Act of 2005, and S. 2486 , Chemical Security and Safety Act of 2006,have been introduced. In the House, H.R. 1562 , the Chemical Facility Security Act of2005, H.R. 2237 , the Chemical Security Act of 2005, H.R. 4999 , acompanion bill to S. 2145, and H.R. 5695 , the Chemical FacilityAnti-Terrorism Act of 2005, have been introduced. Each bill contain provisions requiringvulnerability assessment and the creation of security plans, though details vary significantly betweenthe bills. One area of previous contention involves inclusion of consideration or use of inherentlysafer technologies. S. 2486 and H.R. 2237 both explicitly address inherentlysafer technologies, while S. 2145/H.R. 4999, H.R. 5695 and H.R.1562 do not. This report will discuss current chemical facility security efforts, considerations in definingchemical facilities, policy challenges in developing chemical facility security legislation, and selectpolicy approaches. For information on the risks of terrorism at chemical facilities, previouslyestablished federal safety requirements, general policy issues, and an overview of legislativeinitiatives in prior Congresses, see CRS Report RL31530 Chemical Facility Security, by Linda-JoSchierow. Current Efforts To Secure Chemical Facilities Many organizations are undertaking efforts to secure chemical facilities. Some efforts arevoluntary in nature, involving security best practices, or semi-voluntary, such as requirements formembership in trade associations. Other efforts arise from state or local chemical facility securityregulation. Finally, federal security legislation affecting some chemical facilities was enacted inprevious Congresses. Federal agency outreach activities continue. Voluntary Efforts Industry trade associations have developed and publicized security best practices for theirmember companies. (4) These practices vary, but many recommend or require vulnerability assessments of chemicalfacilities, generation of security plans to address the largest vulnerabilities, implementation of thesesecurity plans, and, in some cases, external auditing of these security plans or their implementation. One of the most often discussed trade association security requirements is the American ChemistryCouncil's (ACC) Responsible Care program. (5) The DHS officially recognizes the Responsible Care Security Codeas an Alternative Security Program for the purposes of compliance with MTSA. (6) The ACC companies comprisealmost 90% of basic industrial chemical production, although their members are only a small fractionof the total number of chemical manufacturers. While many other chemical manufacturers anddistributors participate in other trade associations, the DHS testified that approximately 20% of thechemical facilities that DHS identifies as high risk do not participate in any voluntary securityprogram. (7) Some argue that a voluntary security program is insufficient to meet the risk of a significantterrorist attack. One security expert testified that ... it is a fallacy to think that profit-maximizingcorporations engaged in a trade as inherently dangerous as the manufacture and shipment of TIH[Toxic Inhalation Hazard] chemicals will ever voluntarily provide a level of security that isappropriate given the larger external risk to society as a whole. (8) Others challenge the voluntary security plans as vague, inappropriately focused on physical security,and difficult to verify. (9) Some analysts likewise believe that current security at chemical facilities would not stop adetermined, armed attacker. (10) Supporters of voluntary efforts cite the large investment made in site security since 2001 andother efforts to reduce risk as signs of their effectiveness. The ACC, for example, notes that itsmember companies invested over $2 billion in security enhancements since 2001. (11) Additionally, somefacilities voluntarily switched chemicals, changed manufacturing processes, or reduced the amountof chemicals on-site. (12) As one industry trade association representative testified, "Our efforts show that industry does notneed to be prodded by government mandates to take aggressive and effective steps to secure itsfacilities." (13) State Efforts Several states have safety or environmental laws applying to chemical facilities, but three,New Jersey, Maryland, and New York, have enacted security laws that specifically target chemicalfacilities. Under New Jersey's Domestic Security Preparedness Act of 2001, the New JerseyDomestic Security Preparedness Task Force is authorized to adopt and enforce security standardson the public and private sector, following review and approval by the Governor. (14) In November, 2005, theTask Force mandated chemical facilities to comply with previously voluntary best practices,including reviewing existing processes for inherently safer alternatives at specific facilities. Facilities must report to the New Jersey Department of Environmental Protection. (15) Under Maryland's Hazardous Material Security Act, facilities that are required to fileEnvironmental Protection Agency (EPA) risk management plans (RMPs) must perform vulnerabilityassessments and implement plans to address those vulnerabilities. The Hazardous Material SecurityAct excludes agricultural fertilizer retailers from this requirement. The facilities must report to theMaryland Department of the Environment and the Maryland State Police. (16) Under New York's Anti-Terrorism Preparedness Act of 2004, the New York Office ofHomeland Security is charged with reviewing the vulnerability of chemical plants, following whichit can recommend security improvements at particular plants. The Anti-Terrorism Preparedness Actof 2004 also allows the state Office of Homeland Security, in consultation with stakeholders, toidentify chemical facilities covered by the law. It excludes facilities holding fuel for retail sale andfacilities that are water suppliers. The Department of Environmental Conservation enforces thelaw. (17) Policymakers who believe that states are better suited to assess local threats and vulnerabilities may prefer chemical facility security measures to be developed locally. A potentialconcern of industry about such state laws is that a patchwork of regulations could develop, withdifferent standards applying to facilities located in different states. Consequently, facilities in somestates might be more secure than in others, or a facility's out-of-state competitors might face verydifferent security costs. Policymakers who believe such an approach does not provide sufficientsecurity to the population at large, or places an uneven burden on industry may prefer a nationalstandard. Also, some chemical facilities located near state borders may pose risks across state lines,supporting efforts for a national standard. Federal Efforts Congress has passed many environmental and safety statutes which may provide ancillarysecurity benefits. Congress has also enacted legislation providing security requirements for somespecific types of chemical facilities, but these requirements vary among different statutes. Also, thefederal government, through the Department of Homeland Security and other agencies, engages theprivate sector in a public/private partnership, raising the profile of chemical facility security andproviding first responders with federal funding to secure critical infrastructure, including chemicalfacilities. Congressional Actions. The 107th Congressenacted the Maritime Transportation Security Act of 2002 (MTSA) ( P.L. 107-295 ). The MTSAassigned the Coast Guard the responsibility of securing U.S. ports. Ports and facilities located withinports must perform vulnerability assessments and develop security plans. Ports are often the locationof chemical facilities, such as petroleum refineries. According to the Coast Guard, 238 chemicalfacilities must comply with MTSA. (18) For more information, see CRS Report RL31733 Port andMaritime Security: Background and Issues for Congress, by John F. Frittelli. The 107th Congress also enacted the Public Health Security and Bioterrorism Preparednessand Response Act ( P.L. 107-188 ). This legislation amended the Safe Drinking Water Act (SDWA)to require community water systems serving more than 3,300 people to perform site vulnerabilityassessments and develop emergency response plans. Plans for addressing known vulnerabilitieswere not required. The vulnerability assessments must be submitted to the EPA. Community waterfacilities receive some federal funding to aid in assessing and addressing critical vulnerabilities. Drinking water systems storing large quantities of chemicals may be considered chemical facilitiesand, if those facilities serve a sufficient population, would fall under SDWA. (19) The contents of theemergency response plans required under the SDWA are not equivalent to the security plans requiredunder MTSA. For more information on EPA implementation of drinking water security, see CRS Report RL31294 Safeguarding the Nation's Drinking Water: EPA and Congressional Actions , by[author name scrubbed]. Federal regulations governing environmental releases, public health, and worker safety havebeen developed and applied to chemical facilities. Some activities undertaken to meet theseregulatory obligations may have an auxiliary security benefit, either by lowering the consequencesof a chemical release or through reduction of a particular vulnerability. Also, federal securityregulations exist for some specific chemical, or chemical-related, facilities. In general, these securityregulations were developed to protect facilities against criminal activities, such as vandalism or theft,rather than terrorist attack. Examples of such security regulations include the protection of liquifiednatural gas storage facilities (49 CFR 193), hazardous liquids pipeline pumping stations (49 CFR195.436), and storage sites for hazardous materials shippers (49 CFR 172.800). Federal Agency Action. Under the above statutes,the EPA and DHS engage in increasing chemical facility security. Facility owners and operators canassess site security using vulnerability assessment tools developed by each agency. The EPA, inconjunction with Sandia National Laboratories and the AWWA Research Foundation, developedRisk Assessment Methodology for Water Utilities (RAM-W), a risk assessment methodology forwater systems. (20) TheDHS, through the American Society of Mechanical Engineers (ASME), developed an assessmenttool called Risk Assessment and Management for Critical Asset Protection (RAMCAP), which iscurrently being employed in the chemical industry under a pilot program. (21) The DHS, as the lead federal agency for the chemicals sector under Homeland SecurityPresidential Directive 7, visits selected chemical facilities. To prioritize outreach to the chemicalssector, DHS has divided, using DHS-determined metrics, the universe of RMP facilities into fourtiers. Only 272 facilities occupy the top two tiers. Representatives from either the U.S. Coast Guardor the Information Awareness and Infrastructure Protection Directorate have visited each of thesetop tier facilities. (22) Inaddition, DHS employees conduct site assessment visits in conjunction with local law enforcement. These "inside-the-fence" vulnerability assessments have been performed at 38 of the highestconsequence facilities. The DHS plans to visit 50 more in FY2006. (23) The DHS also maintains the Buffer Zone Protection Program (BZPP), which providestargeted funding through states to local jurisdictions in order to enhance security surrounding criticalinfrastructure facilities. (24) This program is not specific to chemical facilities, but insteadis designed to increase the level of general critical infrastructure security. As of April 2005, stateHomeland Security Advisors submitted to DHS 113 buffer zone protection plans developed forchemical facilities. (25) According to the Government Accountability Office, DHS has identified 259 chemicalmanufacturing plants and storage and supply facilities eligible under the 2005 BZPP criteria ofpotentially affecting more than 50,000 people through a chemical release. (26) In 2006, DHS establishedthe Chemical--Buffer Zone Protection Grant Program. This program focuses exclusively onchemical facilities and provides total funding of $25 million to nine states to enhance buffer zoneprotection planning surrounding chemical manufacturing facilities. (27) The Chemical Sector Coordinating Council (CSCC), formed in May 2004, is a point ofcontact for DHS to communicate across the chemicals sector. The CSCC is comprised of 16chemical associations. (28) The DHS is working with the CSCC on a ChemicalSector-Specific Plan as part of the National Infrastructure Protection Plan. The DHS is also currentlypiloting the Homeland Security Information Network -- Chemical, an information sharingmechanism, through the CSCC. (29) This activity occurs in addition to the previously establishedInformation Sharing and Analysis Center established through the American Chemistry Council. (30) Policy Issues Policymakers may decide to develop legislation with new authorities that would requireadditional chemical facility security. Key policy issues that may arise during the consideration ofsuch legislation include the adequate coverage of the chemical facility universe; the federal agencyoverseeing any new requirements; the extent of new security measures required, such as requiringincreases in physical security or reducing chemical hazards through alternative approaches; treatmentof existing federal and state laws; and recognition of preexisting industry security efforts. Understanding Chemical Facilities Establishing a definition of the phrase chemical facility is a key component of potentiallegislation. As the DHS Acting Under Secretary for Information Analysis and InfrastructureProtection testified, ... the very first thing we're going to have to do is cometo an adequate, agreed- upon definition of what the chemical sector actually is, because without that,we will be going all over the place. (31) Some people include only facilities involved in chemical manufacture and distribution. Othersinclude any site containing chemicals. The narrowness or breadth of this definition will likelyinfluence the practicability of security regulations and determine the degree of security riskreduction. This section discusses three possible mechanisms for selecting chemical facilities for securityregulation, based on a list of chemicals, the potential consequences of a terrorist attack, or anindustrial classification. Considering the breadth of U.S. chemical sites that could be attractivetargets for terrorists, it is likely that a comprehensive definition will require a combination ofapproaches. Defining by Chemical. Environmental and safetylegislation often list, or direct an agency to list, chemicals for regulation, and then require regulationof those facilities that contain them, usually at levels above certain threshold quantities. Examplesof such legislation include the Emergency Planning and Community Right to Know Act (EPCRA),passed as part of the Superfund Amendments and Reauthorization Act ( P.L. 99-499 ), and the CleanAir Act Amendments of 1990 ( P.L. 101-549 ), which established both the Environmental ProtectionAgency (EPA) risk management program and the Occupational Safety and Health Administration(OSHA) process safety management program. One challenge in using this approach may be determining which chemicals to include whenconsidering chemical facility security. Existing federal chemical lists are generally developed forother reasons, and therefore may not be appropriate for security purposes. For example, theDepartment of Transportation list for regulation of transport of hazardous materials contains severalthousand chemicals, not all of which are a security risk. (32) The OSHA process safety standard applies to a group of highlyhazardous chemicals selected because of their potential hazard to workers. (33) The EPCRA lists severalhundred chemicals in order to ensure the safety of first responders in the event of a chemicalaccident. (34) The Clean Air Act, Section 112(r), requires a risk management plan (RMP) for facilitiespossessing more than threshold quantities of any of 140 chemicals. (35) These chemicals areincluded because of their potential for acute, offsite consequences to human health or theenvironment in the event of a sudden, large, accidental release. The risk management programrequires these facilities to estimate the population that might be affected under a worst-case scenariorelease, calculating the population that resides within a circle surrounding the facility, with the radiusof the circle determined by the distance the worst-case scenario release might travel. (36) While these estimates arenot intended to model a potential terrorist release, the potentially affected population in a worst-casescenario is often cited in discussing chemical facility security risks. Such hazardous chemical lists generally identify chemicals based on an inherent hazard, suchas toxicity or flammability. One potential drawback to defining facilities by referring to these listsis that they exclude potentially hazardous chemicals for reasons other than risk. For example, theRMP list, often referred to in discussions of chemical facility security, does not includeexplosives. (37) It alsoexempts material already regulated under 49 CFR 192, 193, and 195, such as liquified natural gas,which is covered by other safety regulations. (38) The list of RMP facilities was further reduced by statute toexclude facilities where flammables are stored on site as fuel or for retail distribution as fuel. (39) Congress may or may notwant to include such exempted materials when considering chemicals in a terrorism context. Of course, any of the above lists, or any other chemical list, might be edited to meet thesecurity need. To better focus federal resources, a much shorter list of chemicals might be desirable. Alternatively, an appropriate federal agency might develop a new chemical list specifically forsecurity purposes, avoiding a focus on previous lists. One safety expert testified that I would not want [the Department of] HomelandSecurity to think that somehow it can pull out of another agency the named list of chemicals and talkto the industry and say these are the only ones we're going to worry about. (40) Policymakers might require a federal agency, such as EPA or DHS, to develop and maintain sucha list. If Congress wants chemical facility security efforts to address particular chemical threats, itmight list specific chemicals in statute, while allowing the federal agency to modify the list. (41) Defining by Consequence. Another potentialcriterion for determining which chemical facilities to address is the likelihood and severity of adverseconsequences in the case of a terrorist attack. Such consequences might include the possibility orprobability of injury, loss of life, financial harm, environmental damage, or loss of critical chemicalproduction. Experts disagree on how best to determine the likelihood and severity of theseconsequences, their relative importance, and whether these different consequences lend themselvesto comparison, should be considered independently, or can be appropriately ranked. Because federal resources are limited, prioritizing chemical facilities by risk may be aneffective approach to maximizing the benefits from security spending. DHS Secretary Chertoff,implying such an approach, stated, "When you start to think about your priorities, you're going tothink about making sure you don't have a catastrophic thing first." (42) A risk-prioritizationapproach may allow the development of thresholds defining risk characteristics for chemicalfacilities, and thereby determine which chemical facilities should receive federal resources or requirefederal attention. The magnitude of the threshold used would likely determine several characteristicsof the chemical facility universe, including the inclusion or exclusion of different types of chemicalfacilities, the regional distribution of facilities, the degree of potential increased security, and theprogram cost. An additional factor in defining by consequence involves the type of data that might be usedto determine a risk threshold. What metric is most appropriate and how should it be determined? For example, in considering human casualties, should one consider a worst-case scenario or a moreprobable release? The degree of complexity and accuracy required to model these scenarios mightbe an area of contention. For example, DHS uses a different methodology to determine potentiallyaffected people following a terrorism-related chemical release than EPA uses when assessingpotential risks from accidental releases. The potentially affected residential population in the EPA RMP program's worst-casescenario is often cited in the debate about chemical facility security. These predictions are knownto be very conservative and are intended to be used for planning purposes by emergency responseorganizations and government agencies. Some analysts assert that these RMP figures are a viablestarting point for prioritizing chemical facility risk. (43) Other analysts assert that RMP figures overestimate the actualnumber of casualties. For example, DHS modeling of one specific facility showed that the numberof persons potentially affected was much lower than projected from regulatory calculations. (44) Still others contend that the RMP figures may underestimate the casualties from a terroristattack, as the scenarios are modeled on a release from a single chemical process. Since manychemical processes may be located in a chemical facility, it is possible that a greater amount ofchemical might be released during an intentional attack than during an accidental release. (45) Determining the extentof likely casualties from a release might require extensive modeling of facility location,meteorological information, surrounding population distribution, and other factors, which may proveto be prohibitively difficult for a large number of chemical facilities. Defining by Industry Classification. Anotherapproach towards defining chemical facilities might be by industrial classification. Such anapproach appears to align with The National Strategy for Physical Protection of CriticalInfrastructure and Key Assets and Homeland Security Presidential Directive 7 (HSPD-7), wherecritical infrastructure is subdivided into specific infrastructure sectors and federal agencies areassigned lead roles for each sector. (46) Critical infrastructure sectors may be composed of similarindustries or of industries with common elements. For example, HSPD-7 identifies an "energy"sector and a "chemical and hazardous materials" sector. The latter sector is defined to includechemical manufacturers and processors. The range of facilities that policymakers may wish toinclude in chemical facility legislation may not align cleanly, however, with either a particularindustrial classification or with a single critical infrastructure sector. For example, users of largeamounts of chemicals, such as water or wastewater treatment facilities, may fall into a criticalinfrastructure sector other than "chemical and hazardous materials." The Department of Labor uses the North American Industrial Classification System (NAICS)to classify employment and economic data by industry. (47) NAICS codes are hierarchical; codes containing more digits aresubsets of codes containing fewer digits. For example, NAICS code 3251 (Basic ChemicalManufacturing) is a subset of NAICS code 325 (Chemical Manufacturing). The NAICS codes areoften self-assigned, in that a facility determines which NAICS code appropriately defines its businessactivity. Therefore, an approach relying on these codes might be susceptible to error due to incorrectself-assignment. On the other hand, federal agencies use such industry classification schemes toassess economic activity across industry groups, indicating that this self-classification scheme maybe acceptable. Defining chemical facilities according to industry classification might lead to the "one sizefits all" approach to chemical facility security criticized by various industry groups. (48) Such an approach mayrequire facilities that are not a security risk to increase their security solely because of their industryclassification, rather than their actual risk. Such security efforts might not reduce the national riskand might be viewed as counterproductive, potentially impairing economic efficiency withoutincreasing security. Moreover, due to fiscal constraints, smaller facilities might be unable to meetrequirements designed for larger facilities, potentially damaging a company's ability to operate. (49) , (50) Effects of Thresholds on Chemical Facilities The relative representation of the different chemical-using industries will depend on thechoice of legislative definition. Some security experts argue that any chemical facility that couldendanger the surrounding residential population should be considered under chemical facilitysecurity legislation. (51) Others advocate a tiering system based on a consequence metric. Depending on the legislative definition, different infrastructure sectors will be included aschemical facilities. The types of infrastructure sectors included as chemical facilities might bereduced by using a consequence threshold, as this would further refine the number of affectedfacilities. This section will use the EPA RMP data as a case study to discuss the types ofinfrastructure sectors found in the RMP program and to illustrate the impacts of applying aconsequence threshold. Types of Facilities. A potential difficulty offocusing on a particular industry sector, or of using industrial classification to define chemicalfacilities, derives from the diverse impacts that particular industries have on security. That is,depending on the magnitude of the consequence, different industrial classifications account for themajor portion of the chemical facility risk universe. In Figure 1 , CRS grouped NAICS industrycodes into infrastructure sectors used in HSPD-7. (See Appendix A for a description of howinfrastructure sectors were constructed from NAICS codes.) As Figure 1 shows, lowering theconsequence threshold greatly expands the number of facilities and the relative shares of the waterand the food and agriculture sectors. Figure 1. Infrastructure Sector Representation for RMP Facilities at Two Worst Case Scenario Thresholds Source: CRS analysis of the EPA RMP*National Database (with off-site consequence analysis(OCA) data), updated May 2005. Note: It is unlikely that the entire population would be affected by any single chemical release, evenif it is a result of a worst-case accident. In the event of an actual catastrophic chemical release,meteorologic and other effects will determine the direction of the release, and which of the potentialat risk population might be affected. In addition, worst-case scenarios do not take into accountemergency response measures that might be taken by operators of the facilities or others to mitigateharm. A sector-specific approach will leave some security risks unaddressed. Even at higherthresholds, significant portions of the chemical facility universe may not be addressed bysector-specific legislation. On the other hand, as the threshold for inclusion in a chemical facilitysecurity framework is lowered, additional infrastructure sectors grow in relative representation, asis seen by the food and agriculture sectors in Figure 1 . Because of the increased representation ofthese industry sectors, chemical facility security regulations will likely need to be more flexible toaccount for different operating environments and business needs. Number of Facilities. As the consequencethreshold is lowered, chemical facility security regulation would apply to more facilities. Thenumber of facilities increases non-linearly as the threshold decreases. Table 1 illustrates this effectby presenting the number of RMP facilities included at selected potential consequence thresholds. Table 1. Number of RMP Facilities Reporting at SelectedPotential Consequence Thresholds Source: CRS analysis of the EPA RMP*National Database (with off-site consequence analysis(OCA) data), updated May 2005. Note: It is unlikely that the entire population would be affected by any single chemical release, evenif it is a result of a worst-case accident. In the event of an actual catastrophic chemical release,meteorologic and other effects will determine the direction of the release, and which of the potentialat risk population might be affected. In addition, worst-case scenarios do not take into accountemergency response measures that might be taken by operators of the facilities or others to mitigateharm. Chemical facility security legislation that incorporates a low threshold may affect additionalsmaller facilities not generally considered as chemical facilities, such as agricultural retailers or smallwater treatment systems. Whether these industries are the intended targets of any chemical facilitysecurity regulation is a topic facing policymakers. The large contribution of the water sector to the RMP chemical facility universe also raisesthe question of whether existing security efforts taken under the SDWA are sufficient to secure thissector. For example, from Figure 1 , the water sector (consisting of both drinking water treatmentand wastewater treatment facilities) is 18% of all facilities under the 100,000 affected threshold, butcomprises 34% of facilities under the 10,000 affected threshold. Wastewater treatment facilities,which comprise roughly half of the water sector at both thresholds used in Figure 1 , are notaddressed under the SDWA. Should policymakers accept that drinking water facilities areadequately secured through prior legislation, it still would leave many water sector contributors tothe RMP chemical facility universe. However, including all chemical facilities equally in a security program may create anunmanageable burden on low-risk chemical facilities. High risk chemical facilities are likely larger,possessing a greater ability to meet security requirements. Smaller chemical facilities required tomatch the security measures put in place by larger chemical facilities may not be able to do sobecause of fiscal limitations. Lead Federal Agency Which federal agency should possess chemical facility security oversight responsibilities isa topic of debate. Some analysts assert that the EPA possesses a historic relationship with both thechemical industry and specific chemical facilities. They claim that the EPA is knowledgeable aboutchemical facility operation and security, that the EPA would be well-positioned to understand thepotential impacts of security regulation, and that the EPA would be likely to create effectiveregulation. This coupling of safety and security was supported by the U.S. Coast Guard, whichtestified that security auditing under MTSA often occurred while the U.S. Coast Guard was presentat the chemical facility for safety reasons. (52) Other analysts claim that the EPA is unlikely to be the correctoversight body for chemical facility security. They cite the potentially contentious relationship thatthe EPA, which already oversees safety and facility emissions, might develop with the chemicalindustry. They assert that regulation of security may need to be met through a collaborative processbetween the oversight agency and the facilities, so it should be divorced from environmentalregulation. The DHS is the other federal agency most often cited as appropriate for overseeing chemicalfacility security. Advocates claim that a good working relationship already exists between DHS andindustry and that DHS's expertise in security is a dominant factor. Opponents of this view argue thatsecurity measures, absent environmental protection and safety considerations, may generate adverseside effects. For example, while burying storage tanks underground might increase the security ofthese tanks, such an approach might pose an environmental risk from potential tank leakage. Consequently, some analysts suggest an approach combining the skills of both DHS and EPA inoverseeing chemical facility security. Extent of Security Measures If legislation requires chemical facilities to implement new security measures, the extent ofthese measures may also be an issue of contention. Consensus is lacking regarding whether thereshould be auditing of vulnerability assessments, federal inspection of security measures, and requiredconsideration of alternative approaches, such as inherently safer technologies. Auditing of Vulnerability Assessments and SecurityPlans. Existing federal laws governing some chemical facilities have taken diverseapproaches to vulnerability assessments for chemical facilities. The Maritime TransportationSecurity Act (MTSA) requires both the development of site vulnerability assessments and theremediation of those vulnerabilities identified. The Safe Drinking Water Act (SDWA), as amended,requires drinking water facilities to develop site vulnerability assessments and emergency responseplans, but not to remediate vulnerabilities. Under both laws, the appropriate federal regulatoryagency receives the site vulnerability assessments. Under the MTSA, the DHS has the authority toinspect port facilities, assess their security plans and actions, and determine whether the facilitiesmeet DHS security standards. The EPA was not granted similar authorities under SDWA. Policymakers might decide to require that site vulnerability assessments be performed for allchemical facilities and supplied to the federal government or others. Verification and validation ofvoluntary security plans is a topic of continuing concern by advocacy groups, so policymakers mightprovide the federal oversight agency the authority to inspect and assess compliance with vulnerabilityassessments and any remediation requirements. However, in contrast to the limited number ofchemical facilities covered by MTSA, a broad legislative definition of chemical facilities couldinclude thousands of facilities. The logistical burden of inspecting these facilities on a recurringbasis could be quite high for a federal agency. Current agency staffing may be insufficient to meetthis requirement. Consequently, requiring federal auditing and validation of chemical facilitysecurity may be difficult to implement in a timely manner. Auditing responsibilities could bedelegated to state or local officials to reduce the burden placed on federal agencies. Alternatively, Congress could authorize agencies to license third-party auditors and acceptcompliance reports they might submit on behalf of chemical facilities. DHS Secretary Chertoff hasexpressed support for Congressional consideration of such third-party validation. (53) Fees from such a programcould offset auditing costs. If such auditing were done by third parties or was enforced by a differentmechanism, such as holding facility owners or operators liable for security measures at the chemicalfacilities, costs might be somewhat reduced. Critics of outside auditing question the impartiality andrigor of such reviews, citing breakdowns in analogous financial auditing approaches. (54) Some experts suggest requiring owner or operator certification of security measurecompliance, with associated criminal liabilities for noncompliance. (55) Such an approach, coupledwith inspections, might provide incentives to businesses to maintain high security standards. Prescriptive Versus Performance-basedRequirements. The basis for chemical facility security requirements is another areaof contention. Chemical trade associations and others have testified that chemical facility securityrequirements should be risk-based and provide clear guidelines regarding federal expectations. (56) Also, they have requestedfederal assistance and access to federal records, for background checks and other purposes, as partof meeting security standards. (57) DHS Secretary Chertoff has emphasized the need for risk-based prioritization in homelandsecurity activities. (58) The DHS testified that the federal government, in approaching chemical facility security, shouldadhere to three core principles: Chemical facilities present different levels of risk, and the most scrutiny shouldbe focused on those that have the greatest consequences. Chemical facility security should be based on reasonable, clear, and equitableperformance standards, developed by DHS. Chemical facilities should be able to select amongappropriate site specific security measures. Chemical facility security efforts should recognize voluntary industryefforts. (59) Some analysts argue for strong performance standards, requiring chemical facilities to be ableto repel armed assault, as required of the nuclear power industry. (60) Others have cited the U.S.Coast Guard's implementation of the MTSA as a good model for performance-based requirements. Existing security regulation for some chemical storage facilities, such as liquified natural gas,is prescriptive in nature. Federal regulation governs security procedures, protective enclosures,communications, monitoring, lighting, power sources, and warning signs. (61) Some experts assert thatsuch prescriptive regulations lead to outdated security standards should threats or vulnerabilitieschange. Policymakers may consider whether security requirements should be prescriptive orperformance-based, and whether any such requirements should be placed directly in legislation, orwhether the implementing agency should be provided the discretion to determine securityrequirements. Inherently Safer Technologies. The applicationof inherently safer technology to increase chemical facility security is also a subject of debate. Theconcept of inherently safer technology involves altering a chemical process by substituting lesshazardous materials, minimizing the amount of hazardous material on hand, altering the processconditions, or designing operation so that it is more tolerant of error. (62) Advocates of inherentlysafer technology state that its application would directly reduce security risks, because the hazardposing the security risk would be replaced or reduced. (63) While acknowledging that not all chemical processes haveinherently safer alternatives, advocates cite cases where inherently safer alternatives are known andcould be employed. (64) They claim that federal security legislation should require at least the consideration of thesetechnologies when addressing chemical facility vulnerabilities. Industry trade associations are generally resistant to legislation mandating the use of, orincorporating a requirement to consider, inherently safer technology. They state that decisionsregarding the use of inherently safer technology are weighed on a process and facility basis and areregularly considered by process engineers when optimizing and assessing process change. (65) Additionally, they cite thepotential to impact process safety negatively should inherently safer technology approaches beincorrectly implemented. For example, if stockpiles of a hazardous chemical are reduced, more,smaller shipments may be required. More connections would be required to transfer the sameamount of material from smaller shipments. This might lead to greater risk for workers making thesetransfers. Lastly, industry trade associations express concern that if inherently safer technologyimplementation decisions are not made by process safety experts, future difficulties and potentialimpracticalities may arise. (66) Another consideration discussed in the context of inherently safer technologies is thepotential to transfer risk from one chemical facility to another chemical facility. (67) Process changes, such asthe conversion of wastewater treatment from chlorine as a disinfectant to sodium hypochlorite as adisinfectant, may lower the potential consequences at that facility, reducing the risk to thesurrounding area. Those process changes may, however, increase the risk at a different point in thesupply chain. For example, the facility converting chlorine into sodium hypochlorite may increaseits chlorine stocks to address a greater demand for the sodium hypochlorite end product, increasingthe potential consequences surrounding that manufacturing facility. Depending on the relativepopulation at each facility, fewer or more individuals may be put at risk by the facility processchange. Experts in process engineering have testified that research in inherently safer technology isstill nascent. While some practical examples of inherently safer technology have been developed,they assert that metrics for comparing one technology to another to determine its inherent safety arenot yet defined. (68) Assuch, they challenge whether new inherently safer technology will be developed for chemicalprocesses without an extensive research effort and question the feasibility of mandatingimplementation of inherently safer technology. (69) Safety regulation requiring the consideration of inherently safer technology has beendeveloped on the state and local level. For example, New Jersey, in implementing the ToxicCatastrophe Prevention Act, requires the consideration of inherently safer technology for all newfacilities and processes covered under the act. (70) Mandatory chemical facility security standards recentlyimplemented in New Jersey now require chemical facilities regulated under the Toxic CatastrophePrevention Act to consider inherently safer technologies for existing processes. (71) In contrast to concernsvoiced by critics of inherently safer technology, the New Jersey Department of EnvironmentalProtection has found that such "evaluation of inherently safer technology is not overly burdensomeon industry." (72) ContraCosta County, California, also requires the consideration of inherently safer technologies. (73) Policymakers, inconsidering inherently safer technologies, may wish to assess whether new processes or facilities arefundamentally different than existing processes or facilities, and might benefit from a securityrequirement to consider inherently safer technologies. (74) Consequences of Noncompliance. If newchemical facility security requirements are established, penalties for not meeting these standardsmight need to be determined. Civil or criminal penalties, such as fines, might be assessed againstfacility owners or operators, whose security did not meet program standards. If a tiered system ofsecurity requirements were established, penalties might be tiered as well. Some might argue thoughthat the effect of tiering would be to lower penalties below what would be sufficient to ensurecompliance, while others might contend that penalties should be more directly related to the criteriadetermining the tiering. A different approach to enforcing compliance would be to enable the federal agencyimplementing the chemical facility security program to prevent operation of a facility if it is out ofcompliance with the program. The U.S. Coast Guard is granted this authority under MTSA. Suchlanguage could be developed for any new program. Stakeholder concerns regarding such anauthority would likely revolve around details of its use, such as the ability of a facility to appeal suchauthority. The authority to stop operation of a chemical facility due to insufficient security woulddirectly affect the fiscal viability of a facility, providing a strong incentive to maintain compliancewith security requirements. However, for those facilities with fiscal challenges, blocking theiroperation might significantly threaten the facility's economic stability. Coordinating Regulatory Initiatives With Existing Efforts Policymakers may wish to coordinate chemical facility security approaches with existing stateand federal regulation. Developing equivalent criteria, exempting facilities covered under otherregulation, and determining whether federal standards preempt or form the base for state regulationare some of the options available to policymakers. MTSA and SDWA. The MTSA and SDWA,both of which cover some chemical facilities, mandate different regulatory agencies, securityrequirements, and authorities regarding noncompliance. The DHS, through the U.S. Coast Guard,implements the MTSA, while EPA implements the SDWA. The SDWA requires vulnerabilityassessment, but not remediation, while MTSA requires both vulnerability assessment andremediation. The MTSA grants the Coast Guard the ability to close facilities that lack appropriatesecurity, while the SDWA does not. Legislation affecting all chemical facilities could bridge theseregulations and attempt to reconcile their requirements. Chemical facility legislation might requirethe higher standard to be applied to all chemical facilities, thereby requiring those water facilities thatalso qualify as a chemical facility to increase their site security activities. Alternatively, it mightrequire all chemical facilities meet the SDWA standard, leaving MTSA-regulated facilities with ahigher security requirement. As a third option, new chemical facility security requirements mightexempt facilities regulated under the MTSA or SDWA. State and Local Regulation. States have passedchemical facility security legislation. Policymakers may wish to decide how existing and proposedfederal regulations might mesh with state requirements. While all states contain chemical facilities,depending on the facilities located in each state, the perception of likelihood and consequence of aterrorist attack may vary significantly. While some analysts assert that the potential consequencesof an attack on a chemical facility are such that it poses a homeland security threat, others may claimthat these facilities and the population surrounding them generally reside within the boundaries ofsingle state and would be best served by state, rather than federal, regulation. Should Congress determine that chemical facility security is a federal homeland securityconcern, policymakers may need to address whether federal regulation will preempt state regulation,or if it will form the base from which states may impose stricter security requirements. Industryassociations suggest that any new federal legislation should supercede state laws. An apparentconcern is that allowing individual states to add security requirements above a federal minimumwould lead to a patchwork of state regulation and, potentially, increased regulatory compliance costs. On the other hand, some federal regulations, such as environmental regulations on air emissions,allow states to enact additional regulations should the state wish to develop stricter standards. Voluntary Efforts. Some chemical facilitiesengage in security activities absent regulation. Policymakers may decide whether these actionsshould be rewarded. Potential mechanisms for recognizing these activities include economic offsetsfor security costs, granting exemptions from the regulatory framework for facilities undertakingvoluntary efforts, and recognizing voluntary efforts with full or partial equivalency with regulatoryrequirements. Some analysts assert that voluntary efforts should not be rewarded, since a businessincentive -- reduced liability -- already exists for chemical facilities to improve security. Furthermore, even with this incentive, current voluntary security activities may not rise to anacceptable level. Potential Approaches to Security Legislation In light of the various policy issues, four overarching legislative approaches emerge. Theapproaches are maintaining the current approach to chemical facility security; increasing availableresources under existing authorities; enhancing existing programs with new authorities specificallyrelated to chemical facility security; and creating new authorities to address chemical facilitysecurity. Maintain the Status Quo Some analysts and industry representatives submit that the current mix of voluntary andmandatory activities provide adequate security enhancements and that market forces are good driversof chemical facility security needs. (75) While acknowledging that mandates are needed, DHS SecretaryChertoff recognized the power of market forces, stating, "... we want to acknowledge and recognizethat ultimately, the marketplace itself creates a very strong incentive through business self-interestin enhancing security." (76) Supporters of the status quo do not advocate for new chemicalfacility security legislation, but instead suggest that current security activities focusing on apublic/private partnership with the DHS, coupled with federal support of local first responders andlaw enforcement, continue to provide chemical facilities with security. They assert that the voluntarychemical facility security measures are likely to be implemented at an appropriate and sustainablelevel based on the risk perceived by the facility owners and operators. Remaining at the status quo would likely not address criticism of the adequacy of voluntarysecurity actions nor the degree of risk that chemical facilities pose to their surrounding communities. Those facilities identified by the DHS as not participating in voluntary security activities would stillbe potentially vulnerable to attack. The absence of federal legislation would not preclude state or local legislation. Theperception of chemical facility risk may induce states to regulate such facilities, as has occurred insome states. States might enact laws requiring security measures beyond the voluntary activitiescurrently underway, should they deem such laws in the state interest. Provide Additional Resources Under Existing Law Another approach to increase chemical security might be to increase the available resourcesfor federal support of chemical facilities. Currently the federal government provides limitedfinancial support to select chemical facilities through MTSA-related grants, but most DHS fundingefforts focus on providing equipment to the first responders in communities surrounding criticalinfrastructure sites. (77) Policymakers could direct DHS to develop mechanisms to provide support directly to high-riskchemical facilities, or to smaller, less profitable facilities. (78) Alternatively, policymakers may wish to investigate otherfunding options, such as tax incentives or credits, to induce chemical facilities to voluntarily increasesecurity. Given that federal homeland security resources are limited, determining what facilities shouldbe eligible for such grants, incentives, or credits might prove to be challenging. Equitabledistribution may also become a contentious topic, even if an appropriate risk metric is developed forchemical facilities. (79) Finally, an increase in the availability of federal resources for chemical facilities would not addressthe issue of uneven chemical facility security across industry sectors due to voluntary participation. Some might continue to argue that the chemical facility security level would not be high enough toprotect the surrounding population without a federal mandate. Some analysts suggest that chemical facilities should bear the costs of chemical facilitysecurity. (80) Sincechemical facilities are generally for-profit companies which choose to manufacture products usinghazardous materials, these analysts argue that the public should not bear the costs for reducing thoserisks. Instead, chemical facilities should recoup the cost of security through business activities, forexample by passing on the costs of security to consumers. However, some chemical facilities, suchas drinking water and wastewater facilities, may not be for-profit companies and may raise differentissues in recouping security costs. Enhance Existing Law with Additional Authorities Should policymakers decide that the status quo does not meet national security needs, theycould seek to strengthen current laws so that security needs are met. For example, while somesuggest that the existing Clean Air Act provisions could already allow the EPA to regulate chemicalfacilities for security issues, others suggest that the Clean Air Act may not provide statutory authorityallowing the development of such security regulation. (81) Codifying security language into the Clean Air Act, for example,could provide explicit statutory authority to the EPA to oversee chemical facility security. Suchlanguage might build upon existing safety or environmental programs to increase security. The EPA and OSHA regulation of chemical facilities for environmental and safety purposescan be viewed in conflicting contexts. The existing regulatory relationship may not be amenable tothe protective, cooperative relationship reportedly required for effective security because of historicdisagreements over environmental impacts or worker safety. However, others identify closeoversight and site visits for multiple purposes as effective in maintaining strong security. Augmenting existing law with additional authorities would likely not resolve concerns aboutan accurate calculation of the number of people potentially at risk from chemical facilities. It mightalso not address concerns regarding the risks from chemicals not currently regulated under existinglaw. Facilities not currently included under these provisions would not be covered and any rankingor ordering of risk based on the worst-case scenarios might be viewed as unrealistic. Additionally,concerns regarding EPA's or OSHA's experience in homeland security might lead some to questionthe skill with which those agencies might regulate chemical facility security. For example, assigningthe EPA security oversight of chemical facilities would be inconsistent with The National Strategyfor Physical Protection of Critical Infrastructure and Key Assets , which assigned the DHS as leadagency for the chemicals sector. On the other hand, just as some are likely to question EPA andOSHA homeland security expertise, others are likely to question the background or readiness of DHSstaff to make complex chemical risk assessments. Finally, this approach might result in facilitiesreporting to multiple federal agencies, for example those facilities that are regulated under the MTSAmight also report to EPA or OSHA. Duplicative and redundant security reporting requirements maybe inefficient or ineffective. Create New Security Authorities Another approach to increasing chemical security would be to create a federal agencystatutory authority to oversee chemical facility security. Legislation with this goal has beenintroduced in the current and previous Congresses. (82) A new security program might be structured like the MTSA orSDWA, or might incorporate aspects of other types of programs, such as EPA or OSHA safetyprograms. A new security program might address concerns voiced by industry about the potential scopeof chemical facility security. Existing programs and outreach efforts might be coordinated with newprogram requirements by clearly identifying the target chemical facility universe. An assessment ofthe comprehensiveness of the defined facility universe of interest to legislators might determine anyneed to tier prospective security requirements. Such considerations might aid in avoiding overlyburdensome regulation by identifying what facilities most require targeted security efforts. In establishing a new chemical facility security program, Congress could mandate securitymeasures or leave details to the implementing agency. Mandating security measures would forcethe inclusion, or exclusion, of technologies or methodologies deemed necessary by Congress. Establishing authority within the implementing agency to establish and adjust security requirementsas necessary would allow the agency to address changing threats and vulnerabilities, but might allowcritics to assert that statutory standards are too rigorous or not rigorous enough. If existing security legislation is used as the design basis for a chemical facility securityprogram, coordinating requirements with those security programs may be easy. On the other hand,alignment of existing and new programs may ease coordination between regulatory requirements. Policymakers may wish to decide whether one program has precedence over the other, if therequirements of both programs are applicable to a facility, or if compliance with existing programsshould exempt a facility from the new program. Similar questions arise with respect to state and local laws or ordinances, and whether afederal program could preempt them. Efforts to design any new federal chemical facility programcould incorporate current state efforts as a starting criteria, or establish new standards. Creating anew federal program with less stringent requirements than existing state programs, and thenpreempting state programs, might lead to criticism that federal legislation reduced, rather thanenhanced, chemical facility security in those locales. A new program which did not preempt stateregulation, on the other hand, might be construed as allowing a mixture of state regulatory standardsto be promulgated, creating a non-uniform regulatory and economic arena. On the other hand, afederal program might dissuade other states from enacting additional, potentially conflicting laws. Finally, a new chemical facility security program might incorporate current voluntary effortsas part of, or in lieu of, meeting the federal program requirements. If policymakers accept currentvoluntary efforts in lieu of federal program requirements, creating, for example, an exemption forfacilities already engaged in security efforts, critics may challenge the program as not establishinga stringent enough standard. Alternatively, creating a program with requirements at great variancewith current voluntary security efforts, essentially causing those efforts to not be applicable to thenew regulatory program, might be criticized as penalizing those facilities taking positive stepstowards reducing vulnerability. Developing an assessment or audit methodology for voluntarysecurity efforts might provide a new chemical security program with criteria to compare voluntaryefforts with any new program requirements. Thus, any voluntary security efforts that aligned withthe regulatory intent of policymakers would be valued while those that did not align would not be. Appendix A The EPA RMP*INFO database provides information on industrial classification of the reported chemical processes. CRS analyzed the worst-casescenario data reported by each facility to the EPA. CRS identified which reported chemical process at each facility potentially affected the greatest numberof persons in a worst-case release. CRS used the NAICS code reported for this chemical process as the NAICS code for the facility. CRS combinedNAICS codes to provide descriptions of infrastructure sectors. In some cases, CRS collapsed four, five, and six digit NAICS codes for the purposes ofclarity. NAICS codes from 1997 were converted into 2002 NAICS codes when found. The combination of NAICS codes presented here is one of manypossible approaches. The manner by which NAICS codes are sorted into infrastructure sectors affects which facilities would be impacted by policydecisions about and approaches towards particular infrastructure sectors. For a list of NAICS codes used to model infrastructure sectors, see Table 2 . Table 2. NAICS Codes Used to Model Infrastructure Sectors from EPA RMP Data Source: CRS analysis of the EPA RMP*National Database (with off-site consequence analysis (OCA) data), updated May 2005.

Federal officials, policy analysts, and homeland security experts express concern about thecurrent state of chemical facility security. Some security experts fear these facilities are at risk ofa potentially catastrophic terrorist attack. The Department of Homeland Security identifies chemicalfacilities as one of the highest priority critical infrastructure sectors. Current chemical plant orchemical facility security efforts include a mixture of local, state, and federal laws, industry tradeassociation requirements, voluntary actions, and federal outreach programs. Many in the public and private sector call for federal legislation to address chemical facilitysecurity. Still, disagreement exists over whether legislation is the best approach to securing chemicalfacilities, and, if legislation is deemed necessary, what approaches best meet the security need. Manyquestions face policymakers. Is the current voluntary approach sufficient or should securitymeasures be required? If the latter, is chemical facility security regulation a federal role, or shouldsuch regulation be developed at the state level? To what extent is additional security required atchemical facilities? Should the government provide financial assistance for chemical facilitysecurity or should chemical facilities bear security costs? Critical issues surrounding chemical facility security legislation include determining whichchemical facilities should be protected by analyzing and prioritizing chemical facility security risks;identifying which chemical facilities pose the most risk; and establishing what activities couldenhance facility security to an acceptable level. Mechanisms for assessing security risk mightinclude weighing the known or theoretical terrorist threat faced by a particular facility, the chemicalhazards held at a facility, the quantities and location of those chemicals relative to the surroundingpopulation, or the facility's industrial classification. Some security regulation exists for some chemical facilities under other legislation, such asthe Maritime Transportation Security Act (MTSA) ( P.L. 107-295 ), the Safe Drinking Water Act(SDWA), as amended by the Bioterrorism Preparedness Act ( P.L. 107-188 ), and select state laws. Potential chemical facility security enhancements might be achieved through a range of policyapproaches: providing security grants to high risk facilities; mandating site vulnerability assessments;compelling vulnerability remediation; establishing federal security standards; or requiring theconsideration or use of specific technologies. In some cases, proposed legislation complementsexisting law, while overrides it in others. In the 109th Congress, legislation exists in both chambers. In the Senate, S. 2145 and S. 2486 have been introduced. In the House, H.R. 1562 , H.R. 2237 , H.R. 4999 , a companion bill to S. 2145, and H.R. 5695 have been introduced. The details of each bill's security requirements vary. This report will discuss current chemical facility security efforts, issues in defining chemicalfacilities, policy challenges in developing chemical facility security legislation, and the variouspolicy approaches. This report will be updated as circumstances warrant.

Introduction and Background Child support is the cash payment that noncustodial parents are legally obligated to pay for the financial support of their children. It is generally established when parents divorce or separate or when the custodial parent applies for welfare. It is usually paid on a monthly basis. Child support payments enable parents who do not live with their children to fulfill their financial responsibility to their children by contributing to the payment of child-rearing costs. The Child Support Enforcement (CSE) program was enacted in 1975 as a federal-state program (Title IV-D of the Social Security Act) to help strengthen families by securing financial support for children from their noncustodial parent on a consistent and continuing basis and by helping some families to remain self-sufficient and off public assistance. The CSE program is administered by the federal Office of Child Support Enforcement (OCSE), which is in the Department of Health and Human Services' (HHS's) Administration for Children and Families (ACF). The federal government and the states share CSE program costs at the rate of 66% and 34%, respectively. OCSE does not provide services directly to families. Instead, it partners with federal, state, tribal, and local governments and others to promote parental responsibility so that children receive reliable support from both of their parents as they grow to adulthood. OCSE helps CSE agencies in the states and tribes develop, manage, and operate their CSE programs effectively and according to federal law. The CSE program provides eight major services on behalf of children, which include establishing, reviewing, and modifying child support orders. The child support order is established administratively by a state/county CSE agency or through a state court (or mixture of both—quasi-judicial). The Family Support Act of 1988 ( P.L. 100-485 ) required states to use their state-established guidelines in establishing child support orders. Child support guidelines are a set of rules and tables that are used (by states and tribes) to determine the amount of the child support order. Child support guidelines are designed to (1) protect the best interests of the children by trying to ensure that the child or children in question continue to benefit from the financial resources of both parents in situations in which the parents go their separate ways and (2) make the calculation of child support fair, objective, consistent, and predictable (which in many instances has the added benefit of reducing conflict and tension between the parents). Child support guidelines were created to address three major problems in the issuance of child support orders. First, guidelines were needed to bring uniformity and consistency to the issuance of child support orders, so as to result in greater fairness to families. Second, the predictability resulting from guidelines was intended to promote settlement and reduce conflicts, to the benefit of both the parties and the courts. Third, research at the time (i.e., during the 1980s) showed that orders were too low to reflect the real needs of children. Child support guidelines are part of a process that orders a noncustodial parent to pay financial support for the care of his or her children based on the parent's income (and other factors) and that allows the child to share in the increases (or decreases) in the parent's income as if the parent and child lived together. The guidelines also permit the courts to set child support without the necessity of a review of individual costs of care. The amount of child support is based primarily on how much the parent would share with the child if the parent and child lived together. States decide child support amounts based on the noncustodial parent's income or on both parents' income; other factors may include the age of the child, whether a stepparent is in the home, whether the child is disabled, and the number of siblings. Guidelines ensure the adequacy of child support orders by taking into account economic evidence on the cost of raising children, thereby improving children's well-being. Guidelines development requires making value judgments and balancing competing interests to allocate limited economic resources between children, parents, other relatives, the state CSE agency, courts, taxpayers, and society at large. States currently use one of three basic types of guidelines to determine child support award amounts (i.e., the child support order): income shares , which is based on the combined income of both parents (37 states and Guam); percentage of income , in which the number of eligible children is used to determine a percentage of the noncustodial parent's income to be paid in child support (10 states and the District of Columbia); and Melson-Delaware , which provides a minimum self-support reserve for parents before the cost of rearing the children is prorated between the parents to determine the award amount (three states). Information was not available for Puerto Rico and the Virgin Islands. According to the OCSE, "setting accurate initial child support orders helps to ensure regular payments of child support, facilitating two key goals: economic stability and paternal [or maternal] engagement." Child support orders almost always are expressed in fixed dollar amounts, and over time the needs of the child and the financial circumstances of one or both parents may change. However, without periodic modifications, child support obligations can become inadequate and/or inequitable, or they may not correspond to the noncustodial parent's income or ability to pay. The rationale behind review and modification of child support orders is to ensure that child support orders are equitable, sufficient, and commensurate with a parent's income and/or ability to pay. It is important for custodial parents facing higher child-rearing costs or other substantial changes in circumstance (e.g., increased housing or living expenses) to seek a modification so their children's needs are sufficiently met. Custodial parents who know that the noncustodial parent is experiencing a higher standard of living (e.g., higher-paying job, promotion) are advised to request a modification so their children can share in the other parent's good fortune. Likewise, it is important for noncustodial parents facing job loss or other substantial changes in circumstances to seek a modification to their order quickly so they do not fall behind in their payments and thereby have to contend with child support arrearages (i.e., past-due child support payments). When child support modification policies and procedures are not effective, child support debt increases. In FY2014, $114.8 billion in child support arrearages was owed to families receiving CSE services, but less than 7% ($7.6 billion) of those arrearages was actually paid. Child support debt, in the aggregate, negatively impacts children, custodial parents, and noncustodial parents, and it forces states to expend greater resources on collection and enforcement efforts. Policy Evolution From 1975, when the CSE program was enacted (by the Social Services Amendments of 1974; P.L. 93-647 ) until 1988, the only way to modify a child support order was to require a party to petition the court for a modification based on a change in circumstances . What constituted a change in circumstances sufficient to modify the order depended on the state and the court. The person requesting modification was responsible for filing the motion, serving notice, hiring a lawyer, and proving a change in circumstances of sufficient magnitude to satisfy statutory standards. The modification proceeding was a two-step process; the court first determined whether a modification was appropriate and then determined the amount of the new obligation. Bradley Amendment (1986) Especially during the early 1980s, a major issue in the modification of orders was the practice of retroactive modifications. Most of these retroactive modifications had the effect of reducing the amount of child support ordered. Thus, for example, an order of $150 a month for child support, which was unpaid for 36 months, should accumulate an arrearage of $5,400. However, if the noncustodial parent was brought to court, having made no prior attempt to modify the order, the order might be reduced to $100 a month retroactive to 36 months prior to the date of modification. This retroactive modification would reduce the arrearage from $5,400 to $3,600. Cases such as this, which had serious impacts on custodial parents and their children, convinced Congress to take action. Thus, in 1986 Congress passed legislation that required states to change practices involving modification of child support arrears. Pursuant to Section 9103 of the Omnibus Budget Reconciliation Act of 1986 ( P.L. 99-509 ; Section 466(a)(9) of the Social Security Act), often referred to as the Bradley Amendment (named after former Senator Bill Bradley of New Jersey), state child support orders may not be retroactively modified, except back to the date of service on the other party. Pursuant to the Bradley Amendment, a child support payment becomes a judgment by operation of law when it becomes due and unpaid, and it is entitled to full faith and credit (in the originating state and in any other state) to be enforced as any other judgment of the initiating state. The 1986 provision greatly restricted retroactive modification to make it more difficult for courts and CSE agencies to forgive or reduce arrearages. More specifically, child support orders can be retroactively modified only for a period during which there is pending a petition for modification and only from the date on which notice of the petition has been given to the custodial or noncustodial parent. Family Support Act of 1988 The Family Support Act of 1988 ( P.L. 100-485 ) required states both to use guidelines as a rebuttable presumption in all proceedings for the award of child support and to review and adjust child support orders in accordance with the guidelines. These provisions reflected congressional intent to simplify the updating of child support orders by requiring a process in which the standard for modification was the state child support guidelines. They also reflected recognition that the traditional burden of proof for changing the amount of the child support order was a barrier to updating. The 1988 law addressed the need for states to at least expand, if not replace, the traditional "change in circumstances" test as the legal prerequisite for updating support by making state guidelines the presumptively correct amount of child support to be paid. To ensure that the use of the guidelines would result in appropriate child support award amounts, the Family Support Act required states to review their guidelines at least once every four years and have procedures for review and modification of orders, consistent with a plan indicating how and when child support orders are to be reviewed and modified. Review could take place at the request of either parent subject to the order or at the request of a state child support agency. Any modification to the award had to be consistent with the state's guidelines, which were required to be used as a rebuttable presumption in establishing or adjusting the child support order. In addition, the Family Support Act required states to review all orders being enforced under the CSE program within 36 months after establishment or after the most recent review of the order and to adjust the order in accordance with the state's guidelines. It required review in child support cases in which child support rights were assigned to the state, unless the state had determined that review would not be in the best interests of the child and neither parent had requested a review. This provision applied to child support orders in cases in which benefits under the TANF, foster care, or Medicaid programs were currently being provided. It did not include child support orders for former TANF, foster care, or Medicaid cases, even if the state retained an assignment of support rights for arrearages that accumulated during the time the family was on welfare. In child support cases in which there was no current assignment of support rights to the state, review was required at least once every 36 months only if a parent requested it. If the review indicated that modification of the support amount was appropriate, the state had to adjust the award accordingly. The Family Support Act also required states to notify parents receiving CSE services of their right to request a review, of their right to be informed of the forthcoming review at least 30 days before the review began, and of any proposed modification to the award or determination that there should be no change in the award amount. In the latter case, the parent was to be given at least 30 days after notification to initiate proceedings to challenge the proposed adjustment or determination. 1996 Welfare Reform Law The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 ; referred to as the 1996 welfare reform law) somewhat revised the review and modification requirements. It slightly modified the mandatory three-year review of child support orders to permit states some flexibility in determining which reviews of welfare cases should be pursued and in choosing methods of review. States had to review orders every three years (or more often at state option) if either parent or the state requested a review in welfare cases or if either parent requested a review in non-welfare cases. The law also required states to notify parents of their review and adjustment rights at least once every three years. It gave states the option of using one of three different methods for adjusting orders: (1) the child support guidelines; (2) an inflation adjustment in accordance with a formula developed by the state; or (3) an automated method to identify orders eligible for review followed by an appropriate adjustment to the order, not to exceed any threshold amount determined by the state. If either an inflation adjustment or an automated method was used, the state had to allow either parent to contest the adjustment. Deficit Reduction Act of 2005 The most recent changes to provisions related to the modification of child support orders were part of the Deficit Reduction Act of 2005 ( P.L. 109-171 ). P.L. 109-171 eliminated state flexibility and discretion and instead required states to adjust child support orders of TANF families once every three years (i.e., returned to the 1988 Family Support Act policy). For more information, see the " Current Policy " section below. Current Policy Under current law (pursuant to P.L. 109-171 ), states are required to review and, if appropriate, adjust child support orders at least once every three years in cases in which the family is receiving TANF assistance. In the case of a non-TANF family, the CSE agency is to review the child support order at least once every three years at the request of either parent. Moreover, either parent may request a review at any time based on a substantial change in circumstances. States must notify parents of their review and modification rights at least once every three years. Depending on the state, a child support order may be modified through an administrative process or through a judicial process (or a combination of both approaches). After child support is initially ordered by the CSE agency or the court, a modification to the child support order generally occurs when any of the following situations occur: the financial situation of one or both parents changes; the support order is no longer adequate to meet the needs of the child; there is no provision for medical support; or the circumstances of either parent or the child have changed substantially. States can use one of three different methods for adjusting orders: (1) the state child support guidelines; (2) an inflation adjustment in accordance with a formula developed by the state; or (3) an automated method to identify orders eligible for review followed by an appropriate adjustment to the order, not to exceed any threshold amount determined by the state. If a state uses either an inflation adjustment or an automated method, it must allow either parent to contest the adjustment. According to a report by OCSE, Most States' child support guidelines contain quantitative thresholds that must be met before the order can be modified. These thresholds are defined as a percentage and/or dollar change in the current child support obligation. For example, guidelines may provide that an order cannot be modified unless the new financial circumstances result in at least a 15% change in the order amount, either upward or downward. The report further states that the use of the quantitative thresholds contained in child support guidelines sets the parameters for when modification actions are appropriate; helps manage the expectation of the parties about when a change in circumstances might warrant a modification to the support order; ensures stability in order levels when the parties' circumstances have not changed substantially; limits the number of modification actions the CSE agency or private parties pursue; and allows the CSE agency to manage its resources more efficiently. Current Practices About 20 states have implemented programs that seek to simplify the modification process and help parents to request a modification of their child support order. According to the OCSE, states are using the following four approaches to improve their modification process. 1. Technology and automation. Several CSE programs have improved their modification processes by making forms available online and easier for parents to use. In addition, many state CSE programs are making an effort to reduce delay through the use of automated review and modification and electronic systems monitoring. 2. Target specific populations. Some CSE programs offer streamlined or expedited review for persons who have experienced a change in income, such as newly unemployed noncustodial parents. Providing this proactive enhanced case management and customer service helps to ensure that parents with changed circumstances receive necessary modifications. 3. Address temporary changes in circumstances. Several CSE programs have procedures so that parents may receive a modification for a period of time. 4. Outreach materials and increased publicity. Some CSE programs publicize the benefits of child support modification to encourage parents to seek modifications when they have experienced a significant change in circumstances. For a detailed profile of each state's procedures for modifying a child support order, see the OCSE website. Arrearages Many noncustodial parents believe that if they fall behind in their child support payments at a time when they are legitimately unable to make the payments, the amount they owe can be reduced or discounted later by the court when an explanation for nonpayment is given. However, this sort of retroactive reduction is not permitted under current law. If the noncustodial parent waits to explain his or her changed financial circumstances, the court will not be able to retroactively reduce the back payments (i.e., arrearages) that he or she owes. As mentioned earlier, child support arrearages are unpaid child support. Child support arrearages generally result from (1) noncompliance with child support orders; (2) child support orders that are not commensurate with the noncustodial parent's ability to pay; (3) inclusion of birth costs (i.e., health care costs related to the pregnancy, as well as the birth of the child) in the child support order; (4) lower rates of collections on arrearages compared to current support; and (5) the practice of assessing interest on unpaid child support. Research indicates that a relatively small number of noncustodial parents owe the majority of child support arrearages. These noncustodial parents are more likely than other noncustodial parents to (1) have no or low reported income; (2) not have paid child support in the past year; (3) have no address on file or an out-of-state address; and (4) have multiple current child support orders. In aggregate, child support arrearages increased in nominal dollars from $84 billion in FY2000 to $114.8 billion in FY2014 (a 37% increase). During that 14-year period, the percentage of those arrearages that actually was paid remained at about 7%. According to a recent OCSE report, "most arrears are owed by parents who owe substantial amounts of arrears, have little or no income, and have owed arrears for some time." Large child support arrearages may result in millions of children receiving less than they are owed in child support; cause a reduction in the cost-effectiveness of the CSE program; result in a perception that the CSE program does not consider the financial situation of low-income noncustodial parents, many of whom may be in dire economic situations; hinder a noncustodial parent's ability to make regular child support payments in full and on time; become a source of uncollectible debt; cause added friction in the relationship with the child's other parent, which may negatively impact the noncustodial parent-child relationship; and block work opportunities for noncustodial parents because past-due child support obligations are reported to credit reporting agencies, which provide the information, upon request, to employers. An Urban Institute study revealed several shared characteristics among those individuals with the largest child support arrearages. According to the study, noncustodial parents who owed $30,000 or more in child support arrearages, known as high debtors, were expected to pay a larger percentage of their income for current child support orders—the median child support order for high debtors was 55% of their income compared with 13% for non-debtors and 22% for those who owed less than $30,000 in child support arrearages; more likely than other obligors to have older orders if they had a current support order; more likely to have multiple current child support orders than non-debtors; less likely to pay support than non-debtors; less likely to have a known address; and twice as likely to have an interstate child support case as a non-debtor. Public Policy Concerns One of the stated goals of OCSE's strategic plan for the CSE program is to ensure reliable payment of child support. For child support to be reliable, child support orders must be set accurately and based on a noncustodial parent's actual ability to pay them. Research shows that setting a realistic order improves the chances that child support payment will continue over time. In cases in which the initial child support was not adequate to meet the child's needs and/or did not adequately reflect the noncustodial parent's ability to pay, or a significant change in circumstances occurred, modification of the child support order may resolve long-standing or recently developed issues. Under the CSE program, states are given significant latitude regarding review and modification of child support orders. Federal law requires that states give both parents the opportunity to request a review of their child support order at least once every three years, and states are required to notify the parents of this right. It appears that this approach may be unsuccessful because parents may not know how to request a modification or they may not be aware of the consequences of a buildup of arrearages until it becomes a problem that is difficult to overcome. To prevent large child support arrearages (on an individual level and in aggregate), some policymakers and analysts argue that child support modification laws should be changed so that they are more sensitive to the noncustodial parent's ability to pay child support. These individuals contend that it is virtually impossible for most low-income noncustodial parents to stay current in meeting their monthly child support payments and still have enough money to meet their own needs for food and shelter. This section discusses several concerns about the current child support review and modification process in the context of the following questions: Are arrearages too high? Are garnishment limits too high? Should CSE agencies provide work-related services to noncustodial parents? Is there inequitable treatment among various categories of nonpaying noncustodial parents? Are Arrearages Too High? As stated above, in FY2014, $114.8 billion in child support arrearages was owed to families receiving CSE services, but less than 7% ($7.6 billion) of those arrearages was actually paid. A significant accumulation of child support arrearages is a concern because it means that children and families are not getting a large amount of income to which they are entitled, income that could significantly improve their well-being. In FY2014, 63% of noncustodial parents with arrearages continued to make payments on their child support arrearages. One interpretation of this information is that many noncustodial parents want to fulfill their child support obligations but simply have too many financial obligations (e.g., food and shelter for themselves) to cover with their limited incomes; therefore, they may always be a little or a lot behind in meeting their child support obligations. There is widespread agreement that preventing the buildup of unpaid child support through early intervention rather than traditional enforcement methods is essential to the future success of the CSE program. Some commentators point out that such a proactive approach to addressing the huge accumulation of child support arrearages may help many low-income children whose parents are unemployed or underemployed. Over the years, the OCSE has proposed the following procedures for reducing high child support arrearages: Update child support guidelines regularly and simplify child support order modification. Modify orders to ensure that child support obligations stay consistent with the noncustodial parent's ability to pay. Use automated systems to detect noncompliance as early as possible and contact noncustodial parents soon after a scheduled child support payment is missed. Use automated systems to detect changes in circumstances and intervene early to review and modify child support orders. Update child support guidelines to recognize modern family dynamics and realities (e.g., shared custody, incomes of custodial parents). Consider creative ways to promote regular payment of current support, even if it means "compromising" uncollected child support arrearages, to bring the noncustodial parent back to consistently paying current child support payments. With regard to the last proposal, in an effort to reduce or eliminate child support debt some states use debt compromise, a process whereby a state forgives a portion or all of the child support debt owed to the state by the noncustodial parent in exchange for the noncustodial parent's participation in specified employment, training, or other activities. Research from the University of Wisconsin suggests that reduction of large child support debts may increase child support payments. The study suggests that higher arrears, in themselves, substantially reduce both child support payments and formal earnings for the noncustodial parents and families that already likely struggle in securing steady employment and coping with economic disadvantage. Although many custodial parents agree to a certain extent that some noncustodial parents are "dead broke" rather than "deadbeats," they contend that the states and the federal government need to proceed with caution in lowering child support orders for low-income noncustodial parents. They argue that child support is a source of income that could mean the difference between poverty and self-sufficiency for some families. They emphasize that lowering the child support order is likely to result in lower income for the child. They argue that even if a noncustodial parent is in dire financial straits, he or she should not be totally released from financial responsibility for his or her children. Are Garnishment Limits Too High? Title III of the Consumer Credit Protection Act (CCPA; 15 U.S.C. 1673(b)) limits the amount of an employee's earnings that may be garnished. Under the CCPA, 50%-65% of disposable earnings may be garnished or withheld from a noncustodial parent's paycheck for child support purposes. Specifically, the CCPA allows up to 50% of a worker's disposable earnings to be garnished to pay child support if the worker is currently supporting a spouse or a child who is not the subject of the order. If a worker is not supporting a spouse or child, up to 60% of the worker's disposable earnings may be taken. An additional 5% may be garnished for support payments more than 12 weeks in arrears. The intent of Congress in the CCPA was to put a limitation on the garnishment of wages to "relieve countless honest debtors driven by economic desperation from plunging into bankruptcy in order to preserve their employment and ensure a continued means of support for themselves and their families." Thus, federal law provides a consumer with protection from court-ordered deductions that go beyond a certain percentage of an individual's disposable income. According to an OCSE report, research consistently finds that noncustodial parents are more likely to stay current on their child support payments if the child support obligation is 20% of their earnings or lower. Therefore, it is understandable that many noncustodial parents argue that garnishment of up to 65% of their paycheck for child support is unreasonable. They claim that having to make do on so little of their income discourages work and reinforces the perception that the CSE agency is dismissive of their financial condition as it continues to garnish unreasonable child support obligations even when it is obvious that the noncustodial parents can barely support themselves. When wages are garnished, an employer withholds money from an employee's paycheck and sends those funds to a creditor until the debt is paid in full. Most child support is collected through mandatory payroll withholding. CSE officials have the authority to require employers to garnish or withhold as much as 65% of a noncustodial parent's disposable wages toward the payment of child support obligations. For low-income noncustodial parents who are unemployed or underemployed, the current garnishment limits may be too high. The maximum garnishment percentage of 65% may increase the difficulty of securing and maintaining housing, transportation, and employment that are essential for providing the stability and income necessary for making future child support payments. Several studies indicate that some low-income noncustodial parents facing substantial child support arrearages and income withholding sometimes become discouraged and leave formal employment. Some research suggests that when noncustodial parents perceive that the CSE system is unfair, the likelihood that they will pay any child support decreases. Should CSE Agencies Provide Work-Related Services to Noncustodial Parents? Most families that receive CSE services have low and moderate incomes. According to OCSE data, about half of the families in the CSE program have income at or below 150% of the poverty level; 90% of CSE families have income at or below 400% of the poverty level. Moreover, a downward trend in male employment, together with the last recession, increases the probability that many noncustodial parents are unemployed or sporadically employed. Given that no and low incomes are at the crux of many noncustodial parents' inability to meet their child support obligations, whether it is the initial child support order or a subsequent modified order, many policymakers and CSE administrators contend that providing work-oriented services and programs to noncustodial parents is an effective method of increasing child support payments to families. According to OCSE, The child support program is uniquely positioned to effectively manage the delivery of employment services and assure results for children. Prior research shows that child support-led employment programs are more likely to yield results for noncustodial parents and their children. The child support program serves 80 percent of poor custodial families and has a strong stake in seeing that poor noncustodial parents are able to support their children. Managing employment programs allows the child support program to ensure that noncustodial parents receive the services they need to find work. Once they find a job, wage withholding ensures that child support goes to custodial families. As of February 2014, 30 states and the District of Columbia were operating work-oriented programs for noncustodial parents with active CSE agency involvement. Although most of the programs are not statewide, some are. Many of these work-oriented programs were established in partnership with state and local workforce development boards and local courts for noncustodial parents regardless of whether the child is enrolled in the TANF program. Most of the work-oriented programs are child support led, which means the CSE program is the lead agency and is accountable for results. In other models, the CSE program is actively involved but is not the lead agency and usually is not held accountable for results. Sources of funding for these work-oriented programs for noncustodial parents are CSE grant funds, CSE incentive funds, TANF funds, responsible fatherhood grant funds, Workforce Investment Act funds, Department of Labor grant funds, and state funds. The OCSE recently issued a proposed rule stating the following: In an effort to make the program more effective and to increase regular child support payments, we propose program standards related to providing certain job services for eligible noncustodial parents responsible for paying child support. These services are designed to complement traditional enforcement tools and to help noncustodial parents find suitable employment opportunities so they can support their children. There has been some controversy regarding the OCSE proposing in federal regulations new services and programs eligible for CSE funding. Some have argued that this issue should be addressed through legislation, not regulation. However, many policymakers agree that helping low-income noncustodial parents find work often leads to such parents making their child support payments on a more consistent and timely basis. Is There Inequitable Treatment Among Various Categories of Nonpaying Noncustodial Parents? According to one study, states indicate that 30%-40% of their "hard to collect from" cases consist of noncustodial parents who have a criminal record. Many incarcerated parents have child support orders that were established before they entered jail or prison but after incarceration no longer have the income to pay child support. The average incarcerated parent with a child support order reportedly has $10,000 in child support arrearages when entering state prison and $20,000 in child support arrearages when leaving prison. In recent years, policymakers have focused on implementing strategies to help incarcerated and formerly incarcerated noncustodial parents modify their child support orders to enable them to pay those orders on a consistent basis. Several recommendations of policymakers and observers specifically related to incarcerated parents include (1) enabling courts to consider an individual's obligations to his or her children at the time of sentencing; (2) prohibiting incarceration from being defined as voluntary unemployment (a term used to describe someone who has chosen not to work), thereby allowing a noncustodial parent's child support order to be modified when he or she enters prison; and (3) requiring states to modify (or forgive) automatically child support orders of noncustodial parents who are in prison (during the prison-intake process), only for the length of their prison sentence, unless the custodial parent objects because the inmate has income and/or assets that can be used to pay child support. Some observers contend that there has been too much focus on the need to help noncustodial parents who are in prison. They argue that persons who suffer a long-term injury or illness and those who are unemployed or underemployed face the same challenges with regard to no income or lower income as those who are in jail or prison. They argue that child support modification laws should be changed so they are more sensitive to periods during which the noncustodial parent's ability to pay child support decreases, regardless of whether the decline in income is from unemployment, injury or illness, or incarceration. They maintain that states should offer enhanced review and modification assistance to all vulnerable noncustodial parents, not just those who are incarcerated. Some observers argue that policymakers, when considering policies related to reducing the child support obligations of prisoners, also must consider equity issues related to the treatment of low-income noncustodial parents who may be unemployed as opposed to being in prison. They assert that it is sending the wrong message to unilaterally lower payments of persons who have broken the law and not make similar allowances for law-abiding citizens who are unemployed.

Child support orders are almost always expressed in fixed dollar amounts, and over time the needs of the child and the financial circumstances of one or both parents may change. However, without periodic modifications, child support obligations can become inadequate and/or inequitable or may not correspond to the noncustodial parent's income and/or ability to pay. Under current law (pursuant to P.L. 109-171, the Deficit Reduction Act of 2005), states are required to review and, if appropriate, adjust child support orders at least once every three years in cases in which the family is receiving Temporary Assistance for Needy Families (TANF) benefits. In the case of a non-TANF family, one of the parents has to request a review within the three-year time frame for a review and modification to occur. If a request for review and modification is made outside the three-year cycle, the requesting party must demonstrate that there was a substantial change in circumstances. Child support modifications must be in accordance with a state's child support guidelines. The rationale behind review and modification of child support orders is to ensure that these orders are equitable, sufficient, and commensurate with a parent's income and/or ability to pay. When child support modification policies and procedures are not effective, child support debt increases. In FY2014, $114.8 billion in child support arrearages (i.e., past-due child support—the amount of child support that remains unpaid) was owed to families receiving Child Support Enforcement (CSE) services, but less than 7% ($7.6 billion) of those arrearages was actually paid. Child support debt, in the aggregate, negatively impacts children, custodial parents, and noncustodial parents, and it forces states to expend greater resources on collection and enforcement efforts. Large child support arrearages result in millions of children receiving less than they are owed in child support, reduced cost-effectiveness of the CSE program, and a perception that the CSE program does not consider the financial situation of low-income noncustodial parents, many of whom may be in dire economic situations. Child support arrearages often (1) hinder the noncustodial parent's ability to make regular child support payments in full and on time; (2) become a source of uncollectible debt; (3) cause added friction in the relationship with the child's other parent, which may negatively impact the noncustodial parent-child relationship; and (4) block work opportunities for noncustodial parents because past-due child support obligations are reported to credit reporting agencies, which provide the information, upon request, to employers. Although many custodial parents agree to a certain extent that some noncustodial parents are "dead broke" rather than "deadbeats," they contend that the states and the federal government need to proceed with caution in lowering child support orders for low-income noncustodial parents. They argue that child support is a source of income that could mean the difference between poverty and self-sufficiency for some families. These custodial parents emphasize that lowering the child support order is likely to result in lower income for the child and argue that even if a noncustodial parent is in dire financial straits, he or she should not be totally released from financial responsibility for his or her children. There is widespread agreement that preventing the buildup of unpaid child support through early intervention rather than traditional enforcement methods is essential to the future success of the CSE program. Other public policy concerns include examining whether garnishment limits are too high; deciding whether incorporating work-oriented services into the basic CSE program would result in more consistent and timely child support payments; and providing equitable enhanced services and assistance to vulnerable noncustodial parents, regardless of whether they are in jail or prison, unemployed, underemployed, or injured or sick. Commentators maintain that addressing these concerns may help many low-income children.

The Reconciliation Process The purpose of the reconciliation process is to allow Congress to use an expedited procedure when considering legislation that would bring existing spending, revenue, and debt limit laws into compliance with current fiscal priorities established in the annual budget resolution. In adopting a budget resolution, Congress is agreeing upon budgetary goals for the upcoming fiscal year (as well as for a period of at least four additional outyears). In some cases, for these goals to be achieved, Congress must enact legislation that alters current revenue, direct spending, or debt limit laws. In this situation, Congress seeks to reconcile existing law with its current priorities. Since its first use in 1980, these expedited procedures have been used to pass 24 reconciliation bills. Budget reconciliation is an optional, expedited legislative process that consists of several different stages (as described below) beginning with the adoption of the budget resolution. If Congress intends to use the reconciliation process, reconciliation directives (also referred to as reconciliation instructions) must be included in the annual budget resolution. These directives trigger the second stage of the process by instructing individual committees to develop and report legislation that would change laws within their respective jurisdictions related to direct spending, revenue, or the debt limit. Once a specified committee develops legislation, the reconciliation directive may further direct it to report the legislation for consideration in their respective chamber or submit it to the Budget Committee to be included in an omnibus reconciliation measure. Reported reconciliation legislation is eligible to be considered under expedited procedures in both the House and Senate. As with all legislation, any differences in the reconciliation legislation passed by the two chambers must be resolved before the bill can be sent to the President for approval or veto. Stage 1: Budget Resolution Adopted That Includes Reconciliation Directives Congress has the option of including reconciliation directives in its annual budget resolution. These directives are necessary to trigger the reconciliation process, and without their inclusion in a budget resolution, no measure would qualify to be considered under the expedited reconciliation procedures. When reconciliation directives are included in an annual budget resolution, their purpose is to require committees to develop and report legislation and allow Congress to consider legislation to achieve the budgetary goals set forth in the annual budget resolution under special expedited procedures. These directives detail which committee(s) should report reconciliation legislation, the date by which the committee(s) should report, the dollar amount of budgetary change that should be in the resulting reconciliation legislation, and the time period over which the impact of this budgetary change should be measured. They might also include language regarding the type of budgetary change that should be reported as well as other procedural provisions, contingencies, and non-binding language concerning policy or programmatic direction. Section 310(a) of the Budget Act provides for three types of budgetary changes that committees may be directed to report: direct spending, revenue, and debt limit. The Budget Act also provides that committees may be directed to report any of these types of budgetary changes. Instructions have been in the form of directing a committee specifically to reduce or increase one (or more) of these types of changes, as well as to achieve deficit reduction. Any legislative committee with jurisdiction over spending, revenue, or the debt limit may be directed to report reconciliation legislation, and numerous committees have been instructed to report reconciliation legislation at some point. Because the Senate Finance Committee and the House Committee on Ways and Means have jurisdiction within their respective chambers over not only major direct spending programs but also all revenue and debt limit legislation, these committees have often been directed to report some type of reconciliation legislation when reconciliation directives have been included in a budget resolution. Reconciliation directives include submission deadlines to the committee(s). These have been set for various dates and so have allowed for varying periods of time for the development of legislative language by committees. Stage 2: Committees Develop and Report Legislative Language While the budget resolution may direct a committee to report reconciliation legislation that would achieve a certain budgetary goal over a specified period, the Budget Act does not impose any additional requirements on committees. The directed committees, therefore, employ the same rules and practices used otherwise in their legislative work. In addition, the programmatic details of the legislation—including how the specified budgetary goals should be met—are left to the discretion of the specified committee. In general, a committee may report any matter within their jurisdiction, regardless of any assumptions concerning policy or programmatic direction indicated in the budget resolution. If a committee is given more than one directive—for instance, both to increase revenues and to decrease spending—then the committee may respond with separate recommendations. Under current Senate practice, the language in Section 310(a) is interpreted to mean that no more than one measure of each type would be eligible to be considered under expedited procedures as a reconciliation bill. Under current practice, therefore, as many as three measures could qualify for consideration under expedited reconciliation procedures in the Senate—but no more than one each for spending, revenue, and the debt limit. Compliance with the dollar amount set forth in a reconciliation directive is measured on a net basis. This means that legislation responding to a directive to reduce spending, for instance, could be in order even if it includes a provision that would increase spending for a certain program so long as the legislation, taken as a whole, would satisfy the overall spending decreases set forth in the reconciliation directive. Although a reconciliation directive may instruct a committee to report legislation that would affect spending levels, a committee may respond to the directive by recommending either changes to direct spending programs or changes in offsetting collections within its jurisdiction. Offsetting collections or receipts, such as user fees or royalties for water or mineral rights on federal land, are treated as negative amounts of spending rather than as revenues. Reconciliation directives pertaining to direct spending generally refer to changes in outlay levels. The outlay level is the projected level of disbursed federal funds. Outlays differ from budget authority (which gives agencies the authority to incur obligations) and are used to assess the impact of the legislative changes on the federal deficit. Reconciliation directives may instruct a committee to recommend legislation that would increase or decrease revenues. Reconciliation directives to alter current revenue laws fall under the jurisdiction of the Senate Finance Committee and House Ways and Means Committee. If a reconciliation directive instructs a committee to report legislation increasing revenues by a specific amount, that amount would be considered the minimum by which the legislation should increase revenues. Conversely, if a reconciliation directive includes instructions to decrease revenue, that amount would be considered the maximum by which revenue should be decreased. There is a statutory limit on the total amount of debt that the federal government may incur at any time. In the event that Congress determines the debt limit to be too high or too low, legislation can be enacted to alter it. The reconciliation process is one of three methods Congress has utilized used to consider debt limit legislation over the last four decades, although it is the least frequently used, being employed only four times. Once a committee has developed legislative language in response to its reconciliation instructions, the committee will then meet to mark up and vote whether to report that language. The committee may vote to report the language favorably or unfavorably, the latter meaning that although it satisfied its directive, the committee did not support the language. Although committees have often responded to their directives early and on time, there is no procedural mechanism to compel committee action prior to the date specified in the budget resolution or even at all. Committees have responded to their directive after the date specified, with no impact on whether the submitted language could be included in a reconciliation bill, if it had not yet been reported by the Budget Committee. A late response has also not had an impact on whether the resultant legislation could be considered as a reconciliation bill. In other words, late or incomplete responses to a reconciliation directive have not caused a measure to lose its privileged status as a reconciliation bill. Committee Compliance with Reconciliation Directives If a reconciliation directive instructs a committee to report legislation reducing spending by a specific amount, that amount is considered a minimum, meaning a committee may report greater net spending reductions but not less. Conversely, if a reconciliation instruction directs a committee to report language increasing direct spending by a certain amount, that amount would be considered the maximum by which spending should be increased. When either the House Ways and Means Committee or the Senate Finance Committee receives instructions concerning both spending and revenues, the Budget Act provides some flexibility concerning how they may respond with a combination of spending and revenue changes. An example of such a directive is as follows: [T]he Committee on Ways and Means of the House of Representatives shall report to the House of Representatives a reconciliation bill not later than May 18, 2001, that consists of changes in laws within its jurisdiction sufficient to reduce revenues by not more than $1,250,000,000,000 for the period of fiscal years 2001 through 2011 and the total level of outlays may be increased by not more than $100,000,000,000 for the period of fiscal years 2001 through 2011. Section 310(c)(1) of the Budget Act, referred to as the "fungibility rule," allows a committee with both spending and revenue directives to substitute changes in one for the other, up to 20% of each directive, as long as the total amount of changes reported is equal to the total amount of changes instructed. There is no procedural mechanism to ensure that legislation submitted by a committee in response to reconciliation directives will be in compliance with the instructed levels. If a committee does not report legislation, or such legislation is not in compliance with their instructions, however, there are methods that each chamber may employ in order to move forward with reconciliation legislation. In either situation, legislative language that falls within the non-compliant committee's jurisdiction can be added to a reconciliation bill during floor consideration that would bring it into compliance with its reconciliation instructions. These methods vary by chamber. In the House, if a committee has failed to recommend changes in compliance with a reconciliation directive, the Budget Act provides that the House Rules Committee may make in order amendments to a reconciliation bill that would achieve the necessary changes. In the Senate, if a committee has not responded to a reconciliation directive, it still may be possible to take action on the Senate floor that would satisfy the committee's directive. In such a circumstance, it would be in order to offer a motion to recommit the reconciliation bill to that committee with instructions that it report the measure back to the Senate forthwith with an amendment that would bring the committee into compliance. Unlike amendments to the reconciliation bill, the motion to recommit would not be subject to the germaneness requirement in Section 305(b)(2). Such a motion to recommit would allow any Senator to craft legislative language within the directed committee's jurisdiction. Omnibus Legislation Prepared by the Budget Committee Reconciliation instructions in a budget resolution may direct either a single committee in each chamber or multiple committees to report. The Budget Act provides that in cases when only one committee has been directed to report, that committee may report its reconciliation legislation directly to the full chamber. If the budget resolution instructs more than one committee to report reconciliation legislation, however, those committees must submit their legislative recommendations to their respective Budget Committee. The Budget Act states that the Budget Committee must then package the committee responses into an omnibus budget reconciliation bill and report the measure to its respective chamber without "any substantive revision." In fulfilling this requirement, the Budget Committee will typically hold a business meeting before voting to report to the chamber, and while amendments are not in order during the markup, members of the Budget Committee may still communicate support or concern related to the underlying legislation. In addition, as the official scorekeeper for budgetary legislation generally, the committee may secure cost estimates necessary to ensure compliance with reconciliation directives and general consistency with the parameters established in the budget resolution. At this stage, the Senate Budget Committee will also examine the recommendations submitted to determine whether any of the provisions might be in violation of the Byrd rule. The Byrd rule was first adopted in 1985 in response to concerns that committees were including recommendations in their reconciliation submissions that were extraneous to achieving the budgetary goals established in the budget resolution. The Byrd rule generally prohibits the inclusion of material considered extraneous to the purpose of a reconciliation bill. Because the Budget Committee is required to include the language submitted by instructed committees without substantive revisions, however, the Budget Committee may not delete such language prior to it being reported. Instead, any Senator may raise a point of order against such provisions once the measure has been brought to the Senate floor for consideration. The Senate Budget Committee is required to submit for the record a list of provisions considered to be extraneous, although the inclusion or exclusion of a provision on such a list does not constitute a determination of extraneousness by the presiding officer of the Senate. Stage 3: Floor Consideration Once a reconciliation measure has been reported, it is placed on the appropriate calendar of the House or Senate and becomes available for consideration by the full chamber. House Consideration of reconciliation measures in the House has historically been governed by the provisions of special rules reported from the House Rules Committee. These special rules have established the duration of a period for general debate and specified a limited number of amendments that will be in order. In most cases, the period for general debate has been specified as one or three hours, equally divided and controlled by the majority and minority floor managers. The number of amendments made in order under these special rules has always been limited, and, in most recent cases, there have been one or zero amendments in order to be offered during consideration of the bill. In addition to these amending opportunities, however, House rules also allow for a motion to recommit the bill before the House votes on final passage. A Member from the minority party would have preference to make this motion, which may include amendatory instructions. In effect, therefore, a motion to recommit with amendatory instructions provides one last opportunity for the minority party to offer an amendment to the bill. Amendatory instructions are subject to the same requirements or limits as any other amendment. There are provisions in House rules and the Congressional Budget Act that could limit the subject and budgetary impact of amendments to reconciliation measures. For example, House Rule XVI, clause 7, prohibits nongermane amendments generally, and Section 310(d)(1) of the Budget Act prohibits amendments to the reconciliation bill that would increase spending above or reduce revenues below the amounts provided in the bill. However, in most circumstances, because special rules have limited the amendments to be offered (if any) to those specified in the special rule or the accompanying report, these limits have not been manifest during consideration. Senate Although the rules, precedents, and practices of the Senate do not place general limits on either the content of amendments that may be offered to legislation or the duration of their consideration, a distinguishing characteristic of the reconciliation process is that specific limits are placed on both. Consideration of reconciliation legislation in the Senate has been governed generally under the terms of Section 310(e) of the Congressional Budget Act. This section provides, in turn, that the provisions of Section 305 of the act concerning the consideration of a budget resolution also apply to the consideration of a reconciliation measure, except as specifically provided otherwise. As a consequence, reconciliation measures, like budget resolutions, are privileged, so motions to proceed to their consideration are not debatable. Once a motion to proceed is agreed to, the provisions of the Budget Act place specific time limits on debate of a reconciliation bill. Section 310(e)(2) limits total debate time on the measure—including all amendments, motions, or appeals—to 20 hours. This time must be equally divided and controlled by the majority and minority, with debate on any amendment to the measure limited to two hours, equally divided and controlled, and debate on any amendment to an amendment, debatable motion, or appeal limited to one hour, equally divided and controlled. Even after time has expired, Senators may continue to offer amendments and make other motions or appeals, but without further debate. This period is often referred to as a "vote-a-rama." Although no further debate time is available, the Senate has typically agreed by unanimous consent to consider amendments under accelerated voting procedures, allowing a nominal amount of time to identify and explain an amendment and a 10-minute limit for vote time. Although the Budget Act imposes no procedural limit on the duration of a vote-a-rama, the limit on debate time has meant, historically, that it has been unnecessary to invoke cloture in order to reach a final vote on a reconciliation bill in the Senate. In addition to limits on debate time, the Budget Act places several limits on the subject matter and budgetary impact in both the measure and any amendments, which may be enforced by points of order. Points of order are not self-enforcing, however. A point of order may be raised on the floor against legislation that is alleged to violate these rules at the time it is being considered. In general, the presiding officer may rule on whether the point of order is well taken and, thus, whether the measure, provision, or amendment is in order. In practice, however, it is possible in the Senate to preempt a ruling by the presiding officer by offering a motion to waive the application of points of order related to enforcing the limits associated with the Budget Act. In most cases, the motion to waive requires a vote of at least three-fifths of all Senators duly chosen and sworn (60 votes if there are no vacancies) to be successful. If a waiver motion fails, the presiding officer will then rule the provision or amendment out of order. Under the terms of Section 313, as discussed above, extraneous provisions are not allowed to be included in the measure or offered as amendments to it. Instructed committees may not include extraneous provisions in the legislative language submitted to the Budget Committee for inclusion in an omnibus reconciliation measure. If a point of order is sustained under this section against a provision in the reconciliation measure as reported, the provision in question is stricken, but further consideration of the bill may proceed. If the point of order is sustained against an amendment or motion, further consideration of that amendment or motion would not be in order. There are also rules intended to limit the content of amendments to reconciliation bills that are in order. Section 305(b)(2) requires that all amendments be germane to the provisions in the bill, meaning that amendments cannot be used to introduce new subjects or expand the scope of the bill. In addition, the Budget Act, and related requirements, place limits on the budgetary impact of amendments. Section 310(d)(1) prohibits the consideration of amendments to reconciliation legislation that would increase the level of outlays (or decrease the level of revenues) provided in the bill, and Section 310(d)(2) prohibits the consideration of amendments that would increase the level of outlays (or decrease the level of revenues) as measured in relation to the level of a committee's reconciliation instructions. In addition, all other budget rules would apply to reconciliation bills the same way they would to any other budgetary measure. One notable example is Section 311(a)(2) of the Budget Act, which prohibits consideration of legislation that would cause new budget authority or outlays to exceed or revenues to fall below the levels set forth in the budget resolution. Another is Section 404(a) of S.Con.Res. 13 (111 th Congress), which prohibits consideration of direct spending or revenue legislation that would cause a net increase in the deficit in excess of $10 billion in any fiscal year provided for in the most recently adopted budget resolution unless it is fully offset over the period in the most recent budget resolution. Finally, in order to ensure that changes to Social Security are considered under the regular procedures of the Senate, Section 310(g) explicitly prohibits consideration of changes to the old-age, survivors, and disability insurance program established under Title II of the Social Security Act, and the prohibition in Section 313 against extraneous provisions would also apply to these same changes. Stage 4: Resolving Differences As with all legislation, any differences in reconciliation legislation as passed by the two chambers must be resolved before the bill can be sent to the President for the final stage of the process. For reconciliation bills, the most common avenue for resolving differences between the House and Senate has been through creating a conference committee and appointing conferees from both chambers to negotiate. For a conference to reach agreement, a majority of the House conferees and a majority of the Senate conferees must sign the conference report. Once reported, the conference report must be approved by both chambers. Conference reports are privileged and debatable in both the House and Senate, but they may not be amended. The House and Senate may also negotiate an agreement through an exchange of amendments between the houses. Although such an approach may be taken as an alternative to conference, historically it has not been used in the case of reconciliation legislation. In general, Budget Act points of order that would apply to the consideration of a reconciliation bill also apply to the consideration of a conference report or amendments between the chambers. In the Senate, this includes the Byrd rule, so that a conference report or an amendment between the chambers might be vulnerable to a point of order if it were to include an extraneous provision. In the Senate, the Budget Act provides that debate on a conference report or a message between houses and all amendments or debatable motions is limited to 10 hours, equally divided and controlled by the majority and minority leaders. Stage 5: Final Action by the President Only after the House and Senate have reached agreement on the same text in the same bill can it be enrolled for presentation to the President, as provided in Article I, Section 7, of the Constitution. The President has a 10-day period (excluding Sundays) after the bill is presented in which he may sign the bill into law. Alternately, the President may veto the measure and return it to Congress. If both chambers vote by a two-thirds supermajority to override the veto, the measure would become law. If the President chooses not to sign the bill and Congress remains in session, it would become law without his signature. However, if Congress has adjourned within the 10-day period after presentation, thereby preventing the return of the bill to Congress, by withholding his signature the President would prevent the bill from becoming law—a practice called a "pocket" veto. In four instances the President has vetoed reconciliation legislation. In none of these cases has Congress successfully voted to override the President's veto.

The purpose of the reconciliation process is to enhance Congress's ability to bring existing spending, revenue, and debt limit laws into compliance with current fiscal priorities and goals established in the annual budget resolution. In adopting a budget resolution, Congress is agreeing upon its budgetary goals for the upcoming fiscal year. Because it is in the form of a concurrent resolution, however, it is not presented to the President or enacted into law. As a consequence, any statutory changes concerning spending or revenues that are necessary to implement these policies must be enacted in separate legislation. Budget reconciliation is an optional congressional process that operates as an adjunct to the budget resolution process and occurs only if reconciliation instructions are included in the budget resolution. Reconciliation instructions are the means by which Congress can establish the roles that specific committees will play in achieving these budgetary goals. Reconciliation consists of several different stages, which are described in this report. For more information on budget reconciliation bills enacted into law, please see CRS Report R40480, Budget Reconciliation Measures Enacted Into Law: 1980-2010, by Megan S. Lynch.

The Issues Before Congress Since September 11, 2001, Congress has passed several significant pieces of legislation intended to help surmount failures in public safety radio communications such as (1) insufficient interoperability among radio systems, a problem that hampered rescue efforts on and after September 11; and (2) insufficiently robust networks, a shortcoming revealed after Hurricane Katrina struck in August 2005. To achieve a higher standard of communications performance might require, among other elements, improvements in communications capacity and quality. Increased capacity is achievable through a number of means. Increasing the amount of radio frequencies available for public safety use is one solution for adding capacity. Building additional infrastructure to use existing airwaves more effectively is another solution, as is investment in more spectrum-efficient technologies. Sharing networks also can provide additional capacity for operations. All of these measures have been proposed for improving public safety communications, with different groups voicing preferences for one means over another. Many representative of the public safety community have argued that additional spectrum assignments are needed to meet the future needs of emergency communications, while the Federal Communications Commission (FCC) has presented an action plan that would develop capacity through investing in network infrastructure, public-private sharing of development costs for efficient radios, and creating a regulatory regime that would allow public safety and commercial users to share infrastructure. All of the measures under consideration by the FCC or proposed by public safety agencies would require substantial funding—many billions of dollars—of which some is expected to come from the federal government. Three bills have been introduced that would require the FCC to assign additional spectrum, known as the D Block, for a public safety broadband network and take steps to ensure construction of an interoperable network. A draft discussion bill was released in June that would support the FCC's plans for using spectrum and developing infrastructure, funded in part by auction proceeds that would include the sale of the D Block. These bills deal lightly with the question of governance, for the most part making adjustments to the regulatory and oversight responsibilities of the FCC. The Next Generation Public Safety Device Act of 2010 ( H.R. 5907 , Representative Harman) and its companion bill ( S. 3731 , Senator Warner) are more narrowly focused on a critical initial step on the long road to assuring that a nationwide, interoperable network is put in place for public safety communications: the radios. The FCC has linked the auction of the D Block to the development of the needed public safety features for broadband radios that would operate on the D Block network frequencies, the Public Safety Broadband License frequencies, and perhaps other frequencies within the band. In the FCC's announced plans, the D Block license-holder(s) would take the lead in, and assume the costs of, developing appropriate hardware and software for radios used by public safety. The FCC, in the NBP, stated that details of how these requirements would be determined and enforced would likely be decided as part of the comment process that would lead up to the auction, with development work starting after a successfully completed auction. The Public Safety Device Act would begin the process of development almost immediately and would encourage innovation and competitive pricing through a technology competition administered by the National Telecommunications and Information Administration (NTIA). Debate Over Spectrum Resources: The D Block Congress last addressed the public safety community's need for spectrum capacity by mandating the release of 24 MHz of frequencies that were originally designated for public safety use in the late 1990s. This crucial resource, part of the 700 MHz band, remained largely unavailable as long as its airwaves were used for analog television transmissions. By providing a deadline for the transition from analog to digital television, Congress ensured that valuable radio frequency spectrum would be released by 2009. The assignment of one set of frequencies in the 700 MHz band, referred to as the D Block, has been widely debated. The D Block was slated for auction in 2008 along with other available frequencies identified in the Deficit Reduction Act of 2005. In compliance with instructions from Congress to auction all unallocated spectrum in this band, the FCC conducted an auction, which concluded on March 18, 2008. As part of its preparation for the auction (Auction 73), the FCC sought to increase the amount of spectrum available to public safety users in the 700 MHz band. The FCC proposed to assign 10 MHz—part of the original 24 MHz designated for public safety use—to a Public Safety Broadband Licensee specifically for public safety broadband communications. Of the balance, 12 MHz were designated for mission critical voice communications on narrowband networks and 2 MHz were set aside as a guard band to protect against interference. A section of the 700 MHz band plan, showing the location of public safety licenses and the D Block, is provided in Appendix B . In the FCC plan for Auction 73, the Public Safety Broadband License (PBSL) was to have been matched with a commercial license of 10 MHz, known as the D Block. The D Block was to be auctioned under rules that would require the creation of a public-private partnership to develop the two 10-MHz assignments as a single broadband network, available to both public safety users and commercial customers. The D Block license was offered for sale in 2008 but did not find a buyer. The FCC then set about the task of writing new rules for a reauction of the D Block. FCC's Announced Plans for the D Block The FCC subsequently decided to auction the D Block for commercial use with conditions deemed beneficial for public safety users, such as assumption by the license-holder of the cost of developing mobile devices, and guarantees that public safety networks would have roaming and priority access rights to the D Block network. The decision was announced in the National Broadband Plan (NBP), released March 16, 2010. The NBP proposed several actions to be taken to facilitate development of a national wireless broadband network for public safety use. Public safety needs, such as developing standards and establishing procedures, would be addressed through a newly established Emergency Response Interoperability Center (ERIC). Legislation to Assign the D Block to Public Safety The Broadband for First Responders Act of 2010 ( H.R. 5081 , Representative King) would amend the Communications Act of 1934 by requiring the FCC to allocate the D Block for public safety services. The bill would require the FCC to establish rules to encourage the rapid deployment of an interoperable national wireless broadband network, and to allow public safety license-holders to share spectrum with other entities, as long as requirements for roaming and priority access were met. The First Responders Protection Act of 2010 ( S. 3625 , Lieberman) and the Public Safety Spectrum and Wireless Innovation Act ( S. 3756 , Rockefeller) would require similar rule-making procedures, and requirements. Legislation in Support of a Public Safety Network Without the D Block The discussion draft of the Public Safety Broadband Act of 2010 includes the presumption that the D Block will be auctioned, in that it provides that proceeds from its auction be applied to the construction and operation costs of public safety broadband networks. The draft bill would permit sharing of spectrum designated for broadband networks between public safety and other entities. It would also direct the FCC to allow flexible use of other frequencies in the 700 MHz band designated for public safety. Communications Infrastructure and Governance The First Responders Protection Act of 2010, the Broadband for First Responders Act of 2010, the Public Safety Spectrum and Wireless Innovation Act, the discussion draft of the Public Safety Broadband Act of 2010, the Next Generation Public Safety Device Act of 2010, and several inter-connected initiatives of the FCC address aspects of how to plan, build, and fund a national network for public safety communications. Public Safety Broadband Network Requirements Developments in mobile broadband communications are changing the public safety community's expectations about how to best use the 700 MHz airwaves allocated for their use. Public safety representatives have argued that this spectrum should be used for a wireless network customized to meet needs that they have indentified. Arguments in favor of building a network exclusively for public safety revolve around the shortcomings of current commercial wireless services such as poor availability, inadequate coverage in rural areas, lack of security features, and absence of priority access. Network infrastructure requirements for public safety communications that are frequently discussed include Broadband applications should facilitate emergency response by providing data and images, including video. The network should cover all areas of the United States, ensuring service to meet a public safety emergency anywhere. Broadband services should include voice communications as a back up to mission critical voice channels on other frequencies and offer the same features such as push-to-talk and one-to-one or one-to-many connectivity. Network software should provide traffic management services such as prioritizing service. If multiple networks were built separately and then linked together, interoperability and nationwide roaming would need to be ensured. Radio software should provide mobile broadband applications designed for public safety. In particular, radio chipsets need to be developed for wireless devices that can connect to a Long Term Evolution (LTE) network. Radio software should support encryption and authentication. Cell towers in the network should be strengthened against natural hazards and furnished with back-up power supplies that can outlast extended power outages. Robust backhaul should be ensured. Backhaul typically refers to connectivity between access points like cell towers and high capacity, landline communications networks. Backhaul is an essential component of wireless network infrastructure. FCC's Proposals for Communications Infrastructure In the NBP, the FCC made these key recommendations for promoting public safety wireless broadband communications. Create an administrative system that ensures access to sufficient capacity on a day-to-day and emergency basis. Ensure there is a mechanism in place to promote interoperability and operability of the network. Establish a funding mechanism to ensure the network is deployed throughout the United States and has necessary coverage, resiliency, and redundancy. Conform existing programs to operate with the public safety broadband network. The FCC has recommended that the public safety community leverage the availability of commercial technologies and networks to assure system-wide capacity and has encouraged partnerships and administrative agreements with commercial operators and others. Emergency Response Interoperability Center The FCC would address public safety needs such as developing standards and establishing procedures through the newly established Emergency Response Interoperability Center (ERIC). ERIC was established within the FCC Public Safety and Homeland Security Bureau, in April 2010. It is intended for ERIC to work closely with the Public Safety Communications Research program, jointly managed by the National Institute of Standards and Technology (NIST) and the NTIA, to develop and test the technological solutions needed for public safety broadband communications. The Department of Homeland Security is to participate in the areas of public safety outreach and technical assistance, as well as best practices development, through its Office of Emergency Communications. ERIC has been tasked with implementing standards for national interoperability and developing technical and operational procedures for the public safety wireless broadband network in the 700 MHz band. In the future, ERIC may perform similar functions for other public safety communications systems. Within the 700 MHz band, ERIC might use the regulatory powers of the FCC to require the cooperation of commercial wireless operators in establishing roaming rights and access rules between the public safety broadband network and other networks built to use the 700 MHz frequencies. In particular, the FCC's powers to write rules for spectrum license auctions and set service rules for auction winners are to be brought to bear on the winner or winners of licenses in the D Block. and it has anticipated that it will be able to negotiate roaming and priority access across the 700 MHz band. Its authority to enforce access requirements is uncertain, however, and might be successfully challenged in court. Requirements for Conditional Build-Outs Some states and localities have petitioned the FCC to allow them to use frequencies from the 10 MHz assigned to the PSBL for their own public safety networks. Plans would be developed based on local and regional needs, with anticipated funding from sources such as existing programs, partnerships with commercial providers, and federal grants. The FCC has therefore adopted an order to provide the framework for nationwide interoperability and mobile broadband and grant waivers to public safety entities that meet its requirements. Providing an "Interoperability Showing" that includes evidence of funding is among the conditions established by the FCC. Fifteen recipients of conditional waivers had submitted Interoperability Showings by August 17, 2010. Only one, from the San Francisco Bay Area, was accepted for review. The remainder were returned for additional work because not all the required elements had been included. Nonetheless, a review of the submission seems to suggest that the materials for building a cohesive national policy are embedded in these plans. ERIC will play a lead role in approving and coordinating the technical aspects of the waiver requests. Technical components of the waiver requests include specifications for system architecture, required applications, and network operations, administration and maintenance. System requirements to support interoperability must include radio access network and core network architectures. Plans for supporting roaming, priority access, Quality of Service (QoS), and security are required. Specifications must be provided regarding the devices planned for use on the network, including information on type (form factor), operational specifications, and spectrum coverage. Legislative Proposals for Communications Infrastructure The First Responders Protection Act of 2010, the Broadband for First Responders Act of 2010, and the Public Safety Spectrum and Wireless Innovation Act would require the FCC to establish rules for the construction and operation of a wireless public safety broadband network. The requirements would cover interoperability, roaming, priority access, network survivability, and cybersecurity. The FCC would also be required to develop a statement of requirements for standards that would take into account: commercial availability of technologies; licensing terms; adaptability; transmission priority; security; and other considerations, as appropriate. The discussion draft of the Public Safety Broadband Act of 2010 eliminates requirements for roaming privileges but otherwise would make similar requirements. It would direct the FCC to "take all actions necessary" to develop and implement technical standards and rules for a nationwide public safety interoperable broadband network that would include user authentication and encryption. This and other provisions in the bill would support the FCC's regulatory authority to mandate sharing of 700 MHz infrastructure. The FCC would be required to establish "an appropriate rule, or set of rules" to ensure interoperability, taking into account: commercial availability of technologies; licensing terms; adaptability; transmission priority; and security. The Public Safety Spectrum and Wireless Innovation Act also would address the FCC's need to require roaming, but in more limited terms. It would provide that the FCC "may adopt rules, if necessary in the public interest, to improve the ability of public safety networks to roam onto commercial networks and to gain priority access ..." if certain provisions are met. The First Responders Protection Act of 2010 does not include any provisions that support the FCC's position to mandate that commercial networks provide access for roaming or make other accommodations to public safety users. These provisions will likely be part of separate contractual agreements between public safety network users and commercial network owners as part of negotiations among multiple players. The First Responders Protection Act of 2010, the Public Safety Spectrum and Wireless Innovation Act, and the discussion draft provide funding mechanisms for construction and operation of the wireless broadband network. Projects eligible for funding that are mentioned in the bills include "construction of a new public safety interoperable broadband network using commercial infrastructure or public safety infrastructure, or both, in the 700 MHz band" and "improvement of the existing commercial networks and construction of new infrastructure to meet public safety requirements...." There is no provision in any of the bills for funds to cover the cost of development and testing of new radio technologies that allow public safety broadband radios to operate on the new networks. The Public Safety Spectrum and Wireless Innovation Act has a number of additional provisions related to the requirements for network construction. For example, there are several provisions that are intended to assure that rural areas are given equality with urban areas in planning and construction. The bill also would require that interoperability planning include "integration with 9-1-1 call centers." Communications Infrastructure and Radios Additional development work is needed to advance from the planning stages to testing and deployment of mobile devices that operate on the broadband network. The Next Generation Public Safety Device Act of 2010 would address the issue of developing mobile devices for broadband communications on frequencies assigned for broadband use, and other frequencies, where feasible. One of the constraints in constructing mobile devices is that it becomes increasingly difficult and expensive for radios to operate on multiple bands. Public safety officials, commercial network experts, and the FCC are generally in agreement that Long Term Evolution (LTE) technology should be required for the new broadband network.The term profile is generally used in referring to the range of technical specifications needed for mobile devices using LTE technology to operate on a designated network. The primary group coordinating standards-setting for LTE has established four profiles for commercial bands using LTE in the 700 MHZ band: Band 12, Band 13, Band 14, and Band 17. Band 14 includes the D Block and can include the public safety frequencies assigned to broadband and possibly the frequencies assigned to narrowband as well. The LTE profile for Band 14 needs to be modified to support public safety requirements. Part of the challenge for ERIC and network developers participating in the early-build-out program will be to establish a profile for public safety requirements that can be developed in conjunction with the Band 14 profile for the D Block and, possibly, other LTE bands at 700 MHz. FCC Proposals for Radio Development In addition to cooperation for sharing network resources, the FCC has anticipated that the D Block owner or owners will lead, and fund, the development costs of the air interface that will operate within the band comprised of the Public Safety Broadband License and the D Block. LTE has been specified by the FCC as the network technology for these frequencies. The FCC has also assumed that the other networks at 700 MHz will use LTE or a compatible fourth-generation (4G) technology. One of the expectations is that ERIC will be able to guide the development of standards for crucial radio components, with the participation of commercial providers and public safety representatives. The participation of commercial carriers in developing and deploying, for example, a common radio interface, is expected to put the cost of public safety radios in the same price range as commercial high-end mobile devices ($500). By contrast, interoperable radios for the narrowband networks at 700 MHz cost $3,000 and up, each. In a letter responding to an inquiry from Representative Henry A. Waxman, Chairman of the House Committee on Energy and Commerce, the FCC provided a summary of its findings and views regarding market competition for narrowband radios. The general conclusions of the letter were that proprietary technologies had hampered the effective development of public safety radios and curtailed interoperability. Legislative Proposals for Radio Development The Next Generation Public Safety Device Act of 2010 would require the NTIA, with the agreement of an appropriate working group, to establish requirements for Radio over Internet Protocol Devices (RoIP) and to award grants for the development of these devices. Requirements to compete in the first stage of a three-stage competition include: the identification of specific communication needs of public safety personnel and any corresponding device features that would meet those needs; and ensuring rapid, reliable, comprehensible and interoperable communications. Requirements that must be met in the final stage include submission of a plan for commercial production. In considering the winners at each stage of the process, the NTIA is required to give consideration to additional factors such as encouragement of competition; estimated cost; and the potential to use other portions of the 700 MHz band licensed for public safety use. Funding At the time of the attempted auction of the D Block, the cost of building the mobile broadband network under the public-private partnership proposed by the FCC was estimated at from $18 billion to as much as $40 billion. These projected costs did not include radios. FCC's Proposals for Funding Infrastructure In the NBP, the FCC has recommended that a grant program be established to ensure that needed infrastructure is fully deployed. It has recommended that the grants program be administered by a single agency and only be applied to projects that comply with requirements set by ERIC. The four recommended uses of these grants would be: construction of a public safety network, including use of commercial infrastructure; coverage of rural areas; hardening existing commercial networks for public safety use, including reimbursement of non-recoverable engineering costs; and deployable capabilities for public safety. The NBP provided an estimate of up to $6.5 billion for capital expenditures over ten years and operating costs of $1.3 billion a year. A subsequent report providing details on these projections were later released. The report included a comparison of costs that concluded that building a dedicated public safety broadband network would require $15.7 billion in capital expenditures. A substantial part of the projected savings would come from the ability for public safety to use commercial towers. The NBP stated that it was "essential that the United States establish a long-term, sustainable and adequate funding mechanism to help pay for the operation, maintenance and upgrade of the public safety broadband network." To provide these funds, the plan recommended that a "minimal public safety fee" be assessed on all U.S. broadband users. Legislative Proposals for Funding Infrastructure The Broadband for First Responders Act of 2010 would rely on existing authorizations for funding public safety communications, such as the Interoperable Emergency Communications Grant program. This law authorized appropriations as necessary for FY2008 and appropriations of up to $400 million for fiscal years 2009 though 2012, with such sums as may be necessary in subsequent years. The first appropriations were provided for FY2008 in the amount of $50 million, appropriations in subsequent years have also been for $50 million. The First Responders Protection Act of 2010, the Public Safety Spectrum and Wireless Innovation Act, and the discussion draft of the Public Safety Broadband Act of 2010 would fund network construction and operation with proceeds from future spectrum auctions. The bills have designated several sets of spectrum bands for auction as sources of revenue over a specified time period. The D Block is included in the draft discussion bill. Two funds would be created to receive auction proceeds. The first $5.5 billion would be destined for a Construction Fund; subsequent proceeds would be administered through a Maintenance and Operation Fund. The NTIA would have primary responsibility for grants programs covered by the funds. Construction projects that would be eligible would be for new construction for a public safety broadband network; improvements to existing commercial networks and other improvements to infrastructure needed to operate an interoperable, public safety broadband network in the 700 MHz band. The bills have described eligibility for reimbursement of maintenance and operational costs and related provisions. The Next Generation Public Safety Device Act of 2010 would fund the $70 million authorized for RoIP development through revenues generated by future auctions. It would create a Public Safety Devices Communications Fund and authorize the NTIA to borrow the needed funds. The Senate version of the bill would place a ceiling on the amount that could be used to administer the program. Spectrum Auctions as a Source of Funds Congress has twice enacted laws to create special funds to hold the revenue of certain spectrum auctions for specific purposes. These funds represent a departure from existing practice, which requires that auction proceeds be credited directly to the Treasury as income. The Deficit Reduction Act of 2005 ( P.L. 109-171 , Title III) required the auctioning of licenses for spectrum currently used by TV broadcasters for analog transmissions. It established the Digital Television Transition and Public Safety Fund to receive this auction revenue and use some of the proceeds for the transition to digital television, public safety communications, and other programs. The Commercial Spectrum Enhancement Act ( P.L. 108-494 , Title II) established a Spectrum Relocation Fund to hold the proceeds of certain spectrum auctions for the specific purpose of reimbursing federal entities for the costs of moving to new frequency assignments. The Public Safety Interoperable Communications (PSIC) grant program, now administered through the Department of Homeland Security, was funded under provisions in the Deficit Reduction Act of 2005. Conclusion Homeland security depends on effective communications for prevention, preparedness, and response to a range of threats. First responders and the larger public safety community that supports them rely heavily on effective radio communications to meet their responsibilities for homeland security. More important to the average American is the role that public safety services play in daily life and in responding to natural disasters. Flash floods, forest fires, tornados, hurricanes—Mother Nature provides endless variations for the scenarios of response and recovery. The FCC and the Department of Homeland Security (DHS) have different perspectives on radio technology and infrastructure. DHS policies favor reliability and familiarity in their requirements and guidelines for technology and in their emphasis on training and repeated use of equipment. Spectrum policy at the FCC promotes spectrum efficiency and competition among commercial license-holders. Congress has separately conferred authority on DHS and the FCC to act on behalf of public safety. In the case of DHS, this includes requirements to coordinate and support specific goals, such as interoperability and a national communications capability. None of the actions required of DHS by Congress relate specifically to using 700 MHz spectrum to achieve these objectives. The FCC brings to the process several important mandates from Congress, such as an obligation to "promote safety of life and property through the use of wire and radio communication," as well as specific instructions regarding the assignment of frequencies at 700 MHz. In its National Broadband Plan, the FCC proposed that it assume the needed leadership role and has since taken a number of steps to realize the goals it has set for itself. The bills introduced so far would increase the powers and responsibilities of the FCC in shaping the public safety communications network of the future, placing DHS in an advisory role. Governance of the public safety network at a national level would be dependent almost entirely on the FCC and its willingness to write and enforce regulations. The Public Safety Broadband Licensee Board of Governors and the Technical Advisory Committee of ERIC appear to be the primary conduits for presenting public safety views and requirements to the FCC. The Public Safety Broadband License, the charter for the Public Safety Broadband Licensee, and ERIC were established by the FCC through its rule-making process. Since September 11, 2001, Congress has passed several laws that empowered the Department of Homeland Security to recognize and respond to technological developments in wireless and Internet Protocol (IP) communications, and to apply this knowledge to guiding the development of a nationwide, interoperable network for public safety. By choosing to focus on interim solutions, the Department seems to have passed on the opportunity to provide the needed leadership and planning to move public safety toward a next-generation communications network. It would appear that neither agency has the needed depth of experience or resources to develop and deploy a leading-edge broadband network in a timely, cost-efficient manner. DHS has experience in guiding public safety agencies to meet Department-imposed requirements and guidelines. The FCC has experience in regulating spectrum use by both commercial and state and local (but not federal) public safety sectors. The FCC-created entities that might draw on a broader pool of skills and knowledge are dependent on the long-term, continuing, and unwavering interest of the FCC in maintaining and empowering them. A well-grounded but flexible governance structure is critical to the future of public safety communications if it is to be national in scope, interoperable, and cost-effective. In particular, the cost of radios must be brought down to a competitive price range. The latest radios developed for public safety by DHS, the multi-band radios, are estimated to cost between $4,000 to $6,000. The current narrowband radios being used for 700 MHz networks typically start at $3,000. Depending on the area of the country, the cost of ten radios would pay the salary of a teacher, or a teacher's aide. What might be the consequences of a federal policy that forces communities to decide between radios for their police force or teachers for their children, radios to fight fires or funds to maintain parks? Experience with early deployments of narrowband networks appears to indicate that many communities are buying two, four, maybe ten radios to provide for interoperable communications among senior level emergency managers, leaving the rest of their first responder resources to make do with existing equipment that might not work on the new network. At present, federal funds appear to go to build a sort of state-of-the-art wireless highway that only the radio equivalent of Hummers can use. Several states and urban areas have submitted detailed plans to the FCC for building the nation's first broadband networks that might serve as a practical framework for evaluating policy options. These plans, developed according to FCC requirements, share many common features. Notable from a policy point of view are several recommendations that provide a common theme in these early submissions. These may be summarized as: (1) sufficient funding is essential; (2) networks that either cover an area designated as eligible for Urban Area Security Initiative programs, or cover a regional area—that is, large and/or densely populated areas—are more efficient to build, operate, and govern; (3) several critical technologies and standards, such as for radios, must be developed before the networks can be fully effective; (4) some form of governing sur-structure must be in place to assure uniformity of core operations while allowing for local customization of public safety applications; and (5) collaboration with commercial partners is important for mustering all the skills and knowledge resources needed for developing the leading-edge broadband networks that are the goals of the submitted plans. A governance structure that can deliver these elements might meet the needs described by many representatives of the public safety community. It does not exist. Appendix A. Congressional Efforts on Behalf of Public Safety Communications Many of the statutes passed since 2001 have provided guidelines and set performance goals for public safety communications while delegating decisions about implementation to federal agencies and state officials. Although Congress has appropriated money for public safety communications it has not directly addressed the question of investment in network infrastructure, leaving it largely to federal agencies to set priorities for how public safety grants can be used. Most of the grant programs are now administered through the Department of Homeland Security (DHS). Grants for emergency communications have been used to purchase equipment that facilitates interoperability, for planning, and for training. To facilitate planning and coordination, and to provide direction, Congress authorized the creation of an Office of Emergency Communications (OEC) within DHS. The OEC was given the responsibility of preparing a National Emergency Communications Plan (NECP). The resulting plan set goals for improving emergency communications and interoperability but did not address developing a network infrastructure for public safety communications or for using the 700 MHz spectrum for that purpose. To support its vision of interoperability as a system of systems, DHS sponsored an Emergency Response Council (ERC) composed of several dozen agencies, associations, and other entities involved in public safety and emergency response planning. In 2007 the ERC provided a set of agreements on a Nationwide Plan for Interoperable Communications. The ERC published 12 guiding principles deemed essential to their key goals of forging partnerships, designing interoperable systems, educating policymakers, and allocating resources. To date, the council's role has been primarily to establish a base for advocacy and communication among representatives of public safety agencies and associations. Congress first addressed the issue of emergency communications interoperability in the Homeland Security Act of 2002 ( P.L. 107-296 ). Two years later, responding to recommendations of the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), Congress included a section in the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) that expanded its requirements for action in improving interoperability and public safety communications. Also in response to a recommendation by the 9/11 Commission, Congress set a firm deadline for the release of radio frequency spectrum needed for public safety radios, as part of the Deficit Reduction Act of 2005 ( P.L. 109-171 ). These laws provided the base from which the Department of Homeland Security (DHS) could develop a national public safety communications capability as required by the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI, Subtitle D of the act, referred to as the 21 st Century Emergency Communications Act of 2006, placed new requirements on DHS. Additional requirements were included in the Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ). Balanced Budget Act of 1997 The initial allocation to public safety of frequencies in the 700 MHz band was required by Congress in the Balanced Budget Act of 1997 ( P.L. 105-33 ), which directed the Federal Communications Commission (FCC) to designate 24 MHz of spectrum capacity for public safety. To carry out the process of assigning this newly allocated spectrum asset, the FCC created the Public Safety National Coordination Committee (NCC) as a Federal Advisory Committee. Active from 1999 through 2003, the NCC had a Steering Committee from government, the public safety community, and the telecommunications industry. The NCC developed technical and operational recommendations for the 700 MHz band, including plans for interoperable channels. The existing governance for these channels is through Regional Planning Committees (RPCs), established and loosely coordinated by the FCC, with the participation of the National Public Safety Telecommunications Council (NPSTC), a group consisting primarily of public safety associations. The RPCs are responsible for submitting 700 MHz band plans to the FCC for approval, and for managing these plans. The Homeland Security Act of 2002 and Actions by the Department Provisions of the Homeland Security Act instructed DHS to address some of the issues concerning public safety communications in emergency preparedness and response and in providing critical infrastructure. Telecommunications for first responders is mentioned in several sections, with specific emphasis on technology for interoperability. The newly created DHS placed responsibility for interoperable communications within the Directorate for Science and Technology, reasoning that the focus of DHS efforts would be on standards and on encouraging research and development for communications technology. Responsibility to coordinate and rationalize federal networks, and to support interoperability, had previously been assigned to the Wireless Public SAFEty Interoperable COMmunications Program—called Project SAFECOM—by the Office of Management and Budget as an e-government initiative. With the support of the George W. Bush Administration, SAFECOM was placed in the Science and Technology directorate and became the lead agency for coordinating federal programs for interoperability. The Secretary of Homeland Security assigned the responsibility of preparing a national strategy for communications interoperability to the Office of Interoperability and Compatibility (OIC), which DHS created, an organizational move that was later ratified by Congress in the Intelligence Reform and Terrorism Prevention Act. SAFECOM continued to operate as an entity within the OIC, which assumed the leadership role. Intelligence Reform and Terrorism Prevention Act Acting on recommendations made by the 9/11 Commission, Congress included several sections regarding improvements in communications capacity—including clarifications to the Homeland Security Act—in the Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ). The Commission's analysis of communications difficulties on September 11, 2001, was summarized in the following recommendation. Congress should support pending legislation which provides for the expedited and increased assignment of radio spectrum for public safety purposes. Furthermore, high-risk urban areas such as New York City and Washington, D.C., should establish signal corps units to ensure communications connectivity between and among civilian authorities, local first responders, and the National Guard. Federal funding of such units should be given high priority by Congress. Congress addressed both the context and the specifics of the recommendation for signal corps capabilities. The Intelligence Reform and Terrorism Prevention Act amended the Homeland Security Act to specify that DHS give priority to the rapid establishment of interoperable capacity in urban and other areas determined to be at high risk from terrorist attack. The Secretary of Homeland Security was required to work with the Federal Communications Commission (FCC), the Secretary of Defense, and the appropriate state and local authorities to provide technical guidance, training, and other assistance as appropriate. Minimum capabilities were to be established for "all levels of government agencies," first responders, and others, including the ability to communicate with each other. The act further required the Secretary of Homeland Security to establish at least two trial programs in high-threat areas. The process of development for these programs was to contribute to the creation and implementation of a national model strategic plan. The purpose was to foster interagency communications at all levels of the response effort. Building on the concept of using the Army Signal Corps as a model, the law directed the Secretary to consult with the Secretary of Defense in the development of the test projects, including review of standards, equipment, and protocols. Congress also raised the bar for performance and accountability, setting program goals for the Department of Homeland Security. Briefly, the goals were to: Establish a comprehensive, national approach for achieving interoperability; Coordinate with other federal agencies; Develop appropriate minimum capabilities for interoperability; Accelerate development of voluntary standards; Encourage open architecture and commercial products; Assist other agencies with research and development; Prioritize, within DHS, research, development, testing and related programs; Establish coordinated guidance for federal grant programs; Provide technical assistance; and Develop and disseminate best practices. The act included a requirement that any request for funding from DHS for interoperable communications "for emergency response providers" be accompanied by an Interoperable Communications Plan, approved by the Secretary. Criteria for the plan were also provided in the act. The act also provided a sense of Congress that the next Congress—the 109 th —should pass legislation supporting the Commission's recommendation to expedite the release of spectrum. This was addressed in the Deficit Reduction Act of 2005 ( P.L. 109-171 ). The Homeland Security Appropriations Act, 2007 The destruction caused by Hurricanes Katrina and Rita in August-September 2005 reinforced the recognition of the need for providing interoperable, interchangeable communications systems for public safety and also revealed the potential weaknesses in existing systems to withstand or recover from catastrophic events. Testimony at numerous hearings following the hurricanes suggested that DHS was responding minimally to congressional mandates for action, most notably as expressed in the language of the Intelligence Reform and Terrorism Prevention Act. Bills subsequently introduced in both the House and the Senate proposed strengthening emergency communications leadership and expanding the scope of the efforts for improvement. Some of these proposals were included in Title VI of the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI—the Post-Katrina Emergency Management Reform Act of 2006—reorganized the Federal Emergency Management Agency (FEMA), gave the agency new powers, and clarified its functions and authorities within DHS. The act also addressed public safety communications in Title VI, Subtitle D—the 21 st Century Emergency Communications Act of 2006. This section created an Office of Emergency Communications (OEC)) and the position of Director, reporting to the Assistant Secretary for Cybersecurity and Communications. The Director was required to take numerous steps to coordinate emergency communications planning, preparedness, and response, particularly at the state and regional level. These efforts were to include coordination with Regional Administrators appointed by the FEMA Administrator to head ten Regional Offices. To assist these efforts, Congress required the creation of Regional Emergency Communications Coordination (RECC) Working Groups. Other responsibilities assigned to the Director included conducting outreach programs, providing technical assistance, coordinating regional working groups, promoting the development of standard operating procedures and best practices, establishing non-proprietary standards for interoperability, developing a national communications plan, working to assure operability and interoperability of communications systems for emergency response, and reviewing grants. Required elements of the National Emergency Communications Plan included establishing requirements for assessments and reports, and an evaluation of the feasibility of developing a mobile communications capability modeled on the Army Signal Corps. The feasibility study was to be done by DHS on its own or in cooperation with the Department of Defense. Congress also required assessments of emergency communications capabilities, including an inventory that identified radio frequencies used by federal departments and agencies. Many of the functions Congress envisioned for the OEC were later assumed by the Command, Control and Interoperability Division in the Directorate of Science and Technology. Regional Emergency Communication Coordination Congress directed the OEC to coordinate with the Regional Emergency Communication Coordination (RECC) Working Groups established by FEMA. These groups could provide a platform for coordinating emergency communications plans among states and were intended to include representatives from many sectors with responsibility for public safety and security. Plans for forming RECCs were announced in December 2007. In 2008 organization charts were developed, graphing how the RECCs were structured and where they would fit in the existing chain-of-command of the Federal Emergency Management Agency (FEMA). A National RECC Coordinator was appointed and plans were announced to appoint administrators for each of the regions. A key proposal for the RECC structure is to "Establish and use the RECC's as a single Federal emergency communications coordination point for Federal interaction with the State, local and tribal governments." It is not clear at this early stage whether the RECCs will become an effective conduit for interaction to develop policies and plan for shared infrastructure or a forum for FEMA's Disaster Operations Directorate to relay guidelines and orders. Congress placed an emphasis on assisting first responders in its statement of RECC goals but did not limit the RECCs' ability to set more inclusive goals. Based on the role of RECCs as assigned by the National Emergency Communications Plan, their focus will be narrowly on assisting first responders to prepare for disaster response. Leadership will be provided by FEMA and governance will be through the chain-of-command of the agencies' directorates. The formation of the regional working groups, the RECCs, responded in part to requests from the public safety community to expand interoperable communications planning to include the second tier of emergency workers. Non-federal members of the RECC are to include first responders, state and local officials and emergency managers, and public safety answering points (911 call centers). Additionally, RECC working groups are to coordinate with a variety of communications providers (such as wireless carriers and cable operators), hospitals, utilities, emergency evacuation transit services, ambulance services, amateur radio operators, and others as appropriate. National Emergency Communications Plan In compliance with requirements of the Homeland Security Appropriations Act, 2007, the Department of Homeland Security issued the National Emergency Communications Plan (NECP) in July 2008. The NECP sets three goals for levels of interoperability By 2010, 90% of all areas designated within the Urban Areas Security Initiative (UASI) will demonstrate response-level emergency communications, as defined in grant programs, within one hour for routine events involving multiple jurisdictions and agencies. By 2011, 75% of non-UASI will have achieved the goal set for UASIs. By 2013, 75% of all jurisdictions will be able to demonstrate response-level emergency communications within three hours for a significant incident as outlined in national planning scenarios. These jurisdictional goals are to be knit together into a national communications capability through program efforts such as FEMA's Regional Emergency Communications Coordination (RECC) Working Group. The three goals are bolstered by seven objectives for improving emergency communications for first responders, dealing largely with organization and coordination. Each of these objectives have "Supporting Initiatives" and milestones. Deficit Reduction Act of 2005 and the Public Safety Interoperability Grant Program Provisions in the Deficit Reduction Act of 2005 planned for the release of spectrum by February 18, 2009 and created a fund to receive spectrum auction proceeds and disburse designated sums to the Treasury and for other purposes, including a grant program of up to $1 billion for public safety agencies. The fund's disbursements were to be administered by the NTIA. At the time, the Congressional Budget Office projected that the grants program for public safety would receive $100 million in FY2007, $370 million in FY2008, $310 million in FY2009 and $220 million in FY2010. However, the 109 th Congress, in its closing hours, passed a bill with a provision requiring that the grants program receive "no less than" $1 billion to be awarded "no later than" September 30, 2007. Language in Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) required some changes in the grant program and reaffirmed the 2007 fiscal year deadline. In February 2007, the NTIA transferred the management of the public safety grant program to DHS, signing a memorandum of understanding (MOU) with the Office of Grants and Training. The MOU included an overview of how the Public Safety Interoperable Communications (PSIC) Grant Program, as it is called, is to be administered. The overview was reiterated and explained in testimony. Both the MOU and the testimony indicate that the priority was to fund needs identified through Tactical Interoperable Communications Plans and Statewide Interoperable Plans developed in conjunction with SAFECOM. On July 18, 2007, the Secretaries of Commerce and Homeland Security jointly announced the details of the PSIC grant program. The program, as announced, was to provide $968,385,000 in funding for all 50 states, the District of Columbia, and U.S. Territories. The announcement of the top-level, statewide allocations met the September 30 deadline set by Congress. The states, however, have additional time to submit their detailed requests. Originally, states were eligible to receive funds through FY2010. New legislation ( P.L. 111-96 ) extends the deadline through FY2012. The status of the PSIC grant program was discussed at a hearing in March 2009. Testimony at the time indicated that all of the states, territories, and the District of Columbia had filed Statewide Communication Interoperability Plans, a prerequisite for receiving funds. Appendix B. Spectrum Chart Below is an excerpt of the 700 MHz band plan that shows the location of public safety allocations and the D Block, and their relation to other adjacent spectrum holdings. The figure below represents the relative locations on the spectrum chart of frequencies assigned for public safety and commercial purposes. The accompanying legend provides the key to the type of license and the amount of spectrum associated with that spectrum. For example, reading from the left, the first band represents 11 MHz of the C Block, which is for commercial purposes. The 11-MHz allocation is in two assignments, at 746-757 MHz and at 776-787MHz. The controversial D Block is two assignments of 5 MHz each; these are contiguous with the two assignments for the Public Safety Broadband License. Note that the figure represents only part of the entire 700 MHz band. Appendix C. Managing Technology and Spectrum Resources Within the federal government, the Department of Homeland Security (DHS) has authority for planning and implementing public safety communications solutions. The Federal Communications Commission (FCC) created a Public Safety and Homeland Security Bureau in 2006 to consolidate its many programs oriented toward public safety. The FCC and DHS have each approached the goal of communications interoperability from a different perspective. The following discussion provides snapshot summaries of the approaches adopted by the two agencies and the technologies and network design concepts that might be applied by the FCC. The section also discusses the trend to Internet-based concepts for networks and spectrum management. Ideas for managing emergency communications have moved along an evolutionary path from the 1990s, when agreement was reached on developing standards for interoperable communications, to the system-of-systems concept embraced by DHS, to the network-oriented proposals of the FCC, Public Safety Spectrum Trust (PSST), National Public Safety Telecommunications Council (NPSTC), and others. The ubiquity of the Internet and the standards that support it are leading to a new path for managing spectrum and network resources. System-of-Systems The communications solutions advocated by DHS have focused on developing what is often referred to as a "system of systems." The choice of terminology implies that independent systems are made to work with each other through bridges and gateways that connect incompatible technology choices into a larger system. This approach maximizes the value of past investments but does not represent an efficient use of resources. Backward-compatible radio equipment that can support several generations of different technologies, for example, is more expensive than equipment designed to work only with newer network technology. Spectrum usage is inefficient because more than one channel is often used to convey a single communication from system to system. Essentially, the system-of-systems concept starts with the radio user and works its way up, adding and connecting the different levels of command and control needed to respond to specific situations. DHS refers to this as a practitioner-driven approach. Many of the DHS programs for public safety have focused on achieving interoperability within the existing framework of proprietary systems and by expanding the diffusion of Project 25, or P25, standards. Backward compatibility with legacy systems is one of the principles behind the digital radio and interoperable gateway standards of P25. Its use is advocated by many public safety agencies and by DHS. P25-compliant technologies coordinate and connect specified radio channels. Currently, the Command, Control, and Interoperability Division of the Science and Technology Directorate at DHS is testing and evaluating P25 multi-band radios. The initial phase of the program was announced July 1, 2009. Results will be documented in a report that "will provide details to manufacturers about the needs of the response community and assist officials in making informed radio purchasing decisions in the future." Shared Networks The FCC has taken a more network-oriented approach to achieving interoperability by laying out a plan for a national network at 700 MHz that would eventually reach every community with the same technology and connectivity, providing a common base for individual applications. Network-centric solutions start with the network framework, which sets a common standard. Any traffic that wants to use this network has to accommodate that standard (although it can use additional standards as well). Network-centric solutions tend to be managed from the top down, with centralized control of core decisions. The FCC, primarily through the Emergency Response Interoperability Center (ERIC), is attempting to structure a central administration to lead the decision-making process for implementing a nationwide public safety network. Interconnected Networks The PSST was assigned the Public Safety Broadband License (PSBL) as part of the FCC's plans to create a public-private partnership. The PSST considers that the new broadband network will serve primarily as a data exchange network (text, photos, video, etc.) that would operate as an adjunct to the current mission critical public safety voice systems. Existing voice communications systems and new narrowband systems at 700 MHz would operate independently of the broadband network with an interface to be established in a future development phase. The Board of Directors of the PSST received recommendations from NPSTC on how to achieve interoperability among different public safety networks operating in 700 MHz allocations for public safety broadband. These were submitted to the FCC for consideration in December 2009. The recommendations were oriented toward paving the way for the early construction of networks by states and cities. The interoperable framework provided by the task force is based on connecting independent public safety networks. Interoperability would be facilitated by a number of guiding principles and requirements, such as access to the Internet and IP-based voice interoperability gateways. In general, the recommendations of the task force would facilitate these expectations. Regional (including state and local) broadband systems will operate within the framework of a Nationwide Broadband Data System (NBDS). The NBDS will use Long Term Evolution (LTE) technology and it is assumed that regional systems will as well. Defining minimum requirements for public safety broadband networks at 700 MHz will enable national interoperability. An advisory council will provide governance among individual operators and the PSBL. Public-private partnerships will be allowed. Different scenarios for assignment of the D Block will be accommodated by the Task Force requirements and recommendations. Regional operators will have the right to deploy systems in advance of final requirements and to select and deploy applications beyond what is required. Technical requirements will be specified to facilitate roaming and interoperability. Those that have filed requests to the FCC for permission to build systems will be able to fulfill their 700 MHz broadband objectives as quickly as possible. Best practices for network architecture and configurations will be provided but not required. Among other recommendations made to the FCC in the same filing, the PSST asked the FCC to authorize it "to establish the technology standard for the 700 MHz nationwide public safety broadband network...." The Association for Public-Safety Communications Officials—International (APCO) has announced its intention to develop standards for the broadband networks at 700 MHz. Specifically, APCO "will identify gaps and set standards in those areas where none currently exist and where standards are necessary to ensure roaming and interoperability ..." and will "establish basic requirements necessary to ensure interoperability" for the network. APCO is accredited by the American National Standards Institute as a Standards Development Organization. IP-Enabled Networks As part of the discussion about how to bring broadband to public safety users, several organizations recommended Long Term Evolution (LTE), a fourth-generation wireless technology, for the underlying network infrastructure on the 700 MHz frequencies. The FCC has concluded that it will require LTE technology for the network infrastructure for the D Block and the PSBL. Fourth-generation technologies such as LTE are being developed to use Internet Protocol (IP) standards, assuring a high degree of interoperability among other IP-based technologies. Developing standards for public safety interfaces on LTE networks could represent a shift in concept for public safety communications—to IP-based platforms and communications management at the network level. Some public safety representatives have shown a willingness to move from a model that connects disparate systems to a model that provides interoperability through network administration. Some states have decided to deploy IP-enabled fiber optic networks to support their communications needs, including those of public safety. These networks use IP standards to achieve the same level of interoperability, availability, and flexibility associated with the Internet but do not necessarily link to the Internet. Congress has recognized the value of IP-based networks for 911 communications by, for example, requiring the NTIA and the National Highway Traffic Safety Administration to prepare recommendations that would support the transition of out-dated 911 systems to IP-based technologies. Congress has not previously considered giving the same attention to the adoption of IP-based technologies for public safety radio communications. Adaptive Network Technologies The FCC, DHS, PSST, and NPSTC approaches to interoperability, although different in perspective, are all based on managing radio channels as the way to meet common goals such as minimizing interference among wireless transmissions. The concept of channel management dates to the development of the radio telegraph by Guglielmo Marconi and his contemporaries. In the United States, mitigation of radio interference was addressed in what is commonly known as the Radio Act of 1912. Passage of the bill, versions of which had been introduced in earlier Congresses, was prompted in part by Marconi's testimony at a congressional hearing investigating the sinking of the Titanic. The act established the basic principle of assigning licenses for specific channels through a central federal authority, which became the FCC with the passage of the Communications Act of 1934. In the age of the Internet, however, channel management is an inefficient way to provide spectrum capacity for mobile broadband. Innovation points to network-centric spectrum management as an effective way to provide spectrum capacity to meet the bandwidth needs of fourth-generation wireless devices. Network-centric technologies organize the transmission of radio signals along the same principle as the Internet. A transmission moves from origination to destination not along a fixed path but by passing from one available node to the next. Pooling resources, one of the concepts that powers the Internet now, is likely to become the dominant principle for spectrum management in the future. The new generations of iPhones and Android-based mobile devices provide early examples of how the Internet is likely to change wireless communications as more and more of the underlying network infrastructure is converted to IP-based standards. The devices use Internet protocols to perform many of its functions; these require time and space—spectrum capacity—to operate. The core Internet Protocol (TCP/IP) was conceived to work with high capacity landline networks. In a wireless environment, IP applications are bandwidth-intensive, consuming large amounts of channel capacity. Although future generations of mobile broadband devices will no doubt use IP applications that have been refined for the wireless environment, additional capacity will still be required to handle expected increases in activity. More efficient spectrum use can be realized by integrating adaptive networking technologies, such as dynamic spectrum access (DSA), with IP-based commercial network technologies such as LTE. Radios using DSA chipsets are more effective at managing interference and congestion than the channel management techniques currently in use. If a channel's link fails, the radio is cut off. When radios are networked using DSA, individual communications nodes continue to operate and can compensate for failed links. The effects of interference are manageable rather than catastrophic. The network is used to overcome radio limitations. Adaptive networking has the potential to organize radio communications to achieve the same kinds of benefits that have been seen to accrue with the transition from proprietary data networks to the Internet. Adaptive technologies are designed to use pooled spectrum resources. Pooling spectrum licenses goes beyond sharing. Licenses are aggregated and specific ownership of channels becomes secondary to the common goal of maximizing network performance. For many, the construction of a new network for public safety communications represents an opportunity to reap the perceived benefits of shared infrastructure and pooled spectrum by using the technologies and principles of network-centric operations.

Effective emergency response is dependent on wireless communications. To minimize communications failures during and after a crisis requires ongoing improvements in emergency communications capacity and capability. The availability of radio frequency spectrum is considered essential to developing a modern, interoperable communications network for public safety. Also critical are (1) building the network to use this spectrum and (2) developing and deploying the radios to the new standards required for mobile broadband. Beyond recognition of these common needs and goals, opinions diverge on such issues as how much spectrum should be made available for public safety broadband communications, how communications networks should be configured, who should own them, who should build them, who should operate them, who should be allowed to use them, and how they might be paid for. Three bills that would increase the amount of radio frequency spectrum assigned for public safety use have been introduced. The bills would require that the Federal Communications Commission (FCC) transfer a spectrum license intended for commercial use, known as the D Block, to the license-holder for adjacent frequencies already assigned to public safety, known as the Public Safety Broadband License. The Broadband for First Responders Act of 2010 (H.R. 5081, Representative King) deals primarily with reassignment of the D Block. Two Senate bills contain similar provisions for spectrum assignment and would add a number of new provisions, including using the proceeds of future spectrum auctions to fund the needed network (S. 3625, Senator Lieberman and S. 3756, Senator Rockefeller). The development of public safety radios for broadband would be expedited by companion bills H.R. 5907 (Representative Harman) and S. 3731 (Senator Warner). Public safety operations would benefit from the radio-development initiative regardless of the eventual assignment of the D Block. Congress may consider additional legislation or oversight to meet desired levels of emergency communications performance. Among the actions that Congress might take, those dealing with governance and funding are often cited by public safety officials and others as the areas most in need of its consideration. Many have recommended that, for the proposed broadband network projects to go forward on a sustainable footing, funding sources need to be identified for investment and operating expenses over the long term. To ensure the resources are wisely used, some analysts point to the primacy of putting in place a well-grounded but flexible governance structure. The debate on spectrum assignment has in recent months dominated the attention of Congress and other policy makers. Meanwhile, several states and urban areas including the San Francisco Bay Area, Boston, and the State of Mississippi have submitted detailed plans for building the nation's first broadband networks that might serve as a practical framework for evaluating policy options. These plans, developed according to FCC requirements, share many common features. Notable from a policy point of view are several recommendations that provide a common theme in these early submissions. These may be summarized as: (1) sufficient funding is essential; (2) networks that either cover an area designated as eligible for Urban Area Security Initiative programs, or cover a regional area—that is, large and/or densely populated areas—are more efficient to build, operate, and govern; (3) several critical technologies and standards, such as for radios, must be developed before the networks can be fully effective; (4) some form of governing sur-structure must be in place to assure uniformity of core operations while allowing for local customization of public safety applications; and (5) collaboration with commercial partners is important for mustering all the skills and knowledge resources needed for developing the leading-edge broadband networks that are the goals of the submitted plans.

Introduction Imports of crude oil derived from Canadian oil sands have increased dramatically over the past decade. Oil spills involving oil-sands-derived crude oils have generated interest from policymakers and a variety of stakeholders. Several oil spills, including both the 2010 Enbridge pipeline spill in Michigan and the 2013 ExxonMobil pipeline spill in Arkansas, involved this material. (See text box below.) Oil spill liability, cleanup, and compensation issues are addressed by the Oil Pollution Act of 1990. The Oil Spill Liability Trust Fund (OSLTF) provides an immediate source of federal funding to respond to oil spills in a timely manner. The National Pollution Funds Center (NPFC), an office within the Coast Guard, manages the trust fund. The monies from the OSLTF can be used to respond to a wide variety of oil types, including oil-sands-derived crude oils. The OSLTF is financed primarily by a per-barrel tax on domestic crude oil and imported crude oil and petroleum products. In 2017, the tax increased from 8 cents to 9 cents per barrel. Based on language in a 1980 House committee report, the Internal Revenue Service (IRS) concluded in 2011 that oil-sands-derived crude oils are not subject to this excise tax. This issue received attention in recent Congresses and from the prior Administration. The Obama Administration's budget proposals in recent years called for statutory changes that would have subjected oil sands to the per-barrel tax. Members in the 113 th Congress introduced several proposals to address this issue, but the bills did not receive committee action. This issue has received considerable interest in the 114 th Congress, as policymakers debated the approval of the Keystone XL pipeline, which would transport 830,000 barrels of oil-sands-derived crude from Canada to U.S. refineries. On November 6, 2015, Secretary of State John Kerry announced that "the national interest of the United States would be best served by denying TransCanada a presidential permit for the Keystone XL pipeline." Members of Congress and stakeholder groups have expressed both support for, and opposition to, the State Department's decision. The first section of this report provides a background of oil sands resources. The second section discusses the OSLTF, including authorized uses and revenue sources. The third section compares the scope of oil subject to the per-barrel tax (which funds the OSLTF) versus the scope of oil that triggers activities under the Oil Pollution Act and discusses the potential implications of the different scopes. The fourth section provides details of recent legislative activity. The final section offers concluding observations. Oil Sands—Background The terms "oil sands" and "tar sands" are often used interchangeably to describe a particular type of nonconventional oil deposit that is found throughout the world in varying quantities. Opponents of the resource's development often use the term "tar sands," which arguably carries a negative connotation. Proponents typically refer to the material as oil sands. Some federal government resources refer to the deposits as "tar sands," some use "oil sands," and some have used both terms. In its documents evaluating the Keystone XL pipeline, the Department of State refers to the material as oil sands. EPA has followed suit in its letters to the Department of State concerning the pipeline's environmental impacts. In general, this report uses the term "oil sands" to describe the deposits in the ground and "oil-sands-derived crude oil" to describe the material imported into the United States. The use of this term is not intended to reflect a point of view but to adopt the term most commonly used by the primary executive agencies involved in recent oil sands policy issues. These terms generally refer to a mixture of sand, clay and other minerals, water, and bitumen. The bitumen component of this mixture is a form of crude oil that has undergone degradation over millions of years. After oil producers separate the bitumen from the mixture, it is very dense and highly viscous (i.e., resistant to flow), having the consistency of molasses at room temperature. This property lends itself well to making asphalt: Bitumen deposits have been mined since antiquity for use as sealants and paving materials. In recent decades, the natural bitumen in oil sands—particularly deposits in Alberta, Canada—has been extracted to generate substantial quantities of crude oil and related substances. The Alberta deposits are estimated to be one of the largest accumulations of oil in the world, contributing to Canada's third-place ranking for estimated proven oil reserves (behind Venezuela and Saudi Arabia). Canadian production of oil-sands-derived crude oil has increased dramatically in recent years. If approved and constructed, the Keystone XL pipeline would add to existing cross-border pipelines in transporting oil-sands-derived crude oils from Alberta into the United States. Companies developing Alberta's oil sands resources process or dilute the natural bitumen in order to transport it via pipeline. This processed/diluted bitumen falls into three general categories: 1. Upgraded bitumen, or synthetic crude oil (SCO) is produced from bitumen at a refinery that turns the very heavy hydrocarbons into a lighter material. 2. Diluted b itumen (Dilb it) is bitumen that is blended with lighter hydrocarbons—typically natural gas condensates—to create a lighter, less viscous, and more easily transportable material. Dilbit may be blended as 25% to 30% condensate and 70% to 75% bitumen. 3. Synthetic bitumen (Synbit) is typically a combination of bitumen and SCO. Blending the lighter SCO with the heavier bitumen results in a product that more closely resembles conventional crude oil. Typically the ratio is 50% synthetic crude and 50% bitumen, but blends—and their resulting properties—may vary significantly. Crude oil imports from Canada accounted for the largest percentage (43%) of imports by nation (based on 2015 data). In 2005, the United States imported approximately 217 million barrels of oil-sands-derived crude oils from Canada. In 2015, that figure increased to 587 million barrels, accounting for approximately 22% of crude oil imports from all nations. Figure 1 illustrates the proportions of crude oil types that Canada has exported to the United States in recent years. The figure indicates that "blended bitumen" exports, which include both Dilbit and Synbit, have more than tripled since 2005. They are also expected to constitute most of the growth in oil sands production in the foreseeable future. Oil Spill Liability Trust Fund Prior to the Oil Pollution Act of 1990 (OPA), federal funding for oil spill response was generally considered inadequate, and damages recovery was difficult for parties affected by oil spills. The 1989 Exxon Valdez oil spill highlighted many of these concerns. To help address these issues, Congress established the Oil Spill Liability Trust Fund (OSLTF). Although Congress created the OSLTF in 1986, Congress did not authorize its use or provide its funding until after the 1989 Exxon Valdez oil spill. In 1990, OPA provided the statutory authorization necessary to put the fund in motion. Executive Order 12777 (signed October 18, 1991) authorized the Coast Guard to create the National Pollution Funds Center (NPFC) to manage the trust fund. Uses of the Fund Pursuant to OPA Section 1012, the trust fund may be used for several specific purposes: Payment of removal costs, including monitoring removal actions, by federal authorities or state officials; Payment of the costs incurred by the federal and state trustees of natural resources for assessing the injuries to natural resources caused by an oil spill and developing and implementing the plans to restore or replace the injured natural resources; Payment of removal costs related to a discharge from a foreign offshore unit; Payment of parties' claims for uncompensated removal costs and for uncompensated damages; Payment of federal administrative and operational costs, including research and development; and Payment of loans to provide interim assistance to fishermen and aquaculture claimants impacted by an oil spill. The above funding authorities from the OSLTF are subject to appropriations, with several exceptions. Two exceptions stand out: First, the NPFC has immediate access to $50 million each fiscal year for removal activities and natural resource damage assessment. Although not described as such in the statute, the NPFC refers to this funding as the "Emergency Fund." Second, the NPFC's payments of claims for removal costs or economic and natural resource damages are not subject to appropriations. However, the NPFC is limited in the total amount of payments—removal costs and natural resource and economic damages—that may be awarded for each incident. Under current law, the per-incident cap is $1 billion. Sources of Fund Revenue Although it created the OSLTF in 1986, Congress did not authorize its use or provide its funding until after the 1989 Exxon Valdez incident. OPA provided the statutory authorization necessary to put the fund in motion. Through OPA, Congress transferred balances from other federal liability funds into the OSLTF. In other legislation, Congress imposed a 5-cent-per-barrel tax on domestic and imported oil to support the fund. This tax expired on December 31, 1994. However, in April 2006, the tax resumed as required by the Energy Policy Act of 2005 ( P.L. 109-58 ). In addition, the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) increased the tax rate to 8 cents through 2016. At the start of 2017, the rate increased to 9 cents. The tax is scheduled to terminate at the end of 2017. Figure 2 illustrates the receipts, expenditures, and balances of the OSLTF over time. The figure indicates that during the years the per-barrel tax was imposed, the tax was a primary source of revenue for the trust fund. For example, the per-barrel oil tax has provided approximately $499 million per year in the last four fiscal years. As Figure 2 indicates, the "other receipts" category has contributed a substantial portion of revenues in recent years, the vast majority stemming from the 2010 Deepwater Horizon oil spill. Other receipts include earned interest on the unexpended trust fund balance, fees from fines and penalties, and cost recovery from responsible parties. The trust fund will receive additional revenues related to that incident, particularly from Clean Water Act (CWA) civil penalties on BP. In April 2016, a federal court approved a settlement that involved several claims and penalties between BP and the United States and the Gulf of Mexico states impacted by the oil spill. One component of the settlement involves CWA civil penalties. BP is scheduled to pay $5.5 billion in CWA penalties, of which 20% will be deposited into the OSLTF. Per the settlement, BP will make annual payments between 2017 and 2031, depositing approximately $75 million each year into the trust fund. Does the Trust Fund Have a Ceiling? Until 2008, the OSLTF tax provisions (26 U.S.C. §4611) included a mechanism that would suspend the per-barrel oil tax—the fund's primary source of revenue—if the fund's balance reached certain thresholds. This mechanism has been generally described as a "ceiling" for the OSLTF. Although this provision did not set a hard ceiling on the amount of revenue allotted to the fund, the provision had a similar effect. When Congress established the OSLTF in 1986, the statutory language included a provision to terminate the per-barrel oil tax if the tax revenue exceeded $300 million. However, this language was never put into practice. The OSLTF was effectively dormant until Congress passed OPA in 1990 and complementary tax legislation in 1989. Per the 1989 legislation (the Omnibus Budget Reconciliation Act of 1989; P.L. 101-239 ), Congress amended the "ceiling" provisions. The per-barrel tax would be suspended in any calendar quarter if the fund balance reached $1 billion, restarting again if it dipped below that number. In the Energy Policy Act of 2005 ( P.L. 109-58 ), Congress raised this threshold from $1 billion to $2.7 billion. The "ceiling" was eliminated in 2008. The Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ; EESA) repealed the requirement that the tax be suspended if the unobligated balance of the fund exceeded $2.7 billion. In a report from the Senate Committee on Finance ( S.Rept. 110-228 ), which discussed a provision similar to the repealing language of EESA, the committee stated that this change would simplify the administration of the tax. Scope of Taxed Oil vs. Scope of Spilled Oil "Oil" has different meanings in different legal or statutory contexts. For example, "oil" in the context of OPA and OSLTF response authority has a different meaning than "oil" in the context of the Internal Revenue Code (IRC) that established a per-barrel tax to help finance the OSLTF. This difference has generated considerable interest from policymakers in recent months. Oil in the Context of the Internal Revenue Code The statutory provisions that cover the per-barrel oil tax that helps fund the OSLTF are codified in the IRC (Title 26 of the U.S. Code ). Section 4611(a) imposes a per-barrel tax on "crude oil received at a United States refinery;" and "petroleum products entered into the United States for consumption, use, or warehousing." Section 4612 includes definitions for "crude oil," "petroleum products," and "domestic crude oil" for the purposes of the applicability of the per-barrel tax: "The term 'crude oil' includes crude oil condensates and natural gasoline." "The term 'petroleum product' includes crude oil." Sections 4611 and 4612 were first enacted with the passage of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund Act) on December 11, 1980. CERCLA established the above per-barrel tax on oil (and chemical feedstocks and imported derivatives) to support the Hazardous Substance Superfund Trust Fund. A 2011 Technical Advice Memorandum from the IRS stated that "tar sands imported into the United States are not subject to the excise tax imposed by § 4611 of the Internal Revenue Code" (i.e., the per-barrel tax that funds the OSLTF). The 2011 IRS interpretation is based on language from a 1980 House Committee on Ways and Means report leading to the passage of CERCLA, which stated that "the term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass, or refined oil." This committee statement is specifically cited in the IRS memorandum, supporting its conclusion that "tar sands" are not subject to the per-barrel tax. It is unclear whether the IRS means "tar sands" or "liquids from tar sands," as the committee report text suggests. In 1985, leading up to the passage of the Superfund Amendments and Reauthorization Act of 1986 ( P.L. 99-499 ; SARA), the same committee included identical statements in a House report. In addition, the Senate Committee on Finance included identical text in its report during the SARA debate. In 1986, Congress established the OSLTF and amended IRC Section 4611 by adding a separate tax rate that would fund the OSLTF, but the tax did not immediately take effect. In 1989, Congress enacted legislation that required collections of the OSLTF tax (starting January 1, 1990). CRS searched the legislative histories of these acts and did not find further discussion concerning the scope and applicability of the per-barrel tax in Sections 4611 and 4612. However, several CRS reports written in the early 1980s indicate that certain tax code provisions were established to "subsidize synthetic fuels development at various stages of production." According to these reports, during that time period, liquid from tar sands was generally included in the "synthetic fuel" category. Oil in the Context of OPA OPA liability and compensation provisions, including OSLTF expenditures, generally apply to a broader definition of oil. In comparison to the IRC definition, the OPA definition of "oil" states: "[O]il" means oil of any kind or in any form, including petroleum, fuel oil, sludge, oil refuse, and oil mixed with wastes other than dredged spoil, but does not include any substance which is specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9601) and which is subject to the provisions of that Act [42 U.S.C. 9601 et seq.]. This first part of this definition—particularly, "oil of any kind or in any form"—comes from the CWA definition of oil. The wording of that definition goes back to at least 1970. Implications of the Different Scopes Based on the statutory definitions above and the committee report language, oil-sands-derived crude oil likely meets the OPA definition of "oil" but would not meet the definition of crude oil in the context of the OSLTF excise tax. This difference raises several issues. Perhaps the foremost issue is one of equity. Policymakers may consider whether there is a rationale for exempting certain types of crude oils from the excise tax. On the other hand, some may contend the equity concern is overstated, considering the tax is relatively small (9 cents per barrel in 2017) compared to the recent per-barrel prices for crude oil. Although the price of crude oil fluctuates, over the past 10 years (2006-2015), the price of imported crude oil averaged about $85 per barrel (in 2015 dollars). At present, it is unclear to what degree importers of oil-sands-derived crude oils are paying the OSLTF excise tax. For example, ExxonMobil recently stated that it paid the excise tax on its oil-sands-derived crude oil that was involved in the 2013 pipeline spill in Arkansas. Moreover, the IRS memorandum stated that "crude oil and/or petroleum products that are comingled with tar sands are subject to the excise tax on petroleum imposed by § 4611." This statement suggests that the bitumen component in dilbit would not be subject to the tax, while the non-bitumen component would. As mentioned above, the ratio of these components may vary: Dilbit typically includes a mixture of bitumen (70%-75%) and a non-bitumen component (25%-30%), often natural gas condensate. Assuming most importers are not paying the OSLTF excise tax for imported oil sands, the difference in scope could lead to situations in which expenditures from the trust fund are used to clean up spilled oil that was not subject to the tax supporting the trust fund. The OSLTF arguably plays a backup role in terms of response funding during many oil spills. Although the trust fund is available to support oil spill cleanup efforts, the responsible party for an oil spill often provides the primary source of response (i.e., cleanup) funding. The federal government has the statutory authority to direct response activities, including those of the responsible party. Moreover, OPA Section 1015 authorizes the Attorney General (at the request of the Secretary of Homeland Security) to recover costs or damages paid from the OSLTF. Thus, the financial impact to the trust fund could be minimal if the majority of its payments are reimbursed by the responsible parties. This was the case with the 2010 Deepwater Horizon oil spill. However, OPA provides liability limits (or caps) for responsible parties. These limits vary by oil spill source. For example, onshore facilities, including pipelines, have a liability limit for response costs and applicable damages (e.g., natural resource damages and specific economic damages). The Coast Guard issued a final rule in November 2015 that increased this limit from $350 million to $634 million. Liability limits may be an issue at the Enbridge pipeline spill in Michigan. As noted above, Enbridge recently estimated that the company's response costs could reach approximately $1.2 billion, well above the liability limit for an onshore facility. OPA allows responsible parties to seek reimbursement from the trust fund if a party's response costs and damages exceed its liability limit. However, the limits are conditional. First, the liability limits do not apply to situations involving acts of gross negligence or willful misconduct. Second, liability limits do not apply if the violation of a federal safety, construction, or operating requirement proximately caused the spill. Third, parties must report the incident and cooperate with response officials to maintain their liability caps. Therefore, if a party's liability limit remains valid, the OSLTF could effectively pay—up to a per-incident cap of $1 billion—for response costs and applicable damages above a responsible party's liability limit. Estimated Tax Revenues Table 1 lists the annual revenues the OSLTF excise tax has generated since FY2010. Over the last five fiscal years, this tax has generated, on average, $493 million per year. If Congress were to amend the underlying IRC (26 U.S.C. §§4611-4612) to explicitly include oil-sands-derived crude oils, the tax revenue supporting the OSLTF would likely increase. Among other things, the level of the increase would depend upon the degree to which importers of oil sands crude oil are currently paying the excise tax. As mentioned above, it is uncertain whether importers of oil sands crude oils are taking advantage of the exemption. Table 1 provides an estimate of the amount of additional revenue that could be obtained by subjecting oil-sands-derived crude oil to the excise tax. The below estimate assumes that 100% of the imports of Canadian oil sands crude oils are currently not contributing to the excise tax. The Congressional Budget Office (CBO) estimated the additional revenue that would be received if S. 953 (113 th Congress) were enacted. Section 5 of S. 953 would permanently extend the per-barrel financing rate and amend the definition of crude oil to include "any bitumen or bituminous mixture, and any oil derived from a bitumen or bituminous mixture." CBO estimated that this provision would generate $475 million of additional revenue, in aggregate, between 2013 and 2018. In addition, in the Obama Administration's FY2017 budget, the President proposed (1) to include in the OSLTF tax base "other sources of crudes such as those produced from bituminous deposits as well as kerogen-rich rock," and (2) to increase the tax rate to 10 cents per barrel starting in 2017. The budget appendix estimates that this change would provide $127 million in additional revenue to the OSLTF in FY2017. Additional OSLTF Tax Scope Issues Other issues may arise that relate to the scope of oil covered by the OSTLF excise tax. These issues are discussed below. Crude Produced from a Well Another OSLTF excise tax issue that could potentially arise was not considered in the IRS memorandum. In addition to the tax that applies to "crude oil" received at the refinery and imported "petroleum products" (which include crude oil), IRC Section 4611(b) imposes a tax if (A) any domestic crude oil is used in or exported from the United States, and (B) before such use or exportation, no tax was imposed on such crude oil [i.e., at the refinery]. Section 4612 includes a specific definition for "domestic crude oil," which states: any crude oil produced from a well located in the United States (emphasis added). The phrase "from a well" could be important at some juncture. This phrase is neither defined in Sections 4611 or 4612 nor discussed in congressional committee report language. Some may argue that this phrase would limit the scope of the tax on "domestic crude oil." Proposed projects to extract oil sands at several Utah locations would involve mining processes. Currently, about 50% of the Alberta oil sands deposits are extracted through mining processes, and 50% are extracted with in situ operations. This issue may gain attention if Congress were to amend the clarifying statements concerning "crude oil" from the 1980 and 1986 committee report language. For instance, if the definition of "crude oil" in Section 4612 were modified to include tar/oil sands and/or liquids derived from tar/oil sands, such material from Canada would likely be subject to the tax in IRC Section 4611(a). In contrast, some might argue that "domestic crude oil" that is (1) extracted through mining techniques, and (2) used or exported (i.e., not sent to a U.S. refinery) would not meet the applicability of the tax in IRC Section 4611(b). Such a scenario could involve trade complications with Canada, an issue beyond the scope of this report. S. 953 would address this issue by amending Section 4611 to strike the phrase "from a well located." Shale Oil ("Tight Oil") The 1980 House committee report, upon which the IRS based its 2011 memorandum, lists other materials that would not be considered crude oil within the context of OSLTF excise tax provisions. For the reader's sake, the relevant statement is repeated: "the term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass, or refined oil." Policymakers may be particularly interested in the inclusion of "shale oil" in the above list of examples. Shale oil or "tight oil" refers to crude oil trapped in particular geologic formations. In contrast, "oil shale" is a fine-grained sedimentary rock that contains kerogen. Kerogen is solid, insoluble organic matter that results from deposits of organic matter, such as those that eventually form crude oil. There are known deposits of both shale oil and oil shale in the United States. Significant and growing quantities of shale/tight oil are currently being produced. U.S. oil shale deposits, however, are not currently produced at commercial scale. The EIA and industry stakeholders appear to be expressing a preference for the term "tight oil" instead of shale oil, because this material may be found in non-shale rock formations. Whether it is trapped in shale, dolomite, or dense sandstone, tight oil is being produced with similar processes, including horizontal drilling and hydraulic fracturing. Advances in these technologies in recent years have enabled rapid growth in tight oil (and natural gas) production. According to estimates, U.S. tight oil production surpassed 4.8 million barrels per day at the end of 2015, accounting for more than 50% of domestic crude oil production. In 2014, the IRS issued a memorandum that addresses tight oil from the Bakken formation. The IRS concluded that the oil extracted from the Bakken is subject to the per-barrel tax. The IRS memorandum highlighted the term "synthetic petroleum" from the 1980 House report discussed above. The IRS stated: Bakken tight oil is not synthetic petroleum, nor does it require upgrading before being refined. Bakken tight oil is crude oil that is usable by refineries immediately upon extraction. It is clear that Bakken tight oil is not the type of product that the legislative history to §§ 4611 and 4612 indicates should be exempt from tax. Legislative Activities As of the date of this report, Members in the 115 th Congress have not proposed legislation addressing this issue. Members offered several proposals in prior Congresses, as discussed below. 114th Congress Several Members proposed legislation that would have specifically included oil-sands-derived crude oils within the scope of the per-barrel tax. These bills are listed below in chronological order by their date of introduction: H.R. 214 (Blumenauer, introduced January 8, 2015), the Tar Sands Tax Loophole Elimination Act. S. 187 (Markey, introduced January 16, 2015), the Tar Sands Tax Loophole Elimination Act. H.R. 1930 (Ellison, introduced April 22, 2015), the End Polluter Welfare Act of 2015. S. 1041 (Sanders, introduced April 22, 2015), the End Polluter Welfare Act of 2015. H.R. 2768 (Blumenauer, introduced June 15, 2015), the Superfund Reinvestment Act. S. 2400 (Booker, introduced December 14, 2015), the Superfund Polluter Pays Restoration Act of 2015. In addition, several Members offered OSLTF amendments (e.g., S.Amdt. 25 , S.Amdt. 27 , S.Amdt. 38 , and S.Amdt. 50 ) to the Keystone XL Pipeline Act ( S. 1 ), which would have authorized the construction and operation of the Keystone XL pipeline. S. 1 passed the Senate (January 29, 2015) and the House (February 11, 2015), but President Obama vetoed the legislation (February 24, 2015). A vote to overturn the veto failed in the Senate (March 4, 2015). 113th Congress Several Members in the 113 th Congress proposed legislation that would have specifically included oil-sands-derived crude oils within the scope of the per-barrel tax. These bills are listed below in chronological order by their date of introduction: S. 268 (Levin, introduced February 11, 2013). H.R. 786 (Markey, introduced February 15, 2013), the Tar Sands Tax Loophole Elimination Act. S. 953 (Reed, introduced May 14, 2013), the Student Loan Affordability Act. Concluding Observations The different definitions of "oil" in two distinct but related contexts may create situations in which expenditures from the OSLTF are used to address discharges of "oil" that were not subject to the tax supporting the cleanup fund. As noted above, such a scenario may not substantially impact the OSLTF unless the federal government were unable to recover the trust fund's costs from a responsible party (or parties). Regardless, the different definitions raise a potential equity concern. The IRS interpretation of the definition of "crude oil" is based on a statement from a committee report from 1980 that was repeated in 1986. At that time, U.S. deposits of oil sands were known but not extracted on a commercial scale for energy purposes. This remains the case today, although some parties are expected to begin operations to extract deposits in Utah. Canadian oil sands accounted for a relatively minor proportion of Canadian crude oil production (0.6%) in 1980. However, Canadian oil sands production has steadily increased since that time. Moreover, the 1980 committee report specifically exempted "synthetic petroleum, e.g., shale oil, liquids from coal, tar sands" from the definition of "crude oil." At that time, virtually all Canadian oil sands production involved mining operations that subsequently upgraded the bitumen to "synthetic crude oil" before transporting it to the United States. In more recent years, Canadian production of oil sands has included in situ operations that have predominantly employed the process of blending the bitumen with diluents to facilitate transport. Some may assert that blended bitumen would not be considered "synthetic petroleum," but others may argue that blended bitumen would still be considered "liquids from tar sands." Further, some Canadian mining operations have also begun to blend bitumen for transport as opposed to upgrading. Policymakers may choose to reexamine the rationale for excluding particular materials from the definition of "crude oil" in the context of the IRC. The tax code's definition of "domestic crude oil" may also be subject to reassessment if U.S. oil sands resources become commercially viable for energy purposes.

In 2005, the United States imported approximately 217 million barrels of oil-sands-derived crude oils from Canada. In 2015, that figure increased to 587 million barrels, accounting for approximately 22% of crude oil imports from all nations. Pipeline oil spills, including the 2010 Enbridge spill in Michigan and the 2013 ExxonMobil spill in Arkansas, involved this material and generated interest from policymakers and a variety of stakeholders. The Oil Spill Liability Trust Fund (OSLTF) provides an immediate source of federal funding to respond to oil spills in a timely manner. Monies from the OSLTF can be used to respond to a wide variety of oil types, including oil-sands-derived crude oils. The OSLTF is primarily financed by a 9-cents-per-barrel tax on domestic crude oil and imported crude oil and petroleum products (up from 8 cents per barrel in 2016). In the context of the per-barrel OSLTF tax provision, a 1980 House committee report stated that "the term crude oil does not include synthetic petroleum, e.g., shale oil, liquids from coal, tar sands, or biomass, or refined oil." Based on that statement, the Internal Revenue Service (IRS) concluded that oil-sands-derived crude oils are not subject to the OSLTF excise tax. This determination raises several issues. Perhaps the foremost issue is one of equity. Policymakers may consider whether there is a rationale for exempting certain types of crude oils from the excise tax. At present, it is unclear to what degree importers of oil-sands-derived crude oils are paying the OSLTF excise tax. The different contexts for "oil" could lead to situations in which expenditures from the trust fund are used to clean up oil that was not subject to the tax. However, the OSLTF arguably plays a backup role in terms of response funding during many oil spills. The responsible party for an oil spill often provides the primary source of response (i.e., cleanup) funding, and the federal government may recover costs or damages paid from the OSLTF. Thus, the financial impact to the trust fund could be minimal if the majority of its payments are reimbursed by the responsible parties. Nonetheless, the liability of responsible parties may be limited under certain conditions. In those situations, the OSLTF could effectively pay—up to a per-incident cap of $1 billion—for response costs and applicable damages above the liability limit. In the 114th Congress, Members offered several legislative proposals that would have specifically included oil-sands-derived crude oils within the scope of the per-barrel tax. In general, the proposals would have modified the definition of "crude oil" in the OSLTF tax authority (26 U.S.C. §4612) to include oil-sands-derived crude oil, often described in the amendments as "any bitumen or bituminous mixture, any oil derived from a bitumen or bituminous mixture." In addition, recent budget proposals from the Obama Administration called for statutory changes that would subject oil sands to the per-barrel tax. If Congress were to explicitly include oil-sands-derived crude oils within the scope of the per-barrel OSLTF tax, the revenue supporting the OSLTF would likely increase. Over the last five fiscal years, this tax has generated, on average, about $500 million per year. Based on import data of Canadian oil-sands-derived crude oil, the tax would have increased by approximately $47 million in 2016, assuming that 100% of the imports of Canadian oil sands crude oils are currently not paying the tax.

Introduction Health plans and health care providers and their business associates are subject to the federal health information privacy regulation (45 CFR Parts 160, 164). The privacy rule gives patients the right of access totheir medical information and prohibits health plans and health care providers from using or disclosingindividually identifiable information without a patient's written authorization except as expressly permitted orrequired by the rule. For routine health care operations, including treatment and payment, plans and providersmay use and disclose health information without the individual's authorization. In certain other circumstances(e.g., disclosures to family members and friends), the rule requires plans and providers to give the individualthe opportunity to object to the disclosure. The rule also permits the use and disclosure of health informationwithout the individual's permission for various specified activities (e.g., public health oversight, lawenforcement) that are not directly connected to the treatment of the individual. For uses and disclosures that arenot permitted by the rule, plans and providers must obtain a patient's written authorization. They must alsohave in place reasonable administrative, technical, and physical safeguards to protect patient information fromintentional or unintentional uses or disclosures that are in violation of the rule. The health privacy rule is one of several new standards mandated by the 1996 Health Insurance Portability and Accountability Act (HIPAA) to support the growth of electronic record keeping and claims processing in thenation's health care system. Under HIPAA, the Secretary of Health and Human Services (HHS) has issuedelectronic format and data standards for several routine administrative transactions between plans and providers(e.g., claims for payment). The Secretary has also issued security standards to safeguard electronic patientinformation against unauthorized access, use, and disclosure. Most plans and providers have until April 21,2005, to comply with the security standards. The HIPAA privacy and security standards have helped lay the groundwork for the adoption of information technology (IT) systems in health care to support the electronic collection and exchange of patient information. Developing a secure platform to protect confidential health information is central to the growth of a nationalhealth information infrastructure that allows health care providers to share patient information. A small butgrowing number of communities and health care systems around the country have developed electronic medicalrecords and established secure networks for the exchange of health data among providers, patients, and otherauthorized users. The creation of regional networks is seen as a critical step toward the goal of interconnectingthe health care system nationwide. The handling of electronic patient information by these networks hasimportant and, as yet, not fully understood implications for the privacy rule, which was developed with thetraditional paper-based system of medical records in mind. Questions and Answers about the Health Privacy Rule Who Is Covered? As specified under HIPAA, the privacy regulation applies to three groups of entities: (i) individual and group health plans that provide or pay formedical care; (ii) health care clearinghouses (i.e., entities that facilitate and process the flow of informationbetween health care providers and payers); and (iii) health care providers who transmit health informationelectronically in a standard format in connection with one of the HIPAA-specified transactions, or who rely onthird-party billing services to conduct such transactions. The rule, therefore, does not apply directly to otherentities that collect and maintain health information such as life insurers, researchers, employers (unless theyare acting as providers or plans), and public health officials. However, business associates with whom coveredentities share health information are covered. Business associates include persons who provide legal, actuarial,accounting, data aggregation, management, administrative, accreditation, or financial services to or for acovered entity. The rule permits a covered entity to disclose health information to a business associate or toallow the business associate to create or receive health information on its behalf, provided both parties sign awritten contract that essentially binds the business associate to the covered entity's privacy practices. What Types of Health Information Are Covered? The rule covers all individually identifiable health information that is created or received by a covered entity, includinggenetic tests and information about an individual's family history. It applies to both paper and electronicrecords, as well as oral communications. Health information from which all personal identifiers have beenremoved is not subject to the rule. Can Patients Access and Amend Their Health Information? Yes, covered entities must allow patients to inspect or obtain a copy of their health information, except incertain limited circumstances. Covered entities may charge a reasonable, cost-based copying fee. Patients mayalso request amendment or correction of information that is incorrect or incomplete. Finally, patients have theright to receive a detailed accounting of certain types of disclosures of their health information made bycovered entities during the past six years. Disclosures for routine health care operations and those madepursuant to an authorization (see below) are exempt from the accounting requirement. How May Plans and Providers Use and Disclose Patient Information? The privacy rule places certain limitations on when and how health plans andhealth care providers may use and disclose medical information. Generally, plans and providers may use anddisclose health information for their own treatment, payment, and health care operations (TPO) without theindividual's authorization and with few restrictions. A covered entity may also disclose information for: thetreatment and payment activities of another provider; the payment activities of another health plan; and forcertain health care operations of another covered entity, if each entity has a relationship with the patient. Forexample, a physician can mail or fax medical test results or a patient's medical record to a specialist whointends to treat the patient, provided that "reasonable safeguards" are used. Patients may request that coveredentities restrict the use and disclosure of their information for TPO, but covered entities are not required toagree to such a request. The privacy rule also permits the disclosure of health information without a patient's authorization for the following specified national priority activities, consistent with other applicable laws and regulations. First,disclosures may be made for public health purposes (e.g., reporting diseases, collecting vitalstatistics), asrequired by state and federal law. Second, health information may be disclosed to public agencies to conduct health oversight activities such as audits; inspections; civil, criminal, or administrativeproceedings; and otheractivities necessary for oversight of the health care system. Third, disclosures may be made to lawenforcement officials pursuant to a warrant, subpoena, or order issued by a judicial officer, or pursuantto agrand jury subpoena. Disclosures for law enforcement purposes are also permitted pursuant to anadministrative subpoena or summons where a three-part test is met (i.e., the information is relevant, the requestis specific, and non-identifiable information could not reasonably be used). Fourth, health information may bedisclosed in judicial and administrative proceedings if the request for the information is madethrough orpursuant to a court order. Fifth, covered entities may disclose health information to researchers without apatient's authorization, provided an Institutional Review Board (IRB) or an equivalent, newly formed "privacyboard" reviews the research protocol and waives the authorization requirement. (1) Additionally, health information may be disclosed without authorization: (i) to coroners, medical examiners, and funeral directors; (ii) to workers' compensation programs; (iii) to a government authority authorized toreceive reports of abuse, neglect, or domestic violence; (iv) to organizations in order to facilitate organ, eye,and tissue donation and transplantation; (v) to government agencies for various specialized functions (e.g.,national security and intelligence activities); (vi) to avert a serious threat to health or safety; (vii) and in othersituations as required by law. For the most part, the privacy rule addresses permissible uses and disclosures. HHS expects covered entities torely on their professional judgement in deciding whether to permit the use or disclosure of health information. Covered entities are required to disclose information only to the individual who is the subject of theinformation and to HHS for enforcement of the rule. For all uses and disclosures of health information that arenot otherwise required or permitted by the rule, covered entities must obtain a patient's written authorization(e.g., releasing information to financial institutions that offer mortgages and other types of loans, or sellingmailing lists to marketing companies). Authorization forms must contain certain specified core elements including a description of the health information to be used or disclosed and the identity of the recipient of the information. In general, a coveredhealth care provider may not condition treatment on receiving a patient's authorization. Health plans maycondition enrollment or eligibility for benefits on the provision of an authorization prior to an individual'senrollment in the plan. Patients may in writing revoke their authorization at any time. Can Medical Information Be Shared with a Patient's Family or Friends? Yes, the rule permits covered entities to disclose information to a family member,relative, close friend, or other person identified by the individual. Only information that is directly relevant tosuch person's involvement with the individual's care may be shared. If the individual is present and able tomake health care decisions, the covered entity may disclose information provided (1) the patient has beengiven, in advance, the opportunity to object to any disclosures, or (2) the covered entity, using professionaljudgment, reasonably infers that the patient does not object. In an emergency situation or if the patient is notpresent, the covered entity may use its professional judgment and experience with common practice in decidingwhether a disclosure is appropriate. HHS has repeatedly stated that it is not the intent of the rule to impedecommon health care practices (e.g., hospitals discussing treatment options with spouses and relatives, andfamily members picking up a prescription). Does the Rule Restrict Parental Involvement and Notification? In general, a parent is deemed to have the rights associated with a minor'shealth information, including the right to authorize disclosure or to request access to the information. But if aminor is authorized by law to consent to treatment and has consented to care (with or without the consent of aparent), or if the parent has assented to an agreement of confidentiality between a provider and a minor, thenthe minor has the exclusive rights associated with that information. The rule, however, defers to state parentalnotification laws. It allows covered entities to disclose a minor's information to a parent (or provide the parentwith access to such information) if such disclosure is permitted or required by state law. Similarly, disclosureto (and access by) a parent is prohibited where prohibited by state law. Where state law is silent or unclearabout parental notification, the rule permits a covered entity to provide or deny access to the parent providedthat action is consistent with state law. Are There Limits on the Amount of Information Disclosed? The rule requires that whenever a covered entity uses or discloses health information, or requests suchinformation from another covered entity, it must make a reasonable effort to limit the information to theminimum amount necessary to accomplish the intended purpose of the use or disclosure. The minimumnecessary standard does not apply to: disclosures to or requests by a provider for treatment purposes;disclosures made to patients upon their request; disclosures made to the Secretary to enforce compliance;authorized uses or disclosures; and uses or disclosures that are required by law. What about Incidental Disclosures? Incidental uses and disclosures of health information that occur as a result of a use or disclosure that is otherwise permitted underthe privacy rule are not considered violations of the rule, provided that the covered entity has met thereasonable safeguards and minimum necessary standards. Examples of incidental uses and disclosures includepatient sign-in sheets, bedside charts, and confidential conversations that are inadvertently overheard by others. Are Covered Entities Required to Explain Their Privacy Practices to Patients? Health plans and health care providers must provide patients with a written notice oftheir privacy practices. Plans are required to give notice at enrollment. Providers that have a direct treatmentrelationship with the patient are required to give notice at the date of first service delivery and, except inemergency situations, make a good faith effort to obtain a written acknowledgment from the patient of receiptof the notice. The notice must include a description of the patient's rights, the legal duties of the coveredentity, and a description of the types of uses and disclosures of information that are permitted, including thosethat do not require an authorization. Does the Rule Restrict Employers' Access to Health Information? The rule permits a group health plan to disclose individually identifiable healthinformation to an employer that sponsors the plan, provided the information is used only for planadministration purposes. In order for a group health plan to disclose health information to a plan sponsor, theplan documents must be amended so that they limit the uses and disclosures of information by the sponsor tothose consistent with the privacy rule. In addition, an employer must certify to a group health plan that it willnot use the information for employment-related actions (e.g., hiring and promotion decisions). The employermust agree to establish adequate firewalls, so that only those employees that need health information to performfunctions on behalf of the group health plan have access to such information. Can Health Information Be Used for Marketing? A covered entity may not disclose health information to a third party (e.g., pharmaceutical company), in exchange fordirect or indirect remuneration, for the marketing activities of the third party without first obtaining a patient'sauthorization. Similarly, a covered entity may not use or disclose health information for its own marketingactivities without authorization. However, communications made by a covered entity (or its business associate)to encourage a patient to purchase or use a health care-related product or service are not defined asmarketingunder the rule and, therefore, do not require the patient's authorization, even if the covered entity is paid. Suchcommunications include prescription refill reminders and information about alternative treatments, as well asmore controversial activities paid for by third parties (e.g., communications by pharmacies, paid for by a drugmanufacturer, that recommend patients switch their medication to the company's product). What Must Covered Entities Do to Ensure Compliance? Covered entities must have reasonable administrative, technical, and physical safeguards in place,commensurate with the size and scope of their business, to protect the privacy of patient information. Theseinclude designating a privacy official, training employees, and developing a system of sanctions for employeeswho violate the entity's policies. Covered entities are not directly liable for the actions of their businessassociates. They may be held liable if they know of a business associate's pattern of activity or practice inviolation of the contract unless they take reasonable steps to correct the problem and, if such steps areunsuccessful, terminate the contract or report the problem to HHS. Does the Rule Preempt State Health Privacy Laws? As mandated by HIPAA, the rule does not preempt, or override, state laws that are more protective of patientprivacy. Although most states do not have comprehensive health privacy laws, many states have detailed,stringent standards governing the use and disclosure of health information related to certain medical conditions,such as mental illness, genetic testing, and communicable diseases (e.g., HIV/AIDS). These stronger privacyprotections will remain in force. The rule only preempts state laws that are in conflict with its requirements and that provide less stringent privacy protections. Therefore, it serves as a federal "floor" of minimumprivacy protections. How Will the Rule Be Enforced? Any person who believes a covered entity is not complying with the privacy rule may file a complaint with HHS's Office of Civil Rights(OCR), which is responsible for implementing and enforcing the rule. OCR is working with covered entities toencourage voluntary compliance. It says that enforcement of the rule will be reactive and complaint-driven. Under HIPAA, OCR has the authority to impose civil monetary penalties against covered entities that fail tocomply with the rule, and the Department of Justice may seek criminal penalties for certain wrongfuldisclosures of personal health information. The civil fines are $100 per incident, capped at $25,000 per year foreach provision that is violated. The criminal penalties include fines of up to $250,000 and up to 10 years inprison for disclosing or obtaining health information with the intent to sell, transfer or use it for commercialadvantage, personal gain, or malicious harm. HIPAA did not provide a private right of action for individuals tosue for violations of their health information privacy in federal court. However, nothing in HIPAA prohibitsaggrieved individuals from filing a state law claim against a covered entity for its noncompliance and resultingharm. Where Can I Obtain More Information? General information on all the HIPAA standards can be found at http://aspe.os.dhhs.gov/admnsimp . Implementationguidance, answers to frequently asked questions, and other details on complying with the privacy rule may befound on the OCR website at http://www.hhs.gov/ocr/hipaa .

The HIPAA privacy rule gives patients the right of access to theirmedical information and prohibits health plans and health care providers from using or disclosing individuallyidentifiable health information without a patient's written authorization except as expressly permitted orrequired by the rule. Plans and providers are permitted to use and disclose health information for treatment,payment, and other routine health care operations and for various specified national priority activities (e.g., lawenforcement, public health, research). Providers may also share certain information with family members andothers, as long as the patient is given the opportunity to object. Health plans and providers must give enrolleesand patients a notice explaining their privacy rights and how their information will be used. They are alsorequired to have in place reasonable safeguards to protect the privacy of patient information and, in general,must limit the information used or disclosed to the minimum amount necessary to accomplish the intendedpurpose of the use or disclosure. Entities that fail to comply with the rule are subject to civil and criminalpenalties, but patients do not have the right to sue in federal court for violations of the rule. The privacy ruledoes not preempt, or override, state laws that are more protective of medical records privacy.

Introduction: The Price Versus Quantity Debate In general, market-based mechanisms to reduce GHG emissions, the most important being carbon dioxide (CO 2 ), focus on specifying either the acceptable emissions level (quantity) or the compliance costs (price) and allowing the marketplace to determine the economically efficient solution for the other variable. For example, a tradeable permit program sets the amount of emissions allowable under the program (i.e., the number of permits available limits or caps allowable emissions), while permitting the marketplace to determine what each permit will be worth. Likewise, a carbon tax sets the maximum unit cost (per ton of CO 2 equivalent) that one should pay for reducing emissions, while the marketplace determines how much actually gets reduced. In one sense, preference for a carbon tax or a tradeable permit system depends on how one views the uncertainty of costs involved and benefits to be received. For those confident that achieving a specific level of CO 2 reduction will yield significant benefits—enough so that even the potentially very high end of the marginal cost curve does not bother them—a tradeable permit program may be most appropriate. CO 2 emissions would be reduced to a specific level, and in the case of a tradeable permit program, the cost involved would be handled efficiently, though not controlled at a specific cost level. This efficiency occurs because through the trading of permits, emissions reduction efforts focus on sources at which controls can be achieved at least cost. However, if one feels uncertain of the environmental benefits of a specific level of reduction and anxious about the downside risk of substantial control costs to the economy, then a carbon tax may be most appropriate. In this approach, the level of the tax effectively caps the marginal cost of control that affected activities would pay under the reduction scheme, but the precise level of CO 2 reduction achieved is less certain. Emitters of CO 2 would spend money controlling CO 2 emissions up to the level of the tax. However, because the marginal cost of control among millions of emitters is not well known, the overall emissions reductions for a given tax level on CO 2 emissions is subject to some uncertainty. Hence, a major policy question is whether one is more concerned about the possible economic cost of the program and therefore willing to accept some uncertainty about the amount of reduction received (i.e., carbon taxes); or one is more concerned about achieving a specific emissions reduction level with costs handled efficiently, but not capped (i.e., tradeable permits). A model for a tradeable permit approach is the sulfur dioxide (SO 2 ) allowance program contained in Title IV of the 1990 Clean Air Act Amendments (42 U.S.C. 7651). Also called the Acid Rain Program, the tradeable permit system is based on two premises. First, a set amount of SO 2 emitted by human activities can be assimilated by the ecological system without undue harm. Thus the goal of the program is to put a ceiling, or cap, on the total emissions of SO 2 rather than limit ambient concentrations. Second, a market in pollution licenses between polluters is the most cost-effective means of achieving a given reduction. This market in pollution licenses (or allowances, each of which is equal to 1 ton of SO 2 ) is designed so that owners of allowances can trade those allowances with other emitters who need them or retain (bank) them for future use or sale. Initially, most allowances were allocated free by the federal government to utilities according to statutory formulas related to a given facility's historic fuel use and emissions; other allowances have been reserved by the government for periodic auctions to ensure market liquidity. There are no existing U.S. models of an emissions tax, although five European countries have carbon-based taxes. The closest U.S. example is the tax on ozone-depleting chemicals (ODCs). To facilitate the phaseout of ODCs under the Montreal Protocol and subsequent amendments, the United States imposed a tax on specific ODCs in 1990. This tax was designed to supplement the allowance trading program that the EPA had designed to implement the international agreements. Several activities trigger the tax, including the production and/or importation of the chemicals, or the importation of products that contain them or used them in their production processes. In addition, inventories of certain ODCs held on January 1 of each year are subjected to a "floor stocks tax." Five Dimensions of the Cost Issue Five dimensions of costs associated with reducing GHG emissions are discussed in this section: (1) absolute costs, (2) distribution of costs, (3) long-term costs, (4) price signal and stability, and (5) uncertainty of costs. The absolute costs of a GHG reduction program are a function of the interplay among the tonnage reduction required, the timetable imposed on that reduction, and the techniques available and used to achieve that reduction (the "three Ts"). Variables involved with the tonnage requirement include the magnitude and firmness of the reduction requirement and the number of gases and sectors involved in the program. Variables involved with the timetable include its length and number of phases, along with the number and extent of any deadline extensions allowed and on what criteria. Finally, variables involved with techniques include promotion and availability of new technology, the degree of flexibility permitted in complying with the program, and any ceiling on compliance costs. All these program design parameters influence the absolute cost of the program and the timing and extent of any benefits received. A second concern with costs is their distribution across the various sectors of the economy. As indicated by Table 1 , GHG emissions are spread throughout the economy, with about 81% emitted by the electric power, transportation, and industry sectors. Restricting participation by any group could increase the absolute cost of the program and would certainly increase the costs to the remaining participants. However, numerous rationales have been put forward to justify excluding one group or sector from a reduction requirement, or to provide some other special consideration. Rationales offered include a sector or industry's concern about (1) international competitiveness, (2) lack of cost-effective control options, (3) inability to make necessary capital investments, (4) economic disruption, (5) credit for previous efforts that reduced emissions, and (6) the "minor" contribution that industry or sector makes to the overall problem. It is the multitude of such variables that make constructing an acceptable reduction allocation scheme very difficult. A third concern is the long-term cost considerations of a GHG reduction program. Climate change policy has to be thought of in decades, not years. Ultimately, a successful climate change program would involve a long-term transition to a less carbon-emitting economy. Generally, studies that indicate the availability and cost-effectiveness of emerging new technologies to achieve this transition include an economic mechanism to provide the necessary long-term price signal to direct research, development, demonstration, and deployment efforts. Developing such a price signal involves variables such as the magnitude and nature of the market signal, and the timing, direction, and duration of it. In addition, studies indicate combining a sustained price signal with public support for research and development efforts is the most effective long-term strategy for encouraging development of new technology. As stated by Morgenstern: "The key to a long term research and development strategy is both a rising carbon price, and some form of government supported research program to compensate for market imperfections." A fourth consideration is the stability of the price signal in whatever form it takes (e.g., allowance prices, carbon taxes, auction prices). A stable and reliable signal is necessary to minimize economic disruption and to encourage new technology. Experience with existing emissions markets suggests that short-term price spikes and troughs occur that have at least short-term economic effects, either disrupting the market (in the case of high prices) or discouraging new technology (in the case of low prices). Causes of this volatility can include (1) lack of trading volume, (2) illiquidity in the market, (3) external events, and (4) regulatory uncertainty. History with previous emissions trading programs suggests that if a greenhouse gas program is based on a market-based implementation strategy, the inclusion of flexibility mechanisms to ensure reasonable market stability is desirable. A final cost consideration is the cost uncertainty presented by the wide range of projected costs of GHG reduction. To the extent one understands the variables that create the range presented by different forecasting models, one can design a program to address those variables. Projected costs of a proposed greenhouse gas reduction program will differ among models, based on the various economic and technological assumptions either embedded in the particular model's processes (endogenous variables) or assumed externally and inserted into the model. Weyant has identified five assumptions that explain many of the differences in greenhouse gas reduction program cost estimates : Basecase projections of future GHG emissions and climate damages. The specifics of the reduction program examined (particularly the amount of flexibility permitted in complying with its mandates). How dynamic the model is, representing substitution possibilities by producers and consumers, including the turnover of capital equipment. How the rate and processes of technological change are modeled. How benefits are modeled. Figure 1 , below, illustrates how these and other variables (such as type of model used) can influence the estimated costs of climate change legislation. Measured by impact on GDP, the figure indicates impacts generally ranging from a positive 2% increase in GDP to a 4% decrease. Interestingly, the variables used in projecting cost and benefits are sufficiently robust to obscure a strong correlation between reduction requirements and cost. The range indicated also reflects the perspectives and parameters assumed by the forecast authors. In a previous report, CRS noted that cost analyses are influenced by the perspective (or lens) through which one views the problem. Analysts viewing climate change policy through a technological perspective see it as an impetus for improved efficiency through technology improvements in the economy, consistent with concepts such as life-cycle costs. Analysts viewing policy through an economic lens work through the boundaries of market economics and cost-benefit considerations. Finally, analysts viewing the issue through an ecological lens look to the benefits of controlling greenhouse gases and are suspicious of "baseline" scenarios that suggest that "business as usual" is an acceptable yardstick from which to measure policy changes. Each of these lenses implies fundamentally different ways of assessing policy actions and modeling potential costs and benefits. The quantitative results are cost estimates that range from actual savings to the economy (from GHG reductions) to substantial costs. An illustration of this can be seen in the contrast between two cost analyses of H.R. 2454 . The results presented below were obtained by the American Council for Capital Formation/National Association of Manufacturers (ACCF/NAM) high cost case and the "high technology" sensitivity case conducted by EIA using the same model: EIA's NEMS model. Table 2 summarizes the general approach of the two analyses according to the three perspectives identified above. In its sensitivity case, EIA mimics H.R. 2454 's various technology and efficiency provisions by employing its High Technology baseline that has more aggressive technology development assumptions than its reference case, and also includes banking, and phased-in offsets. In contrast, ACCF/NAM is not confident that new technology, new energy sources, and market mechanisms (e.g., carbon offsets, banking) will be sufficiently available to achieve H.R. 2454 's emission targets. Accordingly, ACCF/NAM's High Cost case assumptions differ substantially from EIA's High Technology sensitivity analysis by discouraging banking, restricting the availability of offsets to half that allowed in H.R. 2454 , and significantly restricting availability of various low- and non-carbon technologies beyond what is embedded in the NEMS base case. As indicated by Table 3 , the widely different cost assumptions provided the expected results, although both analyses remained in the 0-4% GDP range common for greenhouse gas reduction analysis. Allowance price estimates diverge significantly by 2030, but this cost measure tends to exaggerate differences between results and should not be confused with average costs or program costs. This is particularly true for analyses of H.R. 2454 , as ACCF/NAM did not publish its environmental results in terms of greenhouse gases reduced; thus, one can not compare the allowance price with what is being reduced over time. Unfortunately, the analyses do not present sufficient sensitivity analysis and other information to determine whether it is the economic assumptions (e.g., discount rates and offset availability), the behavioral assumptions (e.g., impact of efficiency programs), the technology assumptions (e.g., availability), or what combination of these assumptions that explains the differences in results. Approaches for Addressing Cost Concerns The following analysis of options to address the cost concerns identified above is loosely arranged by the focus of the specific option: (1) the tonnage requirement, (2) the time frame, and (3) the techniques allowed for compliance. It should be noted that several options examined affect more than one of the "Ts." Also, the options are not mutually exclusive—many can be combined to create more refined options. Tonnage Options Much of the discussion on GHG reductions has focused on a historic baseline as the starting point for reductions. Assuming that the emissions inventory for a specific year is adequate to support a regulatory program (whether market-based or not), such a baseline is reasonable. Most existing emissions trading programs are based on a historic baseline with modifications. However, there are options to calculate a baseline that responds to economic events over time without necessarily compromising the tonnage cap. Also, the historic baseline can be eliminated in favor of different methods of achieving specific reductions. Dynamic Tonnage Target Another approach to address some of the concerns identified above is to calculate the tonnage target based on economic or other indexes or measures rather than strictly on a historic or other static baseline. For example, the National Commission on Energy Policy recommended that the tonnage requirements for a GHG reduction program begin with year 2000 emissions, with the future trajectory of emissions based on the product of a progressively declining limit on the country's GHG intensity times projected economic growth. Over time, the progressively more stringent carbon intensity index would produce progressively more stringent emissions tonnage caps, despite projected increases in economic growth. The actual steepness of that path would depend on the rate of decline in carbon intensity mandated by the program and actual economic growth. Of course, the dynamic tonnage target could be indexed to just about any relative variable (e.g., energy prices). Depending on the specifics of the methodology and measures used in creating it, the dynamic target could be more responsive to some unforeseen events, such as economic conditions, than a static baseline. At least in the short term, this could reduce costs and economic disruption if a sharp spike in economic growth were to occur. In contrast, slower-than-anticipated growth, such as the 2008-2009 recession, would reduce the available emissions credits and thereby reduce the potential for "hot air" credits (i.e., credits "created" by a slowdown in the economy rather than by control efforts). By potentially mitigating some effects of a static, historic emissions baseline, a dynamic tonnage methodology allows flexibility in distributing reductions and the resulting costs among different sectors of the economy. Growth, GHG intensity, production, and other variables could be tailored for sectors, states, or regions based on specific concerns, such as competitiveness. For example, an industry growth index could be used to calculate reduction requirements rather than an aggregated index such as GDP. Like most schemes, a dynamic target scheme could completely exclude some industries, with the obvious result of a shift in cost to the ones remaining in the program. The effect of a dynamic target on long-term costs would depend on the slope of reductions mandated by the program. For example, the recommendation of the National Commission on Energy Policy called for an annual 2.4% reduction in allowable GHG intensity increasing to 2.8% annually after 10 years. This declining curve would be multiplied by a projection of presumably increasing economic growth. A steeper slope in GHG intensity mandates and/or an overly pessimistic projection of economic growth would strengthen the need for less carbon-intensive technology, but at the risk of increasing cost if those technologies did not arrive in a timely manner. A weak GHG intensity mandate and/or an overly optimistic projection of economic growth could reduce necessary emissions reductions and provide a weak incentive for new technology. A dynamic target would not necessarily prevent short-term fluctuations in the price signal, depending on the frequency of adjustments. If a target were based on macro-economic trends, such as GDP, it would not respond much to short-term or localized events, such as the 2000-2001 electricity shortage in California. Also, the mixture of indices with different vectors (e.g., GHG intensity reducing targets while economic growth is increasing targets) may create some uncertainty in markets regarding the appropriate price of credits. Finally, a dynamic target would not increase the certainty of cost estimates. Uncertainty about the future trajectory of economic growth would be reflected in cost estimates (just as they are now, with emissions capped at historically determined levels). Likewise, benefit certainty would not improve for the same reason. Expand Supply Options The breadth of options permitted under a reduction program can have a significant effect on absolute costs. Legislation introduced in recent Congresses has ranged from programs based on one economic sector (e.g., electric utilities) and one greenhouse gas (e.g., carbon dioxide) to several sectors (including opt-in provisions) and all six greenhouse gases covered by the Kyoto Protocol. Also, some proposed programs have included international trading of emissions credits and biological sequestration offsets among the permissible means of complying with reduction requirements. Some of these options, particularly international trading and sequestration, have included limits on their applicability. For example, the Regional Greenhouse Gas Initiative has put control cost triggers (characterized as "safety valves") on the availability of some supply options, such as sequestration. Numerous analyses were done on the impact of global trading after the signing of the 1997 Kyoto Protocol. For the United States, the cost of complying with the Kyoto Protocol was estimated at $23-$50 per ton of carbon if global trading were included, versus $61-$119 if only trading among developed (Annex 1) countries were permitted. Cost estimates of "No trading" scenarios ranged from $193-$295 per ton. Studies have suggested that, beyond international trading, including non-carbon dioxide greenhouse gases and sequestration in the supply mix can play an important and cost-effective role in any climate change program. Expanding supply sources could help industries that do not have readily accessible means of reducing greenhouse gases on their own by providing them with additional options and making the credit market more liquid. To the extent the expanded supply sources help create an integrated market with a true market price for credits, industries could avoid very high compliance costs and lessen the impact of those costs on their profitability. However, if competitors in other countries do not have to reduce emissions at all (as is currently the case with the Kyoto Protocol), or if reductions are essentially voluntary (as seems to be the outcome of the Copenhagen Accord), competitive disadvantage would remain in some cases. The degree to which expanded supply options would contribute to a long-term and stable price signal would depend on how integrated these sources are in the overall permit market. For example, with the European Trading System (ETS), there are separate markets for credits created within the 15 members of the European Union (EU) covered by the EU bubble, credits created by Joint Implementation with eastern European countries, and credits created via the Clean Development Mechanism (CDM) with Third World countries. One type of credit cannot be traded for another. The result is a range of credit prices, reflecting the relative risk and availability of the various credit types. Thus, the long-term signal being delivered is currently unclear, and may take time to develop. Likewise, substantial fluctuations in the EU credit market have not been stabilized by the existence of the other two credit types. In some ways, expanding supply options may increase the uncertainty of cost estimates, not only because of disparity in assumed reduction costs, but also in assumed availability and penetration of the options themselves. For example, emissions reductions via the Clean Development Mechanism could be substantial and very cost-effective. However, the mechanism itself creates uncertainty with respect to availability, as does the willingness of foreign governments to participate. It is difficult to quantify the effect such an option could have on costs without some track record, as is slowly being built by the ETS. Carbon Tax The most radical approach to controlling costs and addressing the concerns identified above is to impose a carbon tax in lieu of proposed allowance trading programs. As discussed in the introduction to this report, under a carbon tax, the costs are fixed by the legislation and the quantity of emissions reduced becomes the variable. Carbon taxes are generally conceived as a levy on natural gas, petroleum, and coal, according to their carbon content, in the approximate ratio of 0.6 to 0.8 to 1.0, respectively. However, the levy would not have to be imposed on the fuels themselves; proposals have been made to impose the tax downstream at the point where the fuel is converted into heat and CO 2 . In addition, there is no reason why the tax could not be expanded to include all greenhouse gases in appropriate carbon equivalents. A carefully designed carbon tax could potentially address all five of the concerns identified above. A carbon tax puts a limit on absolute cost by capping the marginal costs that participants should pay to reduce GHG emissions. Participants would receive a firm price signal with respect to the upper value of GHG emissions, and respond in the most cost-effective manner—that is, reduce emissions up to the cost of the carbon tax and pay the tax on any remaining emissions that are more expensive to eliminate. A carbon tax can be tailored to address distributional concern in two ways. The first would be to exempt, either partly or completely, whatever sectors or industries were felt to be threatened, either competitively or otherwise, by imposing the tax. The current tax code provides numerous exemptions from various taxes for a variety of reasons. However, such an approach would create economic distortions and complicate the tax structure. The second approach would be to use some of the revenue generated by the tax to provide appropriate relief to targeted sectors or industries. This could involve increasing funding for existing programs for such sectors or industries, or creating new ones. In some ways, this approach might be more transparent than an approach that involves a potentially complicated tax structure. These approaches are not mutually exclusive; they could be combined if considered appropriate. Likewise, a carbon tax can be employed to address long-term concerns in two ways. First, the carbon tax would create a long-term price signal to stimulate innovation and development of new technology. This price signal could be strengthened if the carbon tax were escalated over the long run, either by a statutorily determined percentage or by an index (such as the producer price index). Second, some of the revenue generated by the tax could be used to fund research, development, demonstration, and deployment of new technology to encourage the long-term transition to a less-carbon-intensive economy. A carbon tax's basic approach to controlling GHG emissions is to supply the marketplace with a stable, consistent price signal—the fourth cost concern. Designed appropriately, there would be little danger of the price spikes or market volatility that can occur in the early stages of a tradeable permit program. Finally, a carbon tax basically places an upper boundary on projected economic cost uncertainty. However, it increases uncertainty with respect to environmental benefits by making emissions reductions a dependent variable. This is the basic tradeoff that a price-based control system presents. One way that might mitigate the problem to some extent would be to combine the carbon tax with some form of quantity controls. As noted earlier, the CFC program attached a tax to its trading program with beneficial results. However, it is the trading program, not the CFC tax, that is the primary regime for control. In this manner, a carbon tax would be more of a revenue raiser than a control regime. A second hybrid would be a "safety valve" that capped allowance prices such as proposed by the National Commission on Energy Policy. That approach is discussed later in this report. The degree to which the problem is mitigated (and others created) depends on the interplay between the quantity control and the carbon tax. Timetable Options Similar to the country's four decades effort to reduce smog, climate change promises to be an effort measured in decades, not years. Unlike conventional pollution control efforts, the environmental benefit of mitigating climate change would come from a reduction in the stock of greenhouse gases that have built up in the atmosphere for decades, whereas the economic costs of control are related to the current flow of additional gases into the atmosphere. Thus, in a situation similar to protecting the stratospheric ozone layer, there would be a substantial delay between control costs and environmental benefits. Indeed, if short-term reductions in the stock of greenhouse gases were the focus of climate change policy, control efforts would be focused on controlling methane, which has a 20-year lifetime, compared with CO 2 , which has a 200-year lifetime. Likewise, temporary measures, such as biologic sequestration, would be accelerated with the assumption that new technology would be available in the future to capture the biologically sequestered carbon dioxide when it is released decades from now. This situation leads to disputes over how time should be managed under a GHG reduction program. One argument is that modest cuts (or slowing of the increase) early, followed by steeper cuts later, is the most cost-effective. Generally, three cost-related arguments are made in favor of this approach. First, over the long-term, sustained GHG reductions involve a turnover in existing durable capital stock—a costly process. If the time frame of the reduction is long enough to permit that capital stock to be replaced as it wears out, the transitional costs are reduced. Second, increased time to comply would permit the development and deployment of new, less carbon-intensive technologies that are more cost-effective than existing technology. Third, assuming a positive rate of return on current investment, less money needs to be set aside today to meet those future compliance costs. A counter argument to the above focuses on the risks of delay, both in terms of scientific uncertainty and technology development. In terms of scientific uncertainty, the "recognized" scientific view agreed to under the Copenhagen Accord is that the increase in global temperature should be below 2 degrees. If this objective reflects the long-term stabilization level necessary to combat climate change, any delay in beginning reductions could be costly, both economically and environmentally. Secondly, given the sometimes long lead times for technology development, both a long-term price signal and research and development funding may have to be initiated quickly to encourage technology development and deployment in time to hold GHG concentrations to a level that avoids unacceptable damages. In the same vein, an early signal with respect to climate change policy is necessary to discourage investment in durable long-lived (50-60 years) carbon-intensive technologies. As stated by Jaccard and Montgomery: The window of opportunity for reducing cost implies a need for immediate and continuing action to develop new low-carbon technologies and to begin shifting long-lived investment decisions toward alternatives that lower carbon emissions. Absent these actions, the rapid future emissions reductions included in the delayed emissions scenario may be more costly than more evenly paced, and earlier reductions. Economic-Based Circuit Breaker Delaying or suspending compliance with environmental mandates because of energy and economic reasons is not a novel idea. The Clean Air Act contains provisions permitting the President, in response to a petition by an affected state's governor, to temporarily suspend any part of a state implementation plan or enforcement of the SO 2 trading program, to address a severe national or regional energy emergency. For example, during the 2000-2001 California energy crisis, President Clinton directed all federal agencies to do their part to assist the state in meeting its electricity demand. For its part, the EPA revised its guidance on emergency generators to allow backup generators to be used to avert a power blackout. Previously, backup generators could be used only when the power was actually interrupted. The increased flexibility permitted by the EPA during the emergency meant more power at the expense of more pollution (particularly of carbon monoxide and nitrogen oxides). Likewise, market-based systems are not immune to being suspended if economic or energy conditions turn severe. A contributing factor in the California power crisis was the Regional Clean Air Incentives Market (RECLAIM), a credit trading system for reducing nitrogen oxide (NOx) emissions. RECLAIM was established in 1994 to provide flexibility for companies in the South Coast (Los Angeles) area as controls on NOx, a major contributor to smog formation, were tightened. Because of record electricity demand in 2000, electric generators in the South Coast area generated more power than they did in the base period, resulting in utilities buying RECLAIM trading credits in unprecedented quantities. As a result, the price of credits rose from less than $1 per pound of NOx in January 2000 to more than $60 per pound of NOx by March 2001. To solve this problem, in March 2001, the South Coast Air Quality Management District amended RECLAIM to remove large power plants from the trading system and required owners of such facilities to reduce emissions under a mandated command-and-control regime. Such facilities returned to the trading system in 2007. Proposals have been made to formalize a "circuit breaker" into any GHG reduction program. In general, proposals envision a declining emissions cap system where the rate of decline over time is determined by the market price of permits. If permit prices remain under set threshold prices, the next reduction in the emissions cap is implemented. If not, the cap is held at the current level until prices decline. Such a cap could be implemented on an economy-wide basis or by sector or other relevant grouping. Because the conditional reduction approach attempts to turn both the price and the quantity of reductions into variables solved by the trading market, its effect on cost depends on a host of variables—most obviously the profiles of the emissions reduction targets and the price triggers. For example, the price trigger could be based on the spot-market price, the long-term market price, or some hybrid price mechanism. Also, the reliance on the market to either directly or indirectly determine price and quantity puts pressure on regulators to oversee operations and prevent any market manipulation designed to slow emissions reductions. A conditional tonnage target could address distributional issues if its tonnage targets and timetable triggers are tailored for specific sectors or industries. This would substantially increase the complexity of the scheme and potentially risk bifurcation of the permit market. As with other permit schemes discussed here, another approach to addressing distributional concerns under a conditional tonnage target would be to simply exempt certain sectors from its mandates. When the control regime responds to relatively short-term events, it may not provide the long-term price signal necessary to promote long-term solutions. The elastic time frame also gives ambiguous signals for planning the appropriate pace and scope of research and development efforts. In contrast, the regime's focus on short-term economic disruption may help in damping short-term volatility in the allowance market. As noted, the responsiveness of the price and timetable triggers would determine how effective the program would be in avoiding such disruption. In reducing the uncertainty for cost estimates, the scheme introduces about the same number of new uncertainties as it does in reducing others. The circuit breaker prevents ever increasing costs, although with some undetermined lag time. However, it is difficult to estimate absolute costs because one cannot know how often it will be used. The scheme also increases uncertainty about the future trend in benefits by making the quantity of emissions reduced a variable. A short-term break might not make much of a difference, particularly if participants were required to make up the emissions later. However, it introduces uncertainty into the system that would be difficult to quantify. Technology-Based Timetable Another approach to increase flexibility in the system and encourage long-term technology development would be to provide special compliance schedules for entities deploying innovative, less carbon-intensive technologies. An example of this possibility is Section 409 of Title IV of the 1990 Clean Air Act Amendments. Under Section 409, utilities choosing to meet their sulfur dioxide reduction requirements by installing a qualifying clean coal technology receive a four-year extension on the program compliance deadline. During the extension, the affected emitter is allowed to operate under existing regulations and operating conditions. If the technology fails to operate as designed, the affected unit may be retrofitted with another qualifying technology or with an existing control technology. For a GHG reduction program, a qualifying technology could include geologic sequestration, emerging energy efficient technology, or advanced solar power. A technology extension could reduce costs in two ways. First, the delay in compliance itself would reduce cost by allowing the affected company more time to gather resources and optimize a compliance plan. Second, to the extent the delay encourages more cost-effective approaches to GHG reductions, compliance cost and long-term cost would be reduced. Of course, the risk is that the delay will not result in successful technology development. Indeed, it is likely that at least some of the projects would fail—that is the nature of innovation. However, because technology development is crucial to long-term reductions in greenhouse gases, some may feel the risk is worth it. Assistance with distributional costs under this option would depend on the opportunities for new technology in given sectors of the economy. Although some industries may have potentially cost-effective technology-fixes, such as geologic sequestration, others may involve long-term structural changes. Of course, the focus of a technology-based timetable is to provide a long-term signal to the market encouraging new technology. Such a signal could be strengthened significantly with increased government funding of projects. Because this option is focused on new technology, it would seem likely to have little effect on short-term price volatility. However, there may be a risk that the temporary removal of significant emitters from the market-system in response to the incentive could increase short-term volatility and uncertainty by diminishing permit demand and trading volume. It is difficult to determine the effects of this option on cost estimates. It would depend on how widespread the assumed participation rate is. Technique Options Most current GHG reduction proposals assume a market-based implementation strategy—generally a permit trading program. This is not surprising, as flexibility and new technologies are considered the keys to a cost-effective implementation strategy over the long run. Generally, technique options range from making a tradeable permit program more flexible through mechanisms like banking, to creating a hybrid program where the regime shifts from a quantity-based permit program to a carbon tax, depending on defined circumstances. Banking and Borrowing Most existing trading programs include provisions for banking credits for either future use or future sale. Indeed, the absence of effective banking in the RECLAIM program (discussed earlier) is credited with contributing to RECLAIM's suspension during the California energy crisis. As summarized by Resources for the Future (RFF): Allowance banking has been an essential component of the SO 2 program. Its absence is a costly feature of the NOx programs, eroding the opportunity for cost savings from interannual trading and contributing directly to the suspension of trading in RECLAIM. Banking and borrowing reduces the absolute cost of compliance by making annual emissions caps flexible over time. The limited ability to shift the reduction requirement across time allows affected entities to better accommodate corporate planning for capital turnover and technological progress, to control equipment construction schedules, and to respond to transient events such as weather and economic shocks. Generally, banking and borrowing would not have any direct impact on distributional concerns, which are more directly determined by initial allocation decisions. Banking and borrowing can help provide a long-term market signal by supporting credit prices when costs are lower than expected. The flexibility provided by banking and borrowing, as noted, can help dampen short-term volatility. The degree that they help is disputed. As discussed later, some argue that banking and borrowing may provide sufficient flexibility in some cases to keep market disruptions to a minimum. However, others argue that if a program involves more than modest reductions, a more robust "safety valve" is preferable. In estimating costs, banking and borrowing help smooth out the reduction requirement, as witnessed by the current acid rain program. This economically desirable effect does not necessarily reduce the uncertainty in cost estimates because estimators will make different assumptions about the extent to which banking and borrowing are used by emitters. The smoothing effect, however, has no effect on the reduction requirement (in contrast with several of the other alternatives discussed here). This is a major reason why this alternative is generally favored by those whose priority is to achieve specific reductions. Auctioning Permits Auctions can be used in market-based pollution control schemes in several different ways. For example, Title IV of the 1990 Clean Air Act Amendments uses an annual auction to ensure the liquidity of the credit trading program. For this purpose, a small percentage of the credits permitted under the program are auctioned annually, with the proceeds returned to the entities that would have otherwise received them. Private parties are also allowed to participate. A second possibility is to use an auction to raise revenues for a related (or unrelated) program. For example, many states participating in the Regional Greenhouse Gas Initiative (RGGI) are using auctions to implement their public benefit programs to assist consumers or pursue strategic energy purposes. A third possibility is to use auctions as a means of allocating some, or all, of the credits mandated under a GHG control program. In examining a modified auction program, a Resources for the Future (RFF) analysis found that an auction scheme is "dramatically more cost-effective" in allocating credits than either a grandfathered allocation method or a generation performance standard (GPS) approach. Obviously, the impact that an auction would have on the cost dimensions identified earlier would depend on how extensively it was used in any GHG control program, and to what purpose the revenues were expended. The cost-effectiveness of an auctioning system results from allowing the marketplace to allocate credits. However, unlike a carbon tax, the market-clearing price for credits is not limited (unless the system is combined with a safety valve and/or a reserve price, as discussed below). Hence, an auction for credits would be more expensive for specific industries than under a historically based grandfathered system, where they would receive their credits free. Likewise, the price consumers pay may be greater, depending on the companies' ability to pass on their additional costs to them. However, when the substantial revenues received by the auctions are considered, auctions are more cost-effective than grandfathered or GPS systems. As stated by RFF: The bottom line is that the AU [auction] approach weighs in at substantially less economic cost to society than either of the two gratis approaches to allocating allowances.... AU also provides policymakers with flexibility, through the collection of revenues that can be used to meet distributional goals or to enhance the efficiency of the AU even further by reducing pre-existing taxes. Because the AU approach is so cost-effective, a corresponding a [sic] carbon policy will have less effect on economic growth than under the other approaches. This attribute provides the most significant form of distributional benefit. As noted by RFF, the revenues from an auction can be used to address a host of distributional concerns. Indeed, as noted earlier, the auction could be tailored to raise only as much as necessary to address those concerns (as with RGGI funding of public benefits programs) or made more comprehensive to address credit allocation. In terms of a long-term price signal, the type of auction employed would have some effect. For example, the program could implement a price floor to facilitate investment in new technology via a reserve price in the allowance auction process. In addition, the stability of that price signal could be strengthened by choosing to auction allowances on a frequent basis, ensuring availability of allowances close to the time of expected demand and making any potential short-squeezing of the secondary market more difficult. An auction could provide substantial incentive for new technology if the auction is structured to encourage a long-term and stable price signal and if revenues received are at least partly directed toward research, development, and demonstration programs. However, this is not a given, because differing assumptions could be made about the actual operation of the auction, its efficiency, and the effectiveness of the recycled revenues. Safety Valve The purpose of a safety valve is to limit the costs of any climate change control program (price) at the potential expense of reductions achieved (quantity). Safety valves encompass a variety of carbon tax-tradeable permit hybrid schemes. Perhaps the most publicized version is that recommended by the National Commission on Energy Policy. The Commission scheme would be implemented through a flexible, market-oriented permit trading program. The total number of permits each year would be based on a mandated decline in GHG intensity and projected GDP growth. However, the scheme includes a cost-limiting safety valve that allows covered entities to make a payment to the government in lieu of reducing emissions. The initial price of such payments would be $7 per ton in 2010. Thus, if a covered entity chooses, it may make payments to the government at a specific price rather than make any necessary emissions reductions. Effectively, a safety valve places a ceiling on compliance costs; in that way, it acts like a carbon tax. To the extent an entity's control costs, or the permit market, remain below the safety valve, the scheme acts like a tradeable permit program. The degree to which a safety valve reduces costs would depend on the extent to which it is used by entities (e.g., who do not have a cost-effective alternative). However, the complex interactions involved in a scheme that includes both price and quantity controls should not be underestimated. As stated by Jacoby and Ellerman: The usefulness of the safety valve depends on the conditions under which it might be introduced. For a time, it might tame an overly stringent emissions target. It also can help control the price volatility during the introduction of a gradually tightening one, although permit banking can ultimately serve the same function. It is unlikely to serve as a long-term feature of a cap-and-trade system, however, because of the complexity of coordinating price and quantity instruments and because it will interfere with the development of systems of international emissions trade. In contrast, Morgenstern argues that the complexity is worth it in preventing price spikes, particularly if a substantial reduction in emissions is envisioned: "If only modest reductions are undertaken, a system of banking and offsets is likely to be adequate in preventing price spikes. In order to achieve more ambitious targets, however, the safety valve is clearly preferred." To address distributional concerns, a safety value could be tailored for specific sectors to address concerns about cost-effective reduction options or competition. In addition, to the extent the safety valve created revenues, some of the funds raised could be recycled to affected parties. The effect of a safety valve on new technologies reflects the complexity discussion above. If a low safety valve price were chosen (meaning it would keep compliance costs low), it could have a dampening effect on long-term development of new technology. By creating a ceiling on the value of GHG reductions, but providing no floor for those reductions, a weak market signal may be sent. This might be offset to some degree if funds collected by the safety valve were directed toward new technology, but marketing of any resulting technology might still be difficult if the market price is held low. A safety valve would dampen the possibility of an upward spike in credit prices—indeed, it is a major reason for considering such an option. However, it would not affect any volatility occurring below the safety valve value and have no effect on a collapse in credit prices. By the same token, the safety valve would put an absolute limit on the projected costs of the program at the level of the safety valve. However, it would do this at the expense of certainty in terms of reductions achieved. Illustrative Approaches The selected options discussed above are summarized in the Appendix . As suggested, the various options identified have different strengths and weaknesses, depending on the facet of costs one wants to address. Fortunately, many of the options are not mutually exclusive, nor do they require complete adoption; parts of individual approaches can be combined with other parts to meet program specifications in terms of firmness of the goal (also called the "hardness" of the emissions cap) and time frame. To illustrate, a program focused on achieving a specific tonnage reduction with some flexibility in implementation but not in a manner that threatens the integrity of the cap could incorporate several of these options. The most obvious mechanism to include in the quantity-based cap-and-trade would be banking and borrowing options that would increase flexibility of the program across time without any deterioration in the tonnage requirement. Flexibility and protection against price increases could be enhanced by expanding supply options to include all greenhouse gases, sequestration, and international trading. Depending on one's confidence in the individual supply options, use could be restricted to a maximum percentage of reduction achieved through the option (common in many proposals) or to a more flexible percentage restraint based on credit prices (as in RGGI's cap-and-trade scheme). Proper monitoring and enforcement could minimize any potential effect on the cap. This illustration would not necessarily provide either the long-term price signal or funding necessary for new technology. One supplemental option that could help mitigate this problem would be credit auctions. Auctions would have no effect on the cap, but would provide the program with a revenue flow that could be at least partly directed toward research and development. The auction could be designed to raise revenues only by auctioning a small percentage of the credits (such as the current acid rain program), or be comprehensive and auction all credits, thus improving overall economics and providing a clear market signal (as many RGGI participants are doing). In the latter case, coordinating the auction with any trigger price mechanism for expanded supply options would promote harmonious implementation. Depending on the structure of the auction chosen, the comprehensive auction would also provide a clear market price for reductions and, with the addition of forward markets, some indication of the general direction of those prices. Finally, the auction and its resulting revenues could also be used to address pressing distributional cost issues. Although the mixture of options used in this illustration could potentially mitigate several of the cost issues identified here, it would not provide cost certainty. The quantity side of the equation is the controlling factor under this illustration; prices could be tempered by the market flexibility introduced by the options, but actual costs would not capped. In contrast, a more price-oriented illustration could employ a safety valve to place an absolute limit on credit prices. In such a hybrid system, the focus of the program is the safety valve limit as much as any tonnage cap. The quantity-based limits of the emissions cap determine the probability that the safety valve would be triggered, assuming a well-functioning market. However, in addition to the supply-demand dynamic that the credit market will reflect, any market failure or disruption resulting from external events could trigger the safety valve for participants. Ultimately, quantity is subordinate to price. One can potentially reduce the probability that the safety valve would be invoked by including several of the other options discussed here. Expanding supply options would enlarge the pool of available reductions and potentially improve the stability of the credit market if properly integrated. Employing a dynamic tonnage target or an economic-based circuit breaker could help address any economic growth spike that might trigger the safety valve. The question of using these options in a safety valve program is whether they would affect the cap more or less than invoking the safety valve. In contrast, borrowing and banking would help stabilize markets without having any effect on the cap. Like the illustration above, this approach would not necessarily promote new technology—indeed the safety valve could discourage such development, unless it generated revenue that was directed toward research and development. If revenues were deemed insufficient for new technology (and to address distributional concerns if desired), the safety valve program could be supplemented with an auction. However, in any case, this illustration is driven by price concerns—concerns that make coordinating new technology development and minimizing impacts on the emissions cap difficult. A final illustration could also be the simplest—imposition of a carbon tax. The clear focus of the program would be the level of the tax, the steepness of any future increases in the tax, and who has to pay the tax. As noted earlier, it could be crafted to address all the cost concerns identified in this report; however, it would represent a new direction in U.S. climate change and current international efforts. Addressing Costs Through Market Mechanisms: Resolving the Price-Quantity Issue Three events provide impetus for revisiting the cost issue with respect to designing a greenhouse gas reduction program. The first is the election of a new President publicly committed to substantial reductions in greenhouse gases over the next several decades. The second was passage of H.R. 2454 by the House that would mandate a 83% reduction in the country's greenhouse gas emissions from 2005 by 2050. The reduction would be primarily achieved through a market-based, cap-and-trade program, beginning in 2012. The third is the Copenhagen Accord that may begin the process of incorporating developing countries in a global climate change framework by committing them to implement "mitigation actions," along with monitoring, reporting, and verification procedures "in accordance with guidelines adopted by the Conference of the Parties." Facets of the cost issue that have raised concern include absolute costs to the economy, distribution of costs across industries, competitive impact domestically and internationally, incentives for new technology, and uncertainty about possible costs. Market-based mechanisms attempt to address the cost issue by introducing flexibility into the implementation process. The cornerstone of that flexibility is permitting sources to decide their appropriate implementation strategy within the parameters of market signals and other incentives. That signal can be as simple as a carbon tax or comprehensive credit auction that tells the emitter the value of any reduction in greenhouse gases, to a credit marketplace that is constrained by a ceiling price (safety valve) and includes incentives for new technology. As illustrated here, the combinations of market mechanisms are numerous, allowing decision makers to tailor the program to address specific concerns. In a sense, the options discussed here represent a continuum between alternatives focused on the price side of the equation (e.g., carbon taxes) through hybrid schemes (e.g., safety valves) to alternatives focused on the quantity side (e.g., banking and borrowing). They are tools to assist in the assessment of potential greenhouse gas reduction approaches, leaving any policy decision on balancing the price-quantity issue to the ultimate decision makers. This balance will not be easy to achieve. By offering flexibility to program designers and participants, market-based mechanisms can assist in implementing a GHG reduction program at less cost than more traditional command-and-control methods. However, the complexity of market mechanisms (particularly trading programs) increases substantially with the scope of emitting sources included (particularly if international trading is envisioned) and the specificity of any allocation scheme. Thus, perhaps the most difficult issue to be addressed in designing a market-based implementation strategy for reducing GHG emissions is determining who is included, and who is exempted. Appendix. Summary of Selected Options To Address Cost Uncertainty of Greenhouse Gas Reduction Programs

Three events provide impetus for revisiting the cost issue with respect to designing a greenhouse gas reduction program. The first is the election of a new President publicly committed to substantial reductions in greenhouse gases over the next several decades. The second was passage of H.R. 2454 by the House that would mandate a 83% reduction in the country's greenhouse gas emissions from 2005 by 2050. The reduction would be primarily achieved through a market-based, cap-and-trade program, beginning in 2012. The third is the Copenhagen Accord that may begin the process of incorporating developing countries in a global climate change framework by committing them to implement "mitigation actions," along with monitoring, reporting, and verification procedures "in accordance with guidelines adopted by the Conference of the Parties." Facets of the cost issue that have raised concern include absolute costs to the economy, distribution of costs across industries, competitive impact domestically and internationally, incentives for new technology, and uncertainty about possible costs. Market-based mechanisms address the cost issue by introducing flexibility into the implementation process. The cornerstone of that flexibility is permitting sources to decide for themselves their appropriate implementation strategy within the parameters of market signals and other incentives. That signal can be as simple as a carbon tax or comprehensive credit auction that tells the emitter the value of any reduction in greenhouse gases, to a credit marketplace that is constrained by a ceiling price (safety valve) and includes incentives for new technology. As illustrated here, the combinations of market mechanisms are numerous, allowing decision makers to tailor the program to address specific concerns. In general, market-based mechanisms to reduce greenhouse gas emissions, the most important being carbon dioxide (CO2), focus on specifying either the acceptable emissions level (quantity) or the compliance costs (price), and allowing the marketplace to determine the economically efficient solution for the other variable. For example, a tradeable permit program sets the amount of emissions allowable under the program (i.e., the number of permits available limits or caps allowable emissions), while allowing the marketplace to determine what each permit will be worth. Likewise, a carbon tax sets the maximum unit cost (per ton of CO2 equivalent) that one should pay for reducing emissions, while the marketplace determines how much actually gets reduced. In one sense, preference for a carbon tax or a tradeable permit system depends on how one views the uncertainty of costs involved and benefits to be received. The options discussed here represent a continuum between alternatives focused on the price side of the equation (e.g., carbon taxes) through hybrid schemes (e.g., safety valves) to alternatives focused on the quantity side (e.g., banking and borrowing). They are tools to assist in the assessment of potential greenhouse gas reduction approaches, leaving any policy decision on balancing the price-quantity issue to the ultimate decision makers.

Introduction This report provides background on the Department of Defense (DOD) acquisition workforce. Specifically, the report addresses the following questions: 1. What is the acquisition workforce? 2. What is the current size of the acquisition workforce? 3. How has Congress sought to improve the acquisition workforce in the past? 4. What are some potential questions for Congress to explore in the area of acquisition workforce management to improve acquisitions? Background Congress and the executive branch have long been frustrated with perceived waste, mismanagement, and fraud in defense acquisitions and have spent significant resources attempting to reform and improve the process. These frustrations have led to numerous efforts to improve defense acquisitions. Despite these efforts, cost overruns, schedule delays, and performance shortfalls in acquisition programs persist. A number of analysts have argued that the successive waves of acquisition reform have generally yielded limited results, due in large part to poor management by the acquisition workforce. In recent years, a renewed consensus seems to have emerged around the importance of improving the acquisition workforce as a critical part of any comprehensive acquisition reform effort. A 2014 compilation of expert views on acquisition reform published by the Senate Committee on Homeland Security and Governmental Affairs (Permanent Subcommittee on Investigations) identified four themes, two of which deal exclusively with the acquisition workforce: While the experts who participated in this project offered a variety of views, a few common themes emerged ... the Subcommittee notes the following 1. Nearly half of the experts feel that cultural change is required while over two-thirds believe improving incentives for the acquisition workforce is necessary for reform. 2. Two-thirds of the contributors feel that training and recruiting of the acquisition workforce must be improved. 3. Nearly half believe that DOD needs to attain realistic requirements at the start of a major acquisition program that includes budget-informed decisions. 4. More than half of the submissions noted the need for strong accountability and leadership throughout the life-cycle of a weapon system.... Recent legislation has also emphasized the importance of a robust and effective acquisition workforce. The National Defense Authorization Act (NDAA) for Fiscal Year 2016 included more than 10 provisions specifically geared to the acquisition workforce. Given the current focus on acquisition reform and the role of the workforce in the success of the acquisition system, it is useful to explore exactly who is in (and who is not in) this workforce, and recent efforts by Congress to improve its performance. How Is the Acquisition Workforce Defined? Broadly speaking, the acquisition workforce are those uniformed and civilian government personnel, working across the Department of Defense and in more than a dozen functional communities (including technology, logistics, and contracting), who are responsible for identifying, developing, buying, and managing goods and services to support the military. Generally, the acquisition workforce consists of uniformed and civilian personnel who are either in positions designated as part of the acquisition workforce under the Defense Acquisition Workforce Improvement Act (10 U.S.C. §1721); in positions designated as part of the acquisition workforce by the heads of the relevant military component, pursuant to DOD Instruction 5000.66; or temporary members of the acquisition workforce or personnel who contribute significantly to the process, as defined in the Defense Acquisition Workforce Development Fund (10 U.S.C. §1705). The Defense Acquisition Workforce Improvement Act (10 U.S.C. §1721) 10 U.S.C. §1721 required the Secretary of Defense to promulgate regulations designating "those positions that are acquisition positions," and required that acquisition-related positions in the following fields be included in the definition of the acquisition workforce: DOD Guidance on Acquisition Workforce (DOD Instruction 5000.66) DOD instruction 5000.66, entitled Operation of the Defense Acquisition, Technology, and Logistics Workforce Education, Training, and Career Development Program, implements 10 USC §1721 and governs the establishment and management of the acquisition workforce. Pursuant to the law, the instruction directs the Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L) to identify "appropriate career paths for civilian and military personnel in the AT&L workforce in terms of education, training, experience, and assignments necessary for career progression." It also requires the heads of DOD components (i.e., Component Acquisition Executives) to designate the positions that make up the acquisition workforce. Defense Acquisition University publishes the AT&L position category descriptions on their website. All acquisition workforce billets designated by Component Acquisition Executives must fall within one of these categories. Within each military service, the Director, Acquisition Career Management (DACM) is responsible for tracking the acquisition workforce personnel data. This data is consolidated in the central AT&L database DataMart. Temporary Members of the Acquisition Workforce The authorities in 10 U.S.C. §1705, the Defense Acquisition Workforce Development Fund (DAWDF), states that, only for the purpose s of the s ection , the term acquisition workforce includes personnel who are not serving in a designated position, but (A) contribute significantly to the acquisition process by virtue of their assigned duties ; and (B) are designated as temporary members of the acquisition workforce by the Under Secretary of Defense for Acquisition, Technology, and Logistics, or by the senior acquisition executive of a military department, for the limited purpose of receiving training for the performance of acquisition-related functions and duties . (Italics added.) While considered part of the workforce for the purposes of DAWDF, personnel falling into these two categories are not included in the total count of the acquisition workforce. Beyond the Acquisition Workforce As 10 USC §1705 acknowledges, a number of activities critical to successful acquisitions—such as requirements development and budgeting—are performed by personnel who are not part of the formal acquisition workforce. As DOD Instruction 5000.02 states, Stable capability requirements and funding are important to successful program execution. Those responsible for the three processes at the DoD level and within the DoD Components must work closely together to adapt to changing circumstances as needed, and to identify and resolve issues as early as possible. The text box below describes selected personnel who are not included in the official acquisition workforce, but perform important acquisition-related functions. In addition to these personnel, contractors, a number of whom support program offices and acquisition processes, are not considered part of the acquisition workforce. The recent report by the Senate Permanent Subcommittee on Investigations (discussed above) reinforces the importance of non-acquisition personnel who are critical to successful acquisitions. As mentioned above, the first two themes focus on the general culture and management of the acquisition workforce. The other two themes highlight specific perceived shortcomings of the acquisition system that are beyond the control of the acquisition workforce: the need to develop realistic and stable requirements, and the need for strong leadership and accountability throughout the life-cycle of a weapon system . To the extent some of the most widely recognized problems affecting the acquisition system are controlled by individuals who are outside of the acquisition workforce (such as requirements development, requirements stability, and budgeting), reform efforts focusing primarily on the acquisition workforce might have only limited effects. In considering approaches to acquisition reform, the acquisition workforce could be thought of more broadly, to encompass those personnel who exercise influence and play critical roles in the acquisition process. What Is the Size and Composition of the Acquisition Workforce? According to DOD, as of December 31, 2015, the defense acquisition workforce consisted of 156,457 personnel, of which approximately 90% (141,089) were civilian and 10% (15,368) were uniformed (see Figure 1 ). The acquisition workforce currently consists of 14 distinct career fields. As of December 31, 2015, almost half of the acquisition workforce (45%) fell into two career fields: engineering or contracting ( Figure 2 ). Trends in Acquisition Workforce Size Between FY1989 and FY1999, the acquisition workforce decreased nearly 50% to a low of 124,000 employees. The declines are attributable in large part to a series of congressionally mandated reductions between FY1996 and FY1999, which ranged in reductions from 15,000 to 25,000 employees each fiscal year. These cuts reflected Congress's then-view that the acquisition workforce size was not properly aligned with the acquisition budget and the size of the uniformed force. A number of DOD officials and researchers have asserted that the workforce downsizing in the 1990s led to shortages in the number of properly trained, sufficiently talented, and experienced personnel, which in turn has had a long-term negative effect on defense acquisitions. These concerns have persisted despite subsequent increases in the size of the workforce over time. For example, in 2014, DOD officials asserted that workforce size has not kept pace with the increasing amount and complexity of the acquisition workload. Between FY2008 and the first quarter of FY2016, the acquisition workforce grew by 24% (30,434 employees) (see Figure 1 ). These gains are partially attributable to an initiative launched by then Secretary of Defense Robert Gates in April 2009, which sought to significantly increase the size of the acquisition workforce by FY2015. According to DOD, the Department accomplished its strategic objective to rebuild the acquisition workforce (from 126,000 in 2011 to over 150,000) despite major barriers such as sequestration, furloughs, and hiring freezes. Officials also stated that DOD certification and education levels have improved significantly: currently, over 96 percent of the workforce meet position certification requirements and 83 percent of the workforce have a bachelor's degree or higher. In addition, DOD "has reshaped and positioned the workforce for future success by strengthening early and mid-career workforce year groups." Acquisition Workforce Size and Defense Contract Spending According to DOD, from 2001 to 2015, the size of the acquisition workforce increased by approximately 21%. Over the same period, DOD contract obligations (adjusted for inflation) increased at approximately 43% (see Figure 3 ). The definition of the acquisition workforce, and the methodology for counting the workforce, has evolved over the years. As such, historical data on the size of the acquisition workforce prior to FY2005 may contain inconsistent measures from year to year. For a discussion on the reliability of data drawn from the Federal Procurement Data System, see CRS Report R41820, Department of Defense Trends in Overseas Contract Obligations , by [author name scrubbed] and [author name scrubbed]. A closer look at these trends indicates that as spending increased (FY2001-FY2008), the acquisition workforce shrunk; as spending declined (FY2008-FY2015), the acquisition workforce grew. As the dollars spent on contracting increased (as have the complexity and workload of contracting), from a long-term workforce planning perspective, it could be preferable for the size of the workforce to expand along with—and not in negative correlation to—spending increases. Congressional Efforts to Improve the Acquisition Workforce Congress has pursued numerous efforts to improve the capability and performance of the acquisition workforce, including (but not limited to) the following: 1. the Defense Acquisition Workforce Improvement Act ( P.L. 101-510 ), 2. hiring and pay flexibilities (e.g., P.L. 110-417 ), 3. the Defense Acquisition Workforce Development Fund ( P.L. 110-181 ), and 4. strategic planning for the acquisition workforce ( P.L. 111-84 ). These four tools aim to enhance the training, recruitment, and retention of acquisition personnel by, respectively, establishing (1) professional development requirements, (2) monetary incentives and accelerated hiring, (3) dedicated funding for workforce improvement efforts, and (4) formal strategies to shape and improve the acquisition workforce. Defense Acquisition Workforce Investment Act (DAWIA) DAWIA, enacted in 1990, was intended to address identified knowledge and skill deficiencies in the acquisition workforce. The act mandated the development of education, training, and qualification requirements for designated acquisition positions. For example, DAWIA directed the Secretary of Defense to develop formal career paths for acquisition positions that include education and training that facilitate progression along those paths. Part of the logic behind DAWIA was the recognition that it is not enough to have an appropriately sized acquisition workforce; the skills and abilities of the workforce are critical to acquisition success. A key tool for implementing DAWIA is the Defense Acquisition University (DAU), which was established by DAWIA in 1990. DAU provides standardized training and coursework necessary to receive required certifications for positions in each acquisition career field. For example, a GS-11 Contract Administrator position at the Defense Contract Management Agency requires candidates to receive level II contracting certification from DAU within 24 months of entrance on duty. To be eligible for certification, the employee must successfully complete nine contract-related DAU courses, have two years of contract experience, and possess the listed education requirements. DAU certifications are only available to DOD employees in DAWIA-coded positions. Hiring and Pay Flexibilities Congress and the Office of Personnel Management have authorized hiring and pay flexibilities to enhance recruitment and retention of qualified personnel, including those in the acquisition workforce. Hiring flexibilities are intended to enhance employee recruitment by simplifying and accelerating the hiring process, often by waiving some or all competitive hiring requirements in Title 5 of the United States Code (such as veterans' preference). Pay flexibilities are intended to enhance employee retention by providing employees with higher or additional compensation that is not typically provided or available to all federal employees. Hiring and pay flexibilities can be government-wide or agency-specific. Some hiring and pay flexibilities have been authorized exclusively for the acquisition workforce. Defense Acquisition Workforce Development Fund (DAWDF) DAWDF, enacted in 2008, provides annual dedicated funding to education, training, recruitment, and retention initiatives for the acquisition workforce. For example, according to DOD, roughly 54% of FY2015 DAWDF obligations were used for recruitment (such as job fairs) and were used to hire 799 new acquisition personnel. Further, 39% of FY2015 DAWDF obligations financed training and development activities, such as adding or modernizing DAU courses. The law requires DOD to credit specified amounts to the fund each year, which can be reduced to a specified lower amount if determined as sufficient by the Secretary of Defense. For instance, DOD credited $560 million to the fund rather than the required $700 million in FY2015. The NDAA for FY2016 required DOD to credit $500,000 to the fund, which can be reduced to $400,000 if the Secretary of Defense determines that the lower amount is sufficient. The House version of the NDAA for FY2017, however, includes language that would allow the Secretary to credit $0 to the fund in FY2017. The accompanying report states that this provision "addresses an overfunding of the fund that has resulted from carryovers from prior years." Strategic Workforce Plan for the Acquisition Workforce In section 1108 of the FY2010 NDAA (as amended), Congress required DOD to submit to Congress a biennial strategic workforce plan aimed at shaping and improving the civilian workforce, including a separate chapter discussing the acquisition workforce. By statute, this chapter is to address specifically shaping and improving the acquisition workforce (including military and civilian personnel). DOD's Fiscal Years 2013 -2018 Strategic Workforce Plan Report (submitted July 2012) incorporated acquisition workforce issues into the report. However, Appendix 1 of the report, reserved for a stand-alone discussion on the "Acquisition Functional Community," was blank, with the page reading "This report has not been submitted." The most recent strategic workforce plan posted on the Defense Acquisition University website is dated April 2010. Similarly, acquisition workforce strategic plans for the military services date to 2010 or earlier. According to DOD officials, the Office of the Undersecretary of Defense for AT&L expects to release its updated FY2016-FY2021 Acquisition Workforce Strategic Plan before the end of fiscal year 2016. Potential Questions for Congress Despite recent efforts, many observers believe that DOD still faces significant challenges in improving the performance of the workforce responsible for defense acquisitions. The extent to which DOD is successful in improving the workforce may depend, in part, on congressional action. Answering the following questions could help Congress determine what, if any, further actions it deems necessary to try to improve the performance of the workforce responsible for acquisitions. Developing the Acquisition Workforce Just as the total force of the Department of Defense consists of active and reserve military, civilian personnel, and contractor support, so too the acquisition workforce relies on active and reserve military, civilian, and contractor personnel to manage acquisitions. DOD Instruction 1100.22, Policy and Procedures for determining Workforce Mix, lays out the policies and procedures for determining the appropriate mix of military, civilian, and contractor personnel (including inherently governmental activities). Guidance generally requires the use of cost as a deciding factor in determining the workforce mix and mandates the default use of DOD civilian personnel, when consistent with statute and DOD regulations. Developing an appropriate workforce mix can be difficult due to budgetary, statutory, and regulatory constraints. Potential oversight questions for Congress may include the following: 1. What is the appropriate size of the acquisition workforce? 2. Does the acquisition workforce have the right mix of military, civilian, and contractor personnel? 3. What is the proper role of contractors in supporting program management offices? 4. What is the proper role and use of hiring and pay flexibilities to recruit and retain qualified acquisition professionals? Are the flexibilities achieving the desired results? 5. In what ways is DAU fulfilling, or not fulfilling, the mission and functions that Congress established with its creation? 6. What, if any, gaps in DAU's ability to keep its staff and curriculum current with, and adaptive to, ever changing subject specialties could be remedied by amendments to the university's authorizing statute? 7. Are DAWIA certifications creating a well-qualified, appropriately balanced, and professional workforce? Beyond the "Acquisition" Workforce A number of the activities critical to successful acquisitions—such as requirements development and budgeting—are beyond the authority or control of the acquisition workforce. Potential oversight questions for Congress may include the following: 1. To what extent should efforts to improve acquisitions focus on the training and development of non-acquisition personnel who play critical roles in the acquisition process? 2. To what extent are the incentives of the acquisition workforce and the broader workforce responsible for successful acquisitions sufficiently aligned? 3. To what extent are the acquisition-related duties of the non-acquisition workforce sufficiently prioritized as core responsibilities? DOD's Strategic Human Capital Plan for the Acquisition Workforce A 2015 GAO report on strategic planning for the acquisition workforce found that, in the absence of an updated workforce strategy, DOD may "not be positioned to meet future workforce needs." Potential oversight questions for Congress may include the following: 1. To what extent is DOD taking a strategic approach to developing and managing the acquisition workforce? 2. To what extent are the military departments taking a strategic approach to developing and managing the acquisition workforce? 3. For which acquisition career fields is DOD having the most difficulty in recruiting and/or retaining federal employees? 4. Are there any gaps in the appropriate skills, competencies, and experiences of senior acquisition professionals to direct, and exercise oversight of, the work of both defense acquisition personnel and contract acquisition workers, and what activities are underway within DOD to remedy any such deficiencies? 5. To what extent, if any, should the Under Secretary for AT&L have authority over the acquisition workforce?

Congress and the executive branch have long been frustrated with waste, mismanagement, and fraud in defense acquisitions and have spent significant resources seeking to reform and improve the process. Efforts to address wasteful spending, cost overruns, schedule slips, and performance shortfalls have continued unabated, with more than 150 major studies on acquisition reform since the end of World War II. Many of the most influential of these reports have articulated improving the acquisition workforce as the key to acquisition reform. In recent years, Congress and the Department of Defense (DOD) have sought to increase the size and improve the capability of this workforce. The acquisition workforce is generally defined as uniformed and civilian government personnel, who are responsible for identifying, developing, buying, and managing goods and services to support the military. According to DOD, as of December 31, 2015, the defense acquisition workforce consisted of 156,457 personnel, of which approximately 90% (141,089) were civilian and 10% (15,368) were uniformed. Between FY1989 and FY1999, the acquisition workforce decreased nearly 50% to a low of 124,000 employees. This decline is attributable in large part to a series of congressionally mandated reductions between FY1996 and FY1999. These cuts reflected Congress's then-view that the acquisition workforce size was not properly aligned with the acquisition budget and the size of the uniformed force. A number of analysts believe that these cuts led to shortages in the number of properly trained, sufficiently talented, and experienced personnel, which in turn has had a negative effect on acquisitions. In an effort to rebuild the workforce, between FY2008 and the first quarter of FY2016, the acquisition workforce grew by 24% (30,434 employees). According to DOD, the Department accomplished its strategic objective to rebuild the workforce. Officials stated that certification and education levels have improved significantly: currently, over 96% of the workforce meet position certification requirements and 83% have a bachelor's degree or higher. In addition, DOD officials stated that they have positioned the workforce for long-term success by strengthening early and mid-career workforce cohorts. The increase in the size of the workforce has not kept pace with increased acquisition spending. According to DOD, from 2001 to 2015, the acquisition workforce increased by some 21%. Over the same period, contract obligations (adjusted for inflation) increased approximately 43%. While this increase in spending does not necessarily argue for increasing the size of the workforce, according to DOD officials, the increased spending has also corresponded to an increase in the workload and complexity of contracting. Four congressional efforts to improve the acquisition workforce are: the Defense Acquisition Workforce Improvement Act (P.L. 101-510), hiring and pay flexibilities enshrined in numerous sections of law, the Defense Acquisition Workforce Development Fund (P.L. 110-181), and strategic planning for the acquisition workforce (P.L. 111-84). These four efforts seek to enhance the training, recruitment, and retention of acquisition personnel by, respectively, establishing (1) professional development requirements, (2) monetary incentives and accelerated hiring, (3) dedicated funding for workforce improvement efforts, and (4) formal strategies to shape and improve the acquisition workforce.

Introduction Most federal and state programs of financial assistance to poor and low-income families either increase income or subsidize the purchase of goods and services to help them meet their basic, immediate consumption needs. The exceptions are education and training programs, that seek to build "human capital." More recently, Individual Development Accounts (IDAs) have been developed to help low-income families build financial capital. IDA programs are operated by community-based organizations (including faith-based organizations), as well as state and local governments in partnership with community-based organizations. From the participant's viewpoint, IDAs operate much like retirement 401(k) plans: the participant makes contributions, which are matched (at varying rates) by the program. Withdrawals from IDAs are restricted. Funds can be withdrawn to finance specific activities and purchases—generally, education, the purchase of a home, and to start a business. An individual's contributions may also be withdrawn for other purposes, but this leads to the loss of matching funds. In addition to providing matching funds for accounts, IDA programs also provide financial literacy education, case management, and supportive services to participants. This report describes IDA programs funded by two major federal grants: the Assets for Independence (AFI) Act of 1998 and the Temporary Assistance for Needy Families (TANF) program created in the 1996 welfare reform law. Other federal initiatives that provide for more targeted IDAs (e.g., for refugees and for families in assisted housing) are not discussed in this report. Assets for Independence Act Demonstrations The Assets for Independence Act (AFI, P.L. 105-285 ) authorized up to $25 million per year for FY1999 to 2003 for competitively awarded IDA demonstration programs. Congress has continued the AFI program absent an authorization. The Department of Health and Human Service (HHS) administers the AFI program. Table 1 provides a funding history for IDAs under the AFI program. AFI is funded at $19 million for FY2014. AFI grantees must raise nonfederal funds to operate AFI IDAs. The AFI federal grant to an individual grantee cannot exceed the lesser of (1) the amount of nonfederal resources raised for the program, or (2) $1 million. What Types of Organizations May Operate AFI IDAs? The AFI Act authorizes competitive grants for IDA programs to nonprofit organizations; state, local, and tribal governments that apply with non-profits; credit unions; and organizations designated by the Secretary of the Treasury as community development financial institutions. Credit unions and community development financial institutions must demonstrate a collaborative relationship with local community-based organizations whose activities are designed to address poverty. Faith-based organizations may also operate IDA programs. Additionally, the AFI Act "grandfathers" in eligibility to operate an IDA program to state programs funded at $1 million or higher that were in operation on the date of enactment. "Grandfathered" state programs need not comply with AFI's rules. Under this provision, Pennsylvania and Indiana received AFI funds. Who May Participate in AFI IDAs? Participation in AFI Act IDA programs is limited to persons who are eligible for TANF assistance; or live in a household with income below 200% of the poverty line or have and have a net worth of less than $10,000. The net worth test takes into account the market value of all assets except the household's primary residence and the value of one motor vehicle. IDAs may be established for the benefit of the participant, as well as his/her spouse and dependents. Since IDAs are targeted to low-income families who might qualify for government aid based on low income and assets, the AFI Act requires that IDA funds be ignored when determining eligibility for federal assistance programs. What Are the Contributions and Match Rules in AFI IDAs? Participants are required to contribute to their IDA with cash or a check. Contributions from earnings are matched by a minimum $1 for each $1 in participant contributions. Matching amounts are funded from both federal and nonfederal sources, with a minimum 50% funded from nonfederal sources. Maximum matching amounts from federal funds are limited to $2,000 for any one individual and $4,000 for any one household. For What Activities May a Participant Withdraw Funds from the IDA? Participants may withdraw their contributions, match funds, and interest for specified purposes. These specified purposes are as follows: Post-secondary educational expenses. Payments are made directly from the IDA to an educational institution for tuition, fees, books, supplies, and equipment. The purchase of a home. Payments are made directly from the IDA to cover the acquisition costs (including the closing costs) of the home. The acquisition costs cannot exceed 120% of the average purchase price of similar residences in the area. Starting a business. The IDA may be used to finance expenditures under a business plan to acquire plant, equipment, working capital and finance inventory expenses. The business plan must be approved by a financial institution, micro enterprise development organization, or a nonprofit loan fund. Can Participants Make Withdrawals for "Emergency" Expenses? The AFI Act allows participants to withdraw their contributions from the IDA to pay medical expenses for the participant and his/her spouse or dependents; payments to prevent the eviction of the participant from her home; and necessary living expenses following loss of employment. Match funds and interest earnings cannot be withdrawn for these emergency expenses. What Additional Benefits and Services are Offered in an IDA Program? Under the AFI Act, IDA programs must use funds to provide financial literacy education (economic literacy, budgeting, credit, and credit counseling) to IDA participants. Of the federal and nonfederal funds used in the IDA program, up to 15% may be used for such financial literacy, administration, and assisting with an evaluation of the program. AFI Evaluation Requirements As a demonstration program, the AFI Act IDA program has an evaluation component. Organizations operating IDAs are required to submit annual progress reports to the Secretary of Health and Human Services (HHS) and HHS is required to submit periodic reports to Congress. Additionally, the AFI law required an evaluation, which was conducted by the Abt Research organization. TANF Program IDAs Temporary Assistance for Needy Families (TANF) is a federal block grant that gives states broad flexibility in the use of its funds in aiding needy families with children. Generally, TANF funds (and required state monies spent under its "maintenance of effort" requirement) can be used to further any of its statutory goals. In addition, TANF provides specific authority and rules for states to operate IDA programs. States may use TANF and state maintenance of effort funds for IDAs either as an activity that furthers the statute's broad goals, in which case it must conform only to general TANF rules, or under TANF's specific authority to use funds for IDAs, in which case it must follow TANF's specific IDA rules. TANF's Specific IDA Rules The TANF law provides explicit authority for states to use federal block grant funds for IDA programs and rules for their operation. Under this provision, IDA programs may be established for individuals eligible for TANF assistance who may make contributions from earned income to the account. Many of the rules for the TANF IDA are similar to the rules under the AFI Act: contributions are to be matched through a nonprofit organization or a state and local government (though there are no limits to matching rates or amounts); withdrawals may be made for educational expenses, purchase of a first home, or starting a business; and the IDA is not to be considered when determining the financial eligibility status of a recipient applying for or receiving federal aid. Eligibility to participate in TANF IDA programs is limited to those "eligible" for TANF assistance. There are no provisions for "emergency" withdrawals from TANF IDAs. IDAs Under TANF's General Use of Funds Provisions As mentioned above, IDAs may also be established under TANF's authority to permit federal and state funds to be used to accomplish any TANF purpose. Except for general requirements regarding the use of TANF funds, states are free to design IDA programs without regard to federal limits and rules. For example, such IDAs may be established for purposes other than educational expenses, home purchase, or starting a business—such as purchasing a car. Additional Reading Boshara, Ray. Individual Development Accounts: Policies to Build Savings and Assets for the Poor. Brookings Institution Policy Brief, Welfare Reform and Beyond #32. March 2005. Sheridan, Michael. Assets and the Poor. M.E. Sharpe Inc., Armonk, New York. 1991.

Individual Development Accounts (IDAs) are savings accounts to help low-income families and persons save for specified purposes, usually education, purchase of a home, or to start a business. IDA programs match an individual's contributions, much like retirement 401(k) accounts. The Assets For Independence (AFI) Act, enacted by Congress in 1998, specifically authorizes IDA demonstration programs. Authorization for the AFI program expired at the end of FY2003, though Congress continued to appropriate money for the program. AFI is funded at $19.026 million for FY2014.

Background While the U.S. Constitution assigns explicit roles in the Supreme Court appointment process only to the President and the Senate, the Senate Judiciary Committee, throughout much of the nation's history, has also played an important, intermediary role. From 1816, when the Judiciary Committee was created, until 1868, more than two-thirds of nominations to the Supreme Court were referred to the committee, in each case by motion. In 1868, the Senate determined, as a general rule, that all nominations should automatically be referred to appropriate standing committees. Since then, all but seven Supreme Court nominations, with the most recent being in 1941, have been referred to the Judiciary Committee. Since the late 1960s, the Judiciary Committee's consideration of a Supreme Court nominee almost always has consisted of three distinct stages—(1) a pre-hearing investigative stage, followed by (2) public hearings, and concluding with (3) a committee decision on what recommendation to make to the full Senate. Pre-Hearing Stage Committee Questionnaire Upon the President's announcement of a nominee, the Judiciary Committee typically initiates an intensive investigation into the nominee's background. One primary source of information is a committee questionnaire to which the nominee responds in writing. The questionnaire asks the nominee for detailed biographical and financial disclosure information, with responses to some questions requiring the retrieval, listing, and summarizing of voluminous information about the nominee's past experiences or activities. The questionnaire also asks the nominee about the selection process that he or she experienced prior to being nominated by a President, including the circumstances which led to the nominee's nomination and any interviews with administration officials and others that he or she had prior to being selected. Because of the labor-intensive nature of the task, an Administration typically will aid the nominee in preparing and transmitting the questionnaire to the Judiciary Committee. A chief purpose of the questionnaire is to provide members of the Judiciary Committee and their staffs with detailed pre-hearing information about the nominee. After delivery of the completed questionnaire to the committee, however, some Members may formally request in writing that the nominee provide additional information to clarify or expand on what he or she has already submitted. The nominee may then provide the committee with written responses to specific questions from the Senators, which in turn are made available as supplements to the questionnaire to all committee members prior to the start of the nominee's confirmation hearings. Committee Background Investigation The Judiciary Committee's confidential background investigation of a Supreme Court nominee closely reviews, among other things, the nominee's past professional activities. In this review, committee members and staff examine the mission of entities that employed or otherwise retained the services of the nominee and the nature and quality of the work product of the nominee while in that service. To this end, the committee might seek and attain access to the nominee's confidential written work product or to other documents that the past employer might consider of an internal nature and ordinarily not suitable for public release. If the nominee's background includes prior service in the federal executive branch, the Judiciary Committee as a whole, or some of its members, can be expected to seek access to records of the nominee's written work product from that service. Sometimes, however, a President might resist such requests, citing the need to protect the confidentiality of advice provided, or decisions made, by the nominee while having served within an Administration—and typically invoking an "executive privilege" or attorney-client privilege to support his refusal to make such information available to the Judiciary Committee. In such an event, committee members or their staff might then devote a significant amount of time, prior to confirmation hearings, to identifying and justifying disclosure of specific kinds of documents that would aid the committee in making a more informed evaluation of the nominee—as well as to examining whatever documents are eventually released. In some cases, the committee may be in a position to exert leverage over an Administration, particularly when a majority of the committee's members are insistent that at least some executive branch documents be released before the committee will act on the nomination. This, a CRS report notes, was the case in 1986, when the Judiciary Committee prepared to consider the nomination of William H. Rehnquist to be Chief Justice. During the confirmation proceeding for the elevation of Justice Rehnquist to be Chief Justice, the Judiciary Committee sought documents that he had authored on controversial subjects when he headed DOJ's Office of Legal Counsel. President Reagan asserted executive privilege, claiming the need to protect the candor and confidentiality of the legal advice submitted to Presidents and their assistants. But with opponents of Rehnquist [in the Judiciary Committee] gearing up to issue a subpoena, the nomination of not only Rehnquist but that of Antonin Scalia to be an Associate Justice, whose nominations were to be voted on in tandem, were in jeopardy. President Reagan agreed to allow the Committee access to a smaller number of documents, and Rehnquist and Scalia were ultimately confirmed. In addition to the committee's own investigation of the nominee, confidential FBI reports on the nominee are another important information source. These are available only to committee members and a small number of designated staff under strict security procedures designed to prevent unauthorized disclosure. Courtesy Calls During the pre-hearing stage, the nominee, in accordance with long-standing tradition, visits Capitol Hill to pay "courtesy calls" on individual Senators in their offices. For Senators not on the Judiciary Committee, that may be the only opportunity to converse in person with the nominee before voting on his or her confirmation to the Court. Senators may use these meetings to gain firsthand impressions of the nominee and to discuss with the nominee issues that are important to them in the context of the nomination. Evaluation by the American Bar Association Also during the pre-hearing stage, the nominee is evaluated by the American Bar Association's Standing Committee on the Federal Judiciary, which is publicly committed to providing the Senate Judiciary Committee with an impartial evaluation of the qualifications of each Supreme Court nominee. A publication of the ABA committee stresses that each evaluation focuses strictly on the candidate's "professional qualifications: integrity, professional competence and judicial temperament" and does "not take into account [his or her] philosophy, political affiliation or ideology." Performance of this evaluation role, the committee states, is intended to help "ensure that the most qualified persons serve on the federal judiciary." At the culmination of its evaluation, the ABA committee votes on whether to rate a nominee "well qualified," "qualified," or "not qualified." The rating of the ABA committee is then reported to each member of the Senate Judiciary Committee, as well as to the White House, the Department of Justice, and the nominee. Invariably, a nominee's ABA rating receives prominent news coverage when it is sent to the Senate Judiciary Committee. In the past, a unanimously positive rating by the ABA committee has almost always presaged a favorable report by the Judiciary Committee on the nominee as well. Conversely, a divided vote, or less than the highest rating, by the ABA committee usually served to flag issues about the nominee for the Senate Judiciary Committee to examine at its confirmation hearings, and these issues in turn have sometimes been cited by Senators on the Judiciary Committee who voted against reporting a nomination favorably to the Senate floor. For the most part, from its inception in the late 1940s, and continuing through the next three decades, the ABA committee evaluated Supreme Court nominees, as well as nominees to lower court judgeships, with bipartisan support in the Senate. In the 1980s and 1990s, however, the committee came under criticism from some Senators who questioned its impartiality and the usefulness of its evaluations to the Judiciary Committee. Notwithstanding those criticisms, and variations in the recognition afforded it by chairs of the Judiciary Committee, the ABA committee has continued, in recent Congresses, to appear on a regular basis before the Judiciary Committee under both Republican and Democratic chairs. In keeping with long-standing practice, the ABA committee chair was the first public witness to testify at Supreme Court confirmation hearings in 2005, 2006, and 2009—to explain the ABA committee's rating of nominees John G. Roberts Jr., Samuel A. Alito Jr., and Sonia Sotomayor, respectively. At the Alito hearings, the then-chair of the Judiciary Committee, Senator Arlen Specter (R-PA), observed that, in receiving the testimony of outside witnesses at Supreme Court confirmation hearings, "our tradition is to hear first from the American Bar Association and their evaluation of the judicial nominee." Most recently, in 2010, in a minor break from this tradition, the ABA committee chair was not the first public witness to testify at the confirmation hearings for Supreme Court nominee Elena Kagan, but testified in a third panel of public witnesses (testifying first among those panelists). Public Debate Meanwhile, it is common, well before the start of confirmation hearings, for public debate to begin on a nominee's qualifications and on the meaning of the nomination for the future of the Court. Much of this debate is waged by commentators in the news media and increasingly, in recent years, on internet sites and by advocacy groups that actively support or oppose a nominee. Senators, too, sometimes contribute to this debate in Senate floor statements or other public remarks. Moreover, if a nominee is not quickly selected, groups who see their interests to be at stake by a new Court appointment can be expected to begin mobilizing members, or seeking to affect public or Senate opinion, before the President even selects a nominee. Their purpose in doing so might be to influence the President's choice or to galvanize the groups' members and political allies in anticipation of whomever the President ultimately chooses to nominate. If the President's choice of a nominee proves to be divisive, the pre-hearing phase will be of strategic concern to both those groups which support the nominee's nomination, as well as to those groups which oppose it. During this phase, a political analyst has noted, "both sides will move quickly to try to define the nominee." The analysis, published in July 2005, only days after Justice Sandra Day O'Connor announced her intention to retire, considered what might happen if President George W. Bush's choice to succeed Justice O'Connor immediately polarized the Senate along party lines. In that event, it predicted the following scenario prior to the nominee's confirmation hearings: First impressions are lasting impressions. If Republicans can create a positive image of a Bush Supreme Court nominee in the public's mind right out of the gate, that could help the nominee withstand later efforts by critics to portray him or her as an extremist. Conversely, if Democrats can quickly paint the president's choice as ideologically driven and far out of the mainstream, that could be a deathblow. However, even if a nominee is not a "consensus" choice attracting immediate support across the political spectrum, the pre-hearing stage will not necessarily be marked by sharp polarization in the Senate (or by the immediate emergence of Senate opposition). Such partisan division, for instance, was absent when President G.W. Bush, on July 19, 2005, announced his selection of U.S. appellate court judge John G. Roberts Jr. to succeed Justice O'Connor. While "[l]iberal advocacy groups immediately assailed Roberts for his positions on abortion and other issues," and "Republican senators quickly rallied behind Roberts," Senate Democrats withheld immediate criticism of the nominee—reportedly out of concern about falling into what the Senate Democratic leader, according to aides, "considered a Republican trap of condemning a nominee before hearings." Similarly, after President Obama selected Sonia Sotomayor, Republican Senators spoke "in cautious but measured tones about Sotomayor's qualifications and fitness for the court while Democrats" joined "the White House in singing her praises." Another news account noted that "Senate Republicans responded with restraint to the announcement [of Sotomayor's nomination], and their largely muted statements stood in sharp contrast to the fractious partisanship that has defined court battles in recent decades." Preparation for Hearings As confirmation hearings approach, Judiciary Committee members and staff closely study the public record and investigative information compiled on the nominee, and with the benefit of such research, they prepare questions to pose at the hearings. Sometimes committee members indicate in advance, either publicly or by communicating directly with the nominee, the kind of questions they intend to ask at the hearings. For his or her part, the nominee also intensively prepares for the hearings, focusing particularly on questions of law and policy likely to be raised by committee members. The Administration assists the nominee in this effort by providing legal background materials and by conducting mock hearing practice sessions for the nominee. At these sessions—also called "murder boards," because of "their grueling demands on a judicial nominee" —the nominee is questioned on the full range of legal and constitutional issues that Senators on the Judiciary Committee can be expected to raise at the nominee's confirmation hearings. Hearings Supreme Court nominations since 1949 have routinely received public confirmation hearings before either the Senate Judiciary Committee or a Judiciary subcommittee. In 1955, hearings on the Supreme Court nomination of John M. Harlan marked the beginning of a practice, continuing to the present, of Court nominees testifying in-person before the Senate Judiciary Committee. Additionally, in 1981, Supreme Court confirmation hearings were opened to gavel-to-gavel television coverage for the first time when the committee instituted the practice at the confirmation hearings for nominee Sandra Day O'Connor. A confirmation hearing typically begins with a statement by the chair of the Judiciary Committee welcoming the nominee and outlining how the hearing will proceed. Other members of the committee follow with opening statements, and a panel of "presenters" introduces the nominee to the committee. It is then the nominee's turn to make an opening statement, after which begins the principal business of the hearing—the questioning of the nominee by Senators serving on the Judiciary Committee. Typically, the chair begins the questioning, followed by the ranking minority Member and then the rest of the committee in descending order of seniority, alternating between majority and minority members, with a uniform time limit for each Senator during each round. When the first round of questioning has been completed, the committee begins a second round, which may be followed by more rounds, at the discretion of the committee chair. Nominations That Did Not Receive a Committee Hearing Overall, from the nomination of Tom Clark in 1949 through the nomination of Neil Gorsuch in 2017, 34 of 38 Supreme Court nominations (89%) received hearings. Four nominations did not receive hearings—the nomination of John Harlan in 1954 (renominated and confirmed in 1955); John Roberts Jr. in 2005 (renominated to be Chief Justice and confirmed in 2005); Harriet Miers in 2005; and Merrick Garland in 2016. The most recent nomination not to receive a hearing, the nomination of Merrick Garland by President Obama, is the second nomination to the Court since 1949 for which no hearings were scheduled (hearings had been scheduled for the Roberts and Miers nominations prior to both nominations being withdrawn by the President). The Garland nomination is, however, distinct from the nomination of Mr. Harlan in 1954 in that Mr. Harlan's nomination was resubmitted in 1955, hearings were held on that nomination, and Mr. Harlan was subsequently confirmed by the Senate. Number of Days from Nomination to First Committee Hearing For nominees since 1975 who have received hearings, Figure 1 shows the number of days that elapsed from the date on which the nomination was formally submitted to the Senate to the date on which the nominee had his or her first hearing before the Judiciary Committee. Of the 14 nominees listed in the figure, Robert Bork waited the greatest number of days (70) from nomination to his first committee hearing, while John G. Roberts Jr. waited the fewest number of days (6)—followed closely by John Paul Stevens (7). The Bork nomination, controversial at the time, was ultimately rejected by the Senate, while the Roberts nomination to be Chief Justice was to fill an immediate vacancy on the Court after Chief Justice Rehnquist's death in 2005. Note that Judge Roberts was initially nominated to fill the vacancy that would be created by the retirement of Justice Sandra Day O'Connor. While his nomination was pending for that anticipated vacancy, Chief Justice Rehnquist died on September 3, 2005. Following Chief Justice Rehnquist's death, Judge Roberts's nomination for the anticipated O'Connor vacancy was withdrawn and he was instead nominated to fill the immediate vacancy created by Chief Justice Rehnquist's death. At the time he was nominated for the Chief Justice position, Judge Roberts's nomination to replace Justice O'Connor had been pending for 39 days. Judge Roberts's nomination to the Chief Justice position only delayed his already-scheduled confirmation hearings to replace Justice O'Connor by several days. Altogether, considering both of his nominations, Judge Roberts waited a total of 45 days from the initial nomination to replace Justice O'Connor to the first committee hearing date to replace Chief Justice Rehnquist. As shown by Figure 1 , this 45-day interval is similar to the wait time experienced by other recent nominees. For the 15 nominees listed in Figure 1 , the average number of days from nomination to first committee hearing is approximately 40 days, while the median is 42 days. If 45 days (rather than 6 days) is used as the time interval that Mr. Roberts waited from nomination to his first committee hearing, the average number of days from nomination to first committee hearing is 42 days, while the median is 45 days. For the eight Justices who, as of August 1, 2018, are serving on the Court, the average number of days from nomination to first committee hearing is 44 days, while the median is 48 days. If 45 days (rather than 6 days) is used as the time interval that Judge Roberts waited from nomination to his first committee hearing, the average number of days from nomination to first committee hearing is approximately 49 days, while the median is 48 days. The Kavanaugh Nomination Confirmation hearings for the current nominee to the Court, Judge Brett Kavanaugh, are scheduled to begin on September 4, 2018. If hearings begin on this date, 56 days will have elapsed from Judge Kavanaugh's nomination to first committee hearing. Purposes of Questioning the Nominee For members of the Judiciary Committee, questioning of the nominee may serve various purposes. As already noted, for Senators who are undecided about the nominee the hearings may shed light on the nominee's fitness, and hence on how they should vote. Other Senators, as the hearings begin, may already be "reasonably certain about voting to confirm the nominee," yet "also remain reasonably open to counter-evidence," and thus use the hearings "to pursue a line of questioning designed to probe the validity of this initial favorable predisposition." Still others, however, may come to the hearings "having already decided how they will vote on the nomination" and, accordingly, use their questioning of the nominee to try "to secure or defeat the nomination." A Senator may even be initially undecided about whether he or she supports a nominee of a President belonging to the same party as the Senator. One reason for this is that a Senator might question whether a nominee is sufficiently committed to a particular judicial philosophy or ideological perspective—and, consequently, might view the committee hearings as important in determining whether a nominee might be supportive of the Senator's preferred judicial philosophy or ideological disposition. For some Senators, the hearings may be a vehicle through which to impress certain values or concerns upon a nominee in the hope of influencing how he or she might approach issues later as a Justice. The hearings, to some Senators, also may represent an opportunity to draw the public's attention to certain issues, to advocate their policy preferences, or to associate themselves with concern about certain problems. Senators, it has also been noted, "may play multiple roles in any given hearing." Types of Questions Posed to Nominee In recent decades, most nominees have undergone rigorous questioning in varying subject areas. They have been queried, as a matter of course, about their legal qualifications, private backgrounds, and earlier actions as public figures. Other questions have focused on social and political issues, the Constitution, particular Court rulings, current constitutional controversies, constitutional values, judicial philosophy, and the analytical approach a nominee might use in deciding issues and cases. Still other questions may concern past public statements made by the nominee, or (if the nominee has prior judicial experience) particular rulings handed down by the nominee. To many Senators, eliciting testimony from the nominee may be seen as an important way to gain insight into his or her professional qualifications, temperament, and character. Some Senators, as well, may hope to glean from the nominee's responses signs of how the nominee, if confirmed to the Court, might be expected to rule on issues of particular concern to the Senators. For his or her part, however, a nominee might sometimes be reluctant to answer certain questions that are posed at confirmation hearings. A nominee might decline to answer for fear of appearing to make commitments on issues that later could come before the Court. A nominee also might be concerned that the substance of candid responses to certain questions could displease some Senators and thus put the nominee's chances for confirmation in jeopardy. For their part, committee members may differ in their assessments of a nominee's stated reasons for refusing to answer certain questions. Some may be sympathetic and consider a nominee's refusal to discuss certain matters of no relevance to his or her fitness for appointment, or as illustrative of a commendable inclination not to be "pinned down" on current legal controversies. Others, however, may consider a nominee's views on certain subjects as important to assessing the nominee's fitness and hence regard unresponsiveness to questions on these subjects as sufficient reason to vote against confirmation. Protracted questioning, occurring over several days of hearings, is likely if a nominee is relatively controversial or is perceived by committee members to be evasive or insincere in responding to certain questions, or if Senators perceive certain issues to merit extended discussion. Public Witnesses After questioning of the nominee has been completed, the committee, in subsequent days of hearings, also hears testimony from public witnesses. As stated earlier, among the first to testify in recent decades has been the chair of the ABA's Standing Committee on the Federal Judiciary, who explains the committee's rating of a nominee. Other witnesses ordinarily include professional colleagues of a nominee or representatives of advocacy groups which support or oppose a nominee. Closed-Door Committee Session In a practice instituted in 1992, the Judiciary Committee also conducts a closed-door session with each Court nominee. This session is held to address any questions about the nominee's background that confidential investigations might have brought to the committee's attention. In announcing this procedure in 1992, the then-chair of the committee, Senator Joseph R. Biden Jr. (D-DE), explained that such a hearing would be conducted "in all cases, even when there are no major investigative issues to be resolved so that the holding of such a hearing cannot be taken to demonstrate that the committee has received adverse confidential information about the nomination." The first such closed-door session was held for Supreme Court nominee Ruth Bader Ginsburg in 1993. Most recently, such sessions were held in 2005, 2006, 2009, 2010, and 2017 for nominees John G. Roberts Jr., Samuel A. Alito Jr., Sonia Sotomayor, Elena Kagan, and Neil Gorsuch, respectively. At the Roberts, Alito, and Kagan confirmation hearings, a brief executive session was held after the Judiciary Committee had concluded all of its rounds of questions for the nominees but before it received outside witness testimony. At the Sotomayor confirmation hearings, an executive session was held between the Judiciary Committee's first and second rounds of questions for the nominee. Reporting the Nomination Reporting Favorably, Negatively, or Without Recommendation Usually within a week of the end of hearings, the Judiciary Committee meets in open session to determine what recommendation to report to the full Senate. The committee may (1) report the nomination favorably, (2) report it negatively, or (3) make no recommendation at all on the nomination. A report with a negative recommendation or no recommendation permits a nomination to go forward, while alerting the Senate that a substantial number of committee members have reservations about the nomination. Figure 2 shows, for the 15 nominations reported by the Judiciary Committee since 1971, whether the nomination was reported favorably (identified in columns with blue dots) or other than favorably (identified in column with orange dots). For nominations reported favorably, the level of support among committee members is indicated as follows: (1) unanimous support (i.e., no opposition by committee members); (2) almost unanimous support (opposition by one committee member); (3) some opposition (opposition by two or more committee members, but with the nomination also receiving the support of at least two members not belonging to the President's party); (4) almost party-line opposition (opposition by all but one committee member not belonging to the President's party); and (5) party-line opposition (opposition by all committee members not belonging to the President's party). The number of colored circles at the top of each column indicates the number of nominees in each particular category. Of the 13 nominations reported favorably, 6 were reported with unanimous support (while another 1 was reported with nearly unanimous support). The most recent nomination to be reported with unanimous support by the committee was that of Stephen Breyer in 1994. None of the five most recent nominations to the Court were reported unanimously or almost unanimously. The Roberts nomination was reported with some opposition (three committee members not belonging to the President's party supported the nomination), while the Sotomayor and Kagan nominations were reported with almost party-line opposition (one committee member not belonging to the President's party supported the nominations). The nominations of Samuel Alito and Neil Gorsuch were reported with complete party-line opposition (only committee members belonging to the President's party voted to report the nomination favorably). Two nominations included in Figure 2 were not reported favorably, those of Robert Bork (reported unfavorably after the committee defeated a motion, 5-9, to report the nomination favorably) and Clarence Thomas (reported without recommendation after the committee defeated a motion, 7-7, to report the nomination favorably). If a majority of its members oppose confirmation, the committee technically may decide not to report a nomination, which would prevent the full Senate from considering it. However, since its creation in 1816, the Judiciary Committee's typical practice has been to report even those Supreme Court nominations that were opposed by a committee majority, thus allowing the full Senate to make the final decision on whether the nominee should be confirmed. This committee tradition was reaffirmed in June 2001 by the committee's then-chair, Senator Patrick J. Leahy (D-VT), and its then-ranking Member, Senator Orrin G. Hatch (R-UT), in a June 29, 2001, letter to Senate colleagues. The committee's "traditional practice," their letter stated, has been to report Supreme Court nominees to the Senate once the Committee has completed its considerations. This has been true even in cases where Supreme Court nominees were opposed by a majority of the Judiciary Committee. We both recognize and have every intention of following the practices and precedents of the committee and the Senate when considering Supreme Court nominees. During the 20 th century, the Senate usually, but not always, agreed with Judiciary Committee recommendations that a Supreme Court nominee be confirmed. In other words, a favorable recommendation by the committee has, in a few instances (each occurring during the period 1968 to 1970), not been followed by Senate confirmation of the nomination. Historically, unfavorable committee reports, or reports without recommendation, have been precursors to nominations encountering substantial opposition in the full Senate, although a few of these nominations have eventually been confirmed by narrow margins. Printed Committee Reports In recent decades, reporting to the Senate frequently has included a printed committee report, although the five most recently reported Supreme Court nominations were done so without printed reports. Prepared behind closed doors, after the committee has voted on the nominee, the printed report presents in a single volume the views of committee members supporting a nominee's confirmation as well as "all supplemental, minority, or additional views ... submitted by the time of the filing of the report.... " No Senate committee, however, is obliged to transmit a printed report to the Senate. Instead, the chair of the Judiciary Committee may file a one-page document reporting a nomination to the Senate and recommending whether the nomination should be confirmed. A printed report may be valuable in providing for Senators not on the Judiciary Committee a review of all of the reasons that the committee's members cite for voting in favor or against a nominee. A written report, however, might not always be considered a necessary reference for the Senate as a whole. For instance, in some cases, Senators not on the Judiciary Committee might believe they have received adequate information about a nominee from other sources, such as from news media reports or gavel-to-gavel video coverage of the nominee's confirmation hearings. Further, preparation of a written report would likely mean additional days for a nomination to stay with the committee before it can be reported to the Senate. In some situations, this might be viewed as creating unnecessary delay in the confirmation process, particularly if there is a desire to fill a Court vacancy as quickly as possible.

The appointment of a Supreme Court Justice is an event of major significance in American politics. Each appointment is of consequence because of the enormous judicial power the Supreme Court exercises as the highest appellate court in the federal judiciary. To receive appointment to the Court, a candidate must first be nominated by the President and then confirmed by the Senate. Although not mentioned in the Constitution, an important role is played midway in the process (after the President selects, but before the Senate considers) by the Senate Judiciary Committee. Specifically, the Judiciary Committee, rather than the Senate as a whole, assumes the principal responsibility for investigating the background and qualifications of each Supreme Court nominee, and typically the committee conducts a close, intensive investigation of each nominee. Since the late 1960s, the Judiciary Committee's consideration of a Supreme Court nominee almost always has consisted of three distinct stages—(1) a pre-hearing investigative stage, followed by (2) public hearings, and concluding with (3) a committee decision on what recommendation to make to the full Senate. During the pre-hearing investigative stage, the nominee responds to a detailed Judiciary Committee questionnaire, providing biographical, professional, and financial disclosure information to the committee. In addition to the committee's own investigation of the nominee, the FBI also investigates the nominee and provides the committee with confidential reports related to its investigation. During this time, the American Bar Association also evaluates the professional qualifications of the nominee, rating the nominee as "well qualified," "qualified," or "not qualified." Additionally, prior to hearings starting, the nominee pays courtesy calls on individual Senators in their offices, including Senators who do not serve on the Judiciary Committee. Once the Judiciary Committee completes its investigation of the nominee, he or she testifies in hearings before the committee. On average, for Supreme Court nominees who have received hearings from 1975 to the present, the nominee's first hearing occurred 40 days after his or her nomination was formally submitted to the Senate by the President. Questioning of a nominee by Senators has involved, as a matter of course, the nominee's legal qualifications, biographical background, and any earlier actions as public figures. Other questions have focused on social and political issues, the Constitution, particular court rulings, current constitutional controversies, and judicial philosophy. For the most recent nominees to the Court, hearings have lasted for four or five days (although the Senate may decide to hold more hearings if a nomination is perceived as controversial—as was the case with Robert Bork's nomination in 1987, who had 11 days of hearings). Usually within a week upon completion of the hearings, the Judiciary Committee meets in open session to determine what recommendation to "report" to the full Senate. The committee's usual practice has been to report even those Supreme Court nominations opposed by a committee majority, allowing the full Senate to make the final decision on whether the nomination should be approved. Consequently, the committee may report the nomination favorably, report it unfavorably, or report it without making any recommendation at all. Of the 15 most recent Supreme Court nominations reported by the Judiciary Committee, 13 were reported favorably, 1 was reported unfavorably, and 1 was reported without recommendation. Additional CRS reports provide information and analysis related to other stages of the confirmation process for nominations to the Supreme Court. For a report related to the selection of a nominee by the President, see CRS Report R44235, Supreme Court Appointment Process: President's Selection of a Nominee, by [author name scrubbed]. For a report related to Senate floor debate and consideration of nominations, see CRS Report R44234, Supreme Court Appointment Process: Senate Debate and Confirmation Vote, by [author name scrubbed]. This report will be updated as action proceeds on the July 10, 2018, nomination of Judge Brett Kavanaugh to fill the vacancy created by the retirement of Justice Anthony Kennedy. As of this writing, committee hearings are scheduled to begin on Judge Kavanaugh's nomination on September 4, 2018.

History of the SGA Differential This different treatment for the blind began with enactment of P.L. 95 - 216 in 1977. During consideration of H.R. 9346 , the Social Security Financing Amendments of 1977, the Senate adopted by a voice vote an amendment by Senator Birch Bayh that provided disability benefits for blind individuals regardless of their ability to work or the amount of money they actually earned. The amendment was identical to S. 753 , a bill introduced by Senator Hubert Humphrey earlier in the year. Speaking in support of this amendment on the Senate floor, Senator Bayh stated, Social security disability insurance was designed to partially replace income loss due to a disability. Congress has previously recognized blindness as a distinct and unique condition. Certain economic consequences predictably follow the disability of blindness. It is comparable with the social security insurance concept to protect the blind from these adverse effects. If persons with a high earning capacity can return to work at all after becoming blind, they do so, almost without exception, at a much lower salary, and continue to suffer an adverse impact on their earning power. Moreover, working in a society adapted to vision entails extra costs for supportive services and special devices. The House-passed version of H.R. 9346 contained no similar provision. In conference, it was agreed that the House would recede with an amendment that struck the provisions of the Senate amendment but provided that the amount of earnings under the test of SGA that would terminate a blind individual's benefits would be increased to the monthly exempt amount for persons at or above the full retirement age (FRA) under the Social Security earnings test. The conferees stated that they were aware that this established a different test of SGA for blind persons than is applied administratively for persons with other disabilities. They went on to say that they did not intend that the new SGA level established for the blind should be applied to other types of disabilities. When the provision became effective in 1978, the SGA for non-blind recipients was $260 a month; for the blind, it was $334 a month, a difference of about 28% (see Figure A-1 in the Appendix). In subsequent years, the different SGA amounts occasionally became subject to debate. In 1988, the Social Security Advisory Council found that the preferential treatment for the blind was inappropriate and recommended that for new applicants the SGA level be lowered to that for all other disabled recipients. The council also recommended that the SGA level for blind persons already on the rolls be frozen at the then-current level ($700 a month). In 1992, the United States District Court for the District of Wyoming found that the higher SGA amount for the blind was unconstitutional because it violated the guarantee of equal protection under the law. The United States Court of Appeals for the 10 th Circuit overturned the district court's ruling, saying that there was a rational basis for Congress to place preferences for blind persons in the law. The Supreme Court refused to review the appeals court's decision. In 1996, when Congress enacted the Contract with America Advancement Act of 1996 ( P.L. 104 - 121 ) to substantially increase the earnings test limit for those who have attained retirement age over a period of five years, reaching $30,000 in 2002, it removed the linkage between the SGA level of the blind and the exempt amount for individuals who have attained the FRA. Instead their SGA level continued as before (i.e., adjusted annually to reflect growth in average wages). During deliberation of the bill, advocates of the blind sought to have the link maintained. During the mark-up of the bill in the Ways and Means Subcommittee on Social Security, an amendment was offered to do so. However, the amendment was rejected. On April 7, 2000, President William Clinton signed into law H.R. 5 , the Senior Citizens' Freedom to Work Act ( P.L. 106-182 ), which eliminated the Social Security earnings test for recipients who have reached the FRA (effective in 2000). P.L. 106 - 182 permanently continued the severance between the earnings test and the SGA level of the blind enacted in P.L. 104 - 121 . Past Evaluation of the SGA Differential In 1996, the General Accounting Office (GAO, now known as the Government Accountability Office) was asked to examine whether the legislative rationale for an earnings limit for the blind that was higher than for individuals who have other disabilities was warranted. It concluded that the legislative rationale was based on the assumption that adverse employment experiences, including high job-related costs and unemployment, were greater for the blind than for persons who have other disabilities. However, GAO found that such experiences do not appear to be unique to the blind compared to other disabled recipients. GAO repeated this conclusion in a hearing on the topic held by the Social Security Subcommittee of the House Committee on Ways and Means on March 23, 2000. Arguments For and Against the SGA Differential Proponents of liberalizing the SGA limit for the blind maintain that the reasons given in 1977 to provide a different limit for the blind are just as valid today. Blindness is still a distinct and special condition, and they believe that the blind still merit being singled out for compensatory help. They point out that Congress has recognized the special nature of blindness by writing into law different disability criteria for the blind in regard to (1) insured status, (2) continued eligibility for benefits beyond the age of 54 regardless of the level of work activity, and (3) the use of functional capacity as part of the test of meeting the definition of disability. Proponents say that what Congress established then was that the "retirement test" (as the earnings test is sometimes called) for older workers should be applied to the blind, and therefore that they should be treated just like retired older workers whenever Congress makes changes to the retirement test. They say that if any change is made to lessen or eliminate the difference in SGA amounts, it should be to raise the SGA limits of the non-blind. Opponents of liberalizing the SGA limit for the blind maintain that the blind already receive enough preferential treatment and that to expand it further would be inequitable. Many of them think that even current law is too generous, because they see no logical reason that a particular group of disabled individuals should receive advantages over another. In their view, many other impairments could just as easily be viewed as needing special compensatory relief (e.g., quadriplegia and cancer). They dispute that the blind suffer higher rates of unemployment or work-related expenses. Opponents point out that the very definition of disability is that a person is unable to perform substantial work, and that the purpose of the SGA limit is to determine if, regardless of a person's medical condition, he or she demonstrates by work that he or she is not in fact disabled. From their perspective, if the SGA for the blind were further liberalized, especially to the point where it would approach or exceed the average wage of all workers, the concept of disability would become meaningless and weaken the basic concept of the disability program as a whole. Appendix.

In the Social Security disability program, the level of earnings that constitute "substantial gainful activity" (SGA), and therefore disqualifies a person from receiving benefits, is set by regulation at $1,070 a month for 2014. However, the law provides a different SGA level for the blind at $1,800 a month for 2014, which is adjusted annually to reflect growth in average wages. This report discusses the reasons for these differing amounts and proposals to change them. The appendix section of the report charts the difference between the two amounts from 1975 to 2014.

Overview of U.S.-China Relations As China's economic and strategic clout has grown over the last three decades, the United States' relationship with China has expanded to encompass a broad range of global, regional, and bilateral issues. With China's economy now the second largest in the world, Washington seeks Beijing's cooperation in rebalancing the global economy and sustaining global growth. It hopes that China, a fellow permanent member of the United Nations Security Council, will help block the nuclear ambitions of Iran and North Korea and assist in resolving the crisis in Syria. The United States also seeks to encourage China to contribute to peace and stability in the Asia-Pacific, including in the Taiwan Strait, the South China Sea, and the East China Sea. With the United States focused on restoring its economic strength, Washington is seeking to achieve a so-called level playing field for U.S. firms that trade with and operate in China; to address cyber intrusions allegedly originating from China that target commercial and military secrets; and to stem violations of U.S. intellectual property rights in China. With the United States and China now the two largest emitters of greenhouse gases, Washington seeks Beijing's cooperation in addressing climate change. Finally, while engaging with China's authoritarian Communist government, the United States also seeks to promote human rights and the rule of law in China, including in the ethnic minority regions of Tibet and Xinjiang. Hanging over the relationship is the larger question of whether, as China grows in economic and military power, the United States and China can manage their relationship in such a way as to avoid debilitating rivalry and conflict that have accompanied the rise of new powers in previous eras. On a visit to the United States in February 2012, Xi Jinping, who became China's top leader later in the year, said he had reached a consensus with President Obama and Vice President Biden that the two countries would establish a "new path of cooperative partnership between major countries featuring harmonious coexistence, sound interactions and win-win cooperation." Some principles for this "new model" of U.S.-China relationship are already in place. The Obama Administration has repeatedly assured China that it "welcomes a strong, prosperous and successful China that plays a greater role in world affairs," and China has stated that it "welcomes the United States as an Asia-Pacific nation that contributes to peace, stability, and prosperity in the region." But building a relationship that avoids rivalry and conflict remains a work in progress. Many observers in both Washington and Beijing note deep mistrust on both sides of the U.S.-China relationship. They note, too, that even as the United States talks of a "new model of cooperation" with China, it is simultaneously implementing a strategic rebalancing to the Asia-Pacific designed, in part, to reassure Asian nations concerned about the strategic implications of China's growing power in the region. (See " Forging a "New Model of Cooperation" and " The Policy of Strategic Rebalancing to the Asia-Pacific " below.) Xi and his Chinese leadership colleagues assumed their Communist Party posts at the Party's 18 th Congress in November 2012, and added other posts, in Xi's case the state presidency, at the opening session of the 12 th National People's Congress in March 2013. Xi is expected to serve as president for two five-year terms, until 2023. In their early months in office, Xi and his colleagues have signaled a strong desire to strengthen the U.S.-China relationship. Xi quickly accepted President Obama's invitation to the June 2013 presidential summit, which offered the opportunity for extended conversation but none of the pomp and circumstance that Chinese leaders have often demanded for their visits to the United States. China's new leaders have shown greater willingness to pressure North Korea over its nuclear program. They have agreed to enter into a phase of "substantive" negotiations with the United States over a bilateral investment treaty, dropping some conditions that had stalled negotiations in the past. With the U.S. government charging that cyber intrusions into U.S. government and private networks are attributable to official Chinese actors, they agreed to establish a high-level working group on cybersecurity. They have also committed China's military to an ambitious schedule of high-level exchanges and modest operational cooperation with the United States military. China has agreed to work with the United States to combat global climate change by reducing the consumption and production of hydrofluorocarbons (HFCs), and signed on to a significant joint statement on climate change. Nonetheless, the U.S.-China relationship remains dogged by long-standing mutual mistrust. That mistrust stems in part from the two countries' very different political systems. Many in the United States are uncomfortable with China's authoritarian system of government and sometimes brutal suppression of dissent and see continued Communist Party rule in a post-Cold War world as an anachronism. Some in China believe that when the United States presses China to ease restrictions on freedom of speech and internet freedom, improve its treatment of religious practitioners and ethnic minorities, and respect the legal rights of its citizens, the United States' real goal is to destabilize China and push the Communist Party from power. Although the U.S. and Chinese economies are heavily interdependent, with two-way trade of $536 billion in 2012, the two countries' different economic models have contributed to mistrust. The state plays a major role in the Chinese economy and state-owned corporations dominate the ranks of China's biggest businesses. Unlike the U.S. economy, China's economy has also in recent decades depended heavily on exports and investment, rather than consumption, for growth. Points of contention in the bilateral economic relationship include the United States' allegations of Chinese cyberespionage targeting U.S. corporations and government agencies, the related issue of China's inability or unwillingness to prevent violations of foreign intellectual property by Chinese entities, Chinese policies that appear to discriminate against foreign firms, and China's currency policy. For their part, PRC officials have criticized the United States for its high levels of consumption, long-term debt, expansionary monetary policy, and alleged barriers to Chinese investment in the United States. Mistrust is particularly pronounced on security matters. The U.S. government sees China's military modernization as aimed, in part, at constraining the U.S. military's freedom of movement in Asia and deterring U.S. intervention in the event of Chinese use of force against Taiwan. An immediate concern is that China's use of coercion in disputes with its neighbors over territory in the East China Sea and the South China Sea could undermine the stability upon which the prosperity of the region depends. For their part, some in China's government have been unnerved by the late 2011 announcement of a U.S. policy of strategic rebalancing toward Asia, seeing it as emboldening China's rivals in territorial disputes and seeking to constrain the activities of the Chinese military. The most long-standing source of grievance for China on the security side of the bilateral relationship is U.S. policy toward Taiwan, which many in China see as intended to thwart the PRC's unification with Taiwan, a cherished PRC goal. Recent Developments June 7-8, 2013: The Presidential Summit in Rancho Mirage, CA As noted above, President Obama and China's President Xi met June 7-8, 2013, for an unusual informal-style summit at the Sunnylands Estate in Rancho Mirage, CA. It was their first face-to-face meeting since Xi took office as General Secretary of China's Communist Party in November 2012 and as State President in March 2013. Without the rapidly arranged summit, the two presidents would not have been scheduled to meet until the G-20 meeting in St. Petersburg, Russia, in September 2013. The two men held nearly eight hours of discussions over the two days, a length of time that allowed them to explore a wide range of topics. For the Obama Administration, one highlight of the meeting was what then-National Security Advisor Tom Donilon described as "quite a bit of alignment" in the two leaders' positions on North Korea's nuclear program. After the summit, Donilon also reported that China now "acknowledged" U.S. concerns about what Donilon termed "cyber-enabled economic theft" by entities in China. In addition, the two sides announced at the summit the agreement to work together and with other countries to reduce their production and consumption of hydrofluorocarbons (HFCs), greenhouse gases that contribute to climate change. May 20-June 23, 2013: Reported Leaks Involving Intelligence Collection Programs and Hong Kong In an interview with Britain's Guardian newspaper released on June 8, 2013, Edward Snowden, a former contractor for the National Security Agency, claimed responsibility for leaks to the paper of classified information about U.S. government intelligence collection programs. He also revealed that he was in the Chinese Special Administrative Region (SAR) of Hong Kong, having flown there from his home in Hawaii on May 20, 2013. The United States government subsequently requested that the Hong Kong government arrest Snowden. According to White House spokesman Jay Carney, Hong Kong authorities acknowledged receipt of the U.S. request on June 17, 2013, and then, on June 21, 2013, requested additional information about the U.S. charges. While the U.S. government was "in the process of responding" to the request for additional information, and after the United States government had informed Hong Kong that it had revoked Snowden's U.S. passport, according to Carney, Hong Kong authorities on June 23, 2013, allowed Snowden to board a commercial flight to Moscow, apparently honoring a temporary travel pass provided to Snowden by the consul at the Embassy of Ecuador in London. Carney indicated that the White House believed the Chinese central government in Beijing was involved in the decision to allow Snowden to leave Hong Kong. "[W]e are just not buying that this was a technical decision by a Hong Kong immigration official," Carney told reporters. "This was a deliberate choice by the government to release a fugitive despite a valid arrest warrant, and that decision unquestionably has a negative impact on the U.S.-China relationship." A series of Administration officials have since professed themselves "disappointed" by China's handling of the case." According to Chinese State Councilor Yang Jiechi, "The Hong Kong SAR government has handled the Snowden case in accordance with law, and its approach is beyond reproach." For more information, see CRS Report R43134, NSA Surveillance Leaks: Background and Issues for Congress , by Marshall Curtis Erwin and [author name scrubbed]. July 10-11, 2013: The 5th Round of the U.S.-China Strategic and Economic Dialogue The fifth round of the two countries' premier dialogue mechanism, the Strategic and Economic Dialogue (S&ED), took place in Washington, DC, on July 10 and 11, 2013. It was preceded by the third meeting of the bilateral Strategic Security Dialogue on July 9, and by the first meeting of the two countries' new Cybersecurity Working Group on July 8. This round of the S&ED was presided over by new co-chairs from each government, reflecting the recent political transitions in each country. One notable outcome of the dialogue, among many dozens of outcomes reported, was China's announced interest in entering into the stage of "substantive" negotiations over a bilateral investment treaty (BIT) with the United States. Outcomes from the 5 th Round of the S&ED are discussed in multiple sections of this report. July 30-31, 2013: The 18th Session of the U.S.-China Human Rights Dialogue The 18 th session of the bilateral human rights dialogue opened in Kunming, the capital of China's Yunnan Province, on July 30, 2013. Acting Assistant Secretary for Democracy, Human Rights, and Labor Uzra Zeya led the U.S. delegation and Chinese Ministry of Foreign Affairs Department of International Organizations and Conferences Director-General Li Junhua led the Chinese delegation. For a list of select upcoming events in the bilateral relationship, see Appendix C . Obama Administration Policy on China With some in the United States concerned that a rising China poses challenges to the U.S. economy and to U.S. global leadership, and with many in China believing that the United States feels threatened by China's growing economic and military might, President Obama has declared that the United States welcomes China's "peaceful rise." Meeting with his Chinese counterpart in June 2013, Obama stated that, "it is very much in the interest of the United States for China to continue its peaceful rise, because if China is successful, that helps to drive the world economy and it puts China in the position to work with us as equal partners in dealing with many of the global challenges that no single nation can address by itself." Building on that belief, the Obama Administration has sought to expand cooperation with China on a wide range of issues, seizing opportunities for high-level bilateral meetings and adding to the existing plethora of bilateral dialogue mechanisms. At the same time, the Administration's China policy has focused on ways to ensure that China's rise is, indeed, peaceful, and that it does not undermine the stability of the world's most economically dynamic region or the integrity of the international system. The Administration has sought to encourage China to abide by international norms, in part through engagement in multilateral fora. At the same time, the Administration has stepped up its engagement in Asia as part of its policy of strategic rebalancing, seeking to "give comfort to countries uncertain about the impact of China's rise and provide important balance and leadership," in the words of a former senior Obama Administration official. The Administration has stated that human rights is a priority in the relationship, but some observers believe that U.S. government advocacy on rights issues has taken a back seat to the focus on trying to shape Chinese behavior in the economic, security, and environmental arenas. Recognizing that China is more than the Chinese Communist Party and the government bureaucracy, the Administration has expanded its public diplomacy, particularly its electronic outreach, in order to engage more directly with the Chinese public. It has also overhauled its visa processing services, to facilitate more travel to the United States by Chinese officials and the Chinese public alike. The Policy of Strategic Rebalancing to the Asia-Pacific In the fall of 2011, the Obama Administration announced that with the wars in Iraq and Afghanistan winding down, the United States was, in President Obama's words, "turning our attention to the vast potential of the Asia Pacific region." Then-Secretary of State Hillary Clinton described economics as a major motivation for the rebalancing, writing that, "Open markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting edge technology," and arguing that, "Our economic recovery at home will depend on exports and the ability of American firms to tap into the vast and growing consumer base in Asia." Another major motivation for the rebalance was the desire to shape the development of norms and rules in the Asia-Pacific and, although articulated less explicitly, to shape China's choices as a rising power, while offering reassurance to China's neighbors through intensive U.S. engagement in the region. The military component of the Administration's rebalancing strategy was outlined in a January 2012 Defense Strategic Guidance. The Guidance described plans to strengthen U.S. treaty alliances in the region—with Japan, South Korea, Australia, the Philippines, and Thailand—and to expand cooperation with "emerging partners" in order to "ensure collective capability and capacity for securing common interests." The Guidance specifically stated that the United States was "investing in a long-term strategic partnership with India"—a country with which China fought a war in 1962 and with which China continues to have territorial disputes and a wary relationship—"to support its ability to serve as a regional economic anchor and provider of security in the broader Indian Ocean region." In a paragraph related to China, the document pledged that the United States would work with its allies and partners "to promote a rules-based international order that ensures underlying stability and encourages the peaceful rise of new powers, economic dynamism, and constructive defense cooperation." Chinese commentators quickly noted that the document grouped China and Iran together as countries that "will continue to pursue asymmetric means to counter our power projection capabilities.... " Under the rebalancing policy, the Administration has announced a series of moves including new troop rotations to Australia, naval deployments in Singapore, and military engagements with the Philippines; stepped up its engagement with regional multilateral institutions; expanded relations with such "emerging powers" as India, Indonesia, and Vietnam; pursued a new relationship with Burma; and pushed to expand free trade with Asian nations through the Trans-Pacific Partnership (TPP). Confirming the Administration's continued commitment to the rebalancing at the start of President Obama's second term, then-National Security Advisor Thomas Donilon stated in November 2012 that the vision for Asia driving the rebalancing strategy was for a region "where the rise of new powers occurs peacefully, [where] the freedom to access the sea, air, space, and cyberspace empowers vibrant commerce, where multinational forums help promote shared values, and where citizens increasingly have the ability to influence their governments, and universal human rights are upheld.... " A common criticism of the rebalancing policy is that it may be unnecessarily antagonizing China while leading U.S. allies and partners—among them the Philippines, Japan, and Vietnam—to believe that they have more U.S. support in their disputes with China than the United States is actually prepared to offer. Those who subscribe to this criticism believe that the rebalancing is over-focused on military elements and may be eroding already limited U.S.-China strategic trust and feeding regional instability, rather than minimizing it. Other critics suggest that the military side of the rebalancing may be insufficiently robust, resulting in a U.S. policy that is the equivalent of "speak loudly and carry a shrinking stick." (For discussion of China's reaction to the rebalance, see below, " China's Reaction to U.S. Strategic Rebalancing to the Asia-Pacific ".) For more information, see CRS Report R42448, Pivot to the Pacific? The Obama Administration's "Rebalancing" Toward Asia , coordinated by [author name scrubbed]. Forging a "New Model of Cooperation" According to one scholar, "In 11 of 15 cases since 1500 in which a rising power rivaled a ruling power, the outcome was war." Mindful of that history, China's new top leader, President Xi Jinping, has pressed for a U.S. commitment to a "new model" of U.S.-China relationship that explicitly seeks to avoid strategic rivalry or conflict between a rising China and this era's established power, the United States. The desire for such a commitment appears to reflect President Xi's concern that facing myriad challenges at home, including a slowing economy and dangerously high levels of local government debt, China cannot afford debilitating rivalry with the United States. Talk of the "new model" relationship has come to dominate Chinese discourse about the relationship with the United States, with Chinese elites deriving reassurance about U.S. intentions from reported high-level U.S. agreement on the concept. The "new model" language is less prominent in U.S. discourse about the relationship with China, with senior U.S. officials sometimes portraying the concept as a Chinese proposal about which the United States still has questions, creating a potentially significant gap in expectations. As noted above, on a visit to the United States as vice president in February 2012, Xi reported that he had reached "important consensus" with his hosts, President Obama and Vice President Biden, that the two countries should "open a new path of cooperative partnership between major countries featuring harmonious coexistence, sound interactions and win-win cooperation." Following his summit meeting with President Obama in June 2013, Xi re-stated the concept, saying that, "China and the United States must find a new path—one that is different from the inevitable confrontation and conflict between the major countries of the past. And that is to say the two sides must work together to build a new model of major country relationship based on mutual respect and win-win cooperation." President Obama used language that seemed to echo Xi's before the start of the June 2013 summit, when he said that he saw the meeting as an opportunity to discuss "how we can forge a new model of cooperation between countries based on mutual interest and mutual respect." Senior Chinese officials described the two presidents as having "reached an important agreement" at the summit to work toward the new model of relationship, and asserted that this reported agreement has "charted the course" for the future of the relationship. While both countries share a goal of a relationship that avoids conflict, U.S. officials have so far offered only general principles as a guide to forging such a relationship. Fielding a question about the concept during a background briefing before the June 2013 presidential summit, one senior Obama Administration official suggested that the key would be having "the ability to work well in some areas even when we're in competition or have strong differences in other areas." The official cited the example of recent "constructive cooperation" with China on North Korea at the same time as the United States was raising concerns with China about official Chinese actors' alleged involvement in cyber-enabled theft of U.S. commercial information. Another senior Administration official, speaking on background during the same briefing, suggested that forging such a relationship would require having "bilateral mechanisms" in place to allow the two countries "to deal with the greatest sources of instability and competition that could take this relationship down the pathway toward rivalry." For China, the new model of relationship involves more specific commitments. According to China's top diplomat, State Councilor Yang Jiechi, at the June 2013 summit, President Xi summed up the meaning of the new model of relationship for President Obama in three sentences: "seek no conflicts and no confrontation," "have respect for each other," and "conduct cooperation for win-win results." Yang explained that "have respect for each other" meant that the two countries should "respect each other's social system and development road, respect each other's core interests and significant concerns, and make common progress through seeking common points while reserving differences." Acquiescing to China's demand for "respect" on those terms would require a major reorientation of U.S. policy. China routinely uses the language of "social system and development road" to refer to Chinese Communist Party rule. China's demand for such respect would thus need to be reconciled with the United States' longstanding commitment to democracy promotion and universal human rights. China has defined its "core interests," meanwhile, to include not just maintaining Communist Party rule, but also safeguarding China's "sovereignty and security, territorial integrity, and national unity," and sustaining China's economic and social development. Sovereignty, China has made clear, refers not just to the People's Republic of China's sovereignty over the mainland China, but also the PRC's claims to sovereignty over Taiwan and disputed maritime territories in the South China Sea and the East China Sea. China's quest for U.S. respect for its core interests thus potentially challenges: U.S. commitments to Taiwan as described in the Taiwan Relations Act ( P.L. 96-8 ); the U.S. security treaty commitment to ally Japan over islets in the East China Sea whose sovereignty is disputed among Japan, China, and Taiwan; U.S. support for treaty ally the Philippines, which is involved in territorial disputes with China; and, in the case of Chinese use of force to assert its sovereignty claims, the U.S. "national interest" in peace and stability, respect for international law, freedom of navigation, and unimpeded lawful commerce in the South China Sea, where China is involved in territorial disputes with multiple countries. Finally, China frequently uses the term "national unity" in the context of Tibetan areas of China and the Xinjiang region in China's northwest. In seeking respect for China's core interests, including safeguarding national unity, China may hope, therefore, that the U.S. government will refrain from speaking out about conditions in Tibet and Xinjiang, and foreswear meetings with Tibet's exiled spiritual leader, the Dalai Lama, whom China accuses of advocating for Tibetan independence. Notably, although China has proposed that the United States and China respect each other's "core interests," the United States has never explicitly defined its "core interests," raising questions about what China considers them to be. Bilateral Engagement The pace of U.S.-China bilateral interaction at the most senior level has increased dramatically in recent years. In the 30 years from 1979, the year the United States and China established diplomatic relations, until the Obama Administration took office in January 2009, the top leaders of the United States and China met 24 times. In the first term of the Obama Administration alone, President Obama and his then-counterpart, Chinese President Hu Jintao, met 12 times. The greater frequency of meetings is related in large part to expanded opportunities to meet on the sidelines of multilateral meetings. At one time, the only multilateral meetings regularly attended by the leaders of both countries were annual meetings of the United Nations General Assembly and, starting in 1993, Asia Pacific Economic Cooperation (APEC) Leaders' Meetings. Today, the two countries' leaders also meet at G-20 summits, nuclear security summits, and since 2012, at East Asia Summits. Exchanges of visits also happen with more frequency now than in the past. President Obama visited China in his first year in office, in 2009, and President Hu made a state visit to the United States in January 2011. Their vice presidents, Joe Biden and Xi Jinping, exchanged visits in 2011 and 2012. The first meeting between President Obama and Xi Jinping since Xi became China's President in March 2013 took place June 7-8, 2013, in California. A hallmark of the U.S.-China relationship under the Obama Administration has been the proliferation of bilateral dialogue mechanisms, building on an already robust set of dialogues inherited from the George W. Bush Administration. The U.S. government has not published a comprehensive list, but the Chinese government and state media refer to China and the United States being involved in "over 90" bilateral dialogue and consultation mechanisms. The Obama Administration argues that the dialogues allow U.S. and Chinese officials to understand each other's positions better on a wide range of issues, a first step to finding areas of common interest and managing differences. Dialogue on strategic issues remains limited, however, with U.S. officials sometimes complaining that even at the height of the Cold War, the United States and the Soviet Union had closer consultation on strategic issues, such as nuclear weapons policy, than the United States and China do now. The relationship's highest-profile regularly scheduled dialogue is the annual Strategic and Economic Dialogue (S&ED) , created in 2009 by combining two previously existing dialogues. On the U.S. side, the Secretary of State leads the strategic track of the dialogue and the Secretary of the Treasury leads the economic track. In 2011 the two countries inaugurated a Strategic Security Dialogue (SSD) under the S&ED, co-chaired by the U.S. Deputy Secretary of State and the Chinese Executive Vice Foreign Minister, and including the Under Secretary of Defense for Policy and a Deputy Chief of the People's Liberation Army General Staff. A first ever "informal round" of the SSD is scheduled for later in 2013. Other high-profile dialogues include the U.S.-China Consultation on People-to-People Exchange (CPE) , established in 2010, and three dialogues established before President Obama took office: the Joint Commission on Commerce and Trade (JCCT) , the Ten-Year Framework on Energy and Environment Cooperation , and the Joint Committee on Environmental Cooperation. To broaden interaction to the sub-national level, the U.S. and Chinese governments in 2011 instituted a U.S.-China Governors Forum , intended to help deepen relationships between U.S. governors and Chinese provincial officials, and an Initiative on City-Level Economic Cooperation , bringing together U.S. mayors and Chinese mayors and Party Secretaries. A separate program for mayors, initiated in 2010 by the U.S. Department of Energy and the Ministry of Housing and Urban Development, brings together mayors from the two countries "to examine best practices in eco-city development." Multilateral Engagement As a means of encouraging China to adhere to international norms and "assume responsibilities commensurate with its growing global impact and its national capabilities," in the words of President Obama's then-National Security Advisor, Tom Donilon, the Obama Administration has consciously sought to engage with China in multilateral settings. The United States and China are fellow permanent members of the U.N. Security Council and have worked together successfully in that setting to pass sanctions targeting North Korea and Iran's nuclear programs, although China has also blocked some proposed Security Council actions sought by the United States, most notably a series of actions related to Syria. The Obama Administration elevated the profile of the G-20 grouping of major economies in part to have a vibrant multilateral forum for engaging with China on economic issues. In addition, the United States has sought to resolve trade disputes with China through the rules-based mechanisms of the World Trade Organization, and engaged with China on climate change through meetings of parties to the U.N. Framework Convention on Climate Change. Washington has also urged Beijing to follow norms on aid, export credit finance, and overseas investment established by the Paris-based Organization for Economic Cooperation and Development (OECD), although China is not an OECD member, and to accept principles related to freedom of navigation contained in the United Nations Convention on the Law of the Sea (UNCLOS), although the United States itself has not ratified the treaty. In Asia, the United States has prioritized its own attendance at meetings of regional multilateral groups, including the East Asia Summit, which the United States joined in 2011, in part to be able to engage China in those settings. The advantage of the multilateral settings of regional institutions, then-Secretary of State Hillary Clinton opined in 2011, is that, "responsible behavior is rewarded with legitimacy and respect, and we can work together to hold accountable those who take counterproductive actions to peace, stability, and prosperity." Public Diplomacy The U.S. Department of State operates multiple Chinese-language blogs and microblogs on Chinese platforms in an effort to circumvent often heavy-handed Chinese censorship of the traditional news media and reach out directly to the Chinese public with messages about U.S. policy. The Embassy's flagship microblogs each have nearly 700,000 registered followers. When followers of U.S. government blogs re-post U.S. blog posts for their own followers, the U.S. government is sometimes able to reach directly many millions of Chinese who might not otherwise be exposed to U.S. government messages. That said, although the range of permitted expression on Chinese social media is broader than in traditional media, China-based microblog accounts are still subject to Chinese censorship. In July 2012, a Chinese microblog service disabled a popular microblog operated by the U.S. Consulate General in Shanghai, presumably because government censors felt uncomfortable with the material the Consulate General was posting. The State Department also operates Chinese-language accounts on the online social networking service Twitter, which is based in the United States and does not censor content. The U.S. government posts on Twitter sensitive information that is often censored on Chinese social media, such as U.S. government speeches related to human rights and Internet freedom. The Chinese government's policy of blocking access to Twitter from inside China reduces the service's reach in the country, but technologically savvy Chinese are able to use virtual private networks to evade the blocking technologies. The Chinese-language Twitter account operated by the State Department's Bureau of International Information Programs (IIP), @meiguocankao, currently has just over 38,000 followers, a small fraction of the followers of the U.S. Embassy microblogs in China. A second account operated by the State Department's Bureau of Public Affairs, @USA_Zhongwen, has just 2,440 followers. Of longer standing are U.S. government efforts to reach out to the Chinese public through programming produced by Radio Free Asia (RFA) and the Voice of America (VOA). Both are overseen by the Broadcasting Board of Governors (BBG), an independent entity responsible for all U.S. government and government-sponsored non-military international broadcasting. RFA's stated mission is "to provide accurate and timely news and information to Asian countries whose governments prohibit access to a free press." The Chinese government routinely seeks to block RFA programming from reaching the Chinese public, has not allowed RFA to open a permanent office in China, and denies RFA journalists temporary visas to report in China. VOA's mandate is to "present a balanced and comprehensive view of significant American thought and institutions" and "clearly present the policies of the United States." VOA has had a permanent office in China since the 1980s, although the Chinese government restricts the number of accredited journalists VOA is permitted to base in China, allowing only one reporter for the VOA English-language service, known as Central News, and one reporter for the Chinese service. The Chinese government also routinely seeks to block VOA transmissions. Through appropriations, Congress has supported the BBG's efforts to provide Chinese and other audiences whose home media are subject to censorship with means of accessing the blocked websites of BBG broadcasters through proxy servers and other tools. For more information about the Internet in China, see CRS Report R42601, China, Internet Freedom, and U.S. Policy , coordinated by [author name scrubbed], and CRS Report R41007, Understanding China's Political System , by [author name scrubbed] and [author name scrubbed]. Visa Policy In January 2012, President Obama issued an Executive Order requiring the Secretaries of State and Homeland Security, in consultation with others, to develop a plan to streamline visa and foreign visitor processing worldwide, "in order to create jobs and spur economic growth in the United States, while continuing to protect our national security." The Executive Order set targets of increasing non-immigrant visa processing capacity in China and Brazil by 40% over the subsequent year, and of reducing wait times for visa interviews to within three weeks of receipt of application in most cases. Meeting these goals was a major 2012 focus for the U.S. mission in China. In FY2012, the U.S. Embassy in Beijing and U.S. consulates in four other Chinese cities jointly issued 1.2 million non-immigrant visas, an increase of 36% over FY2011. China, Brazil, and Mexico are the only U.S. missions that currently process more than 1 million non-immigrant visas per year. In addition, in an August 2012 report to the White House, the State Department reported that it had succeeded in reducing the average wait time for a visa interview in China to under 10 days, despite the large increase in visa applications. The Commerce Department has predicted a 198% increase in Chinese visitors from 2012 levels by 2016. U.S. Assistance to China The State Department and the U.S. Agency for International Development say they engage China "primarily as a development partner with the resources to invest in its own future." U.S. assistance is designed to "protect and promote U.S. national interests and values," particularly in the areas of promoting rule of law, strengthening the judiciary, improving health, and helping Tibetan communities. Appropriations for assistance to China peaked in FY2010 at $46.9 million. FY2012 funding was $28.3 million, or 60% of the 2010 level. Most direct recipients of State Department and U.S. Agency for International Development (USAID) grants have been U.S.-based nongovernmental organizations (NGOs) and universities. See CRS Report RS22663, U.S. Assistance Programs in China , by [author name scrubbed]. Congressional Action Related to China in the 113th Congress The 113 th Congress has so far passed two laws with provisions related to China, P.L. 113-6 , the Consolidated and Further Continuing Appropriations Act, 2013, and P.L. 113-17 , directing the Secretary of State to develop a strategy to obtain observer status for Taiwan at the International Civil Aviation Organization Assembly. On February 15, 2013, the House agreed to a simple resolution on North Korea ( H.Res. 65 ) that includes provisions related to China. On July 29, 2013, the Senate agreed to a simple resolution reaffirming strong U.S. support for the peaceful resolution of territorial, sovereignty, and jurisdictional disputes in the Asia-Pacific maritime domains ( S.Res. 167 ), including multiple references to China. Summaries of all legislation on China enacted or agreed to in the 113 th and 112 th Congresses are included as appendices to this report. (See Appendix A and Appendix B .) Select Policy Issues Congress faces challenges in exercising oversight over the United States' relationship with a China that is rapidly growing in economic, military, and geopolitical power. Selected policy issues for Congress related to the bilateral relationship are summarized in the sections below, starting with security issues and Taiwan, followed by economic issues, climate change and renewable energy cooperation, and human rights issues. Security Issues The U.S.-China Military-to-Military Relationship Since coming into office, the Obama Administration has repeatedly called for a stronger military-to-military relationship with China. "Leaving the military dimension of our dialogue underdeveloped on both sides causes us to run unnecessary risk," Vice President Joe Biden argued in July 2013, observing that China's military is expanding its presence in Asia at the same time that the United Sates is implementing its rebalancing to the Asian Pacific, bringing the two militaries into greater proximity. Dialogue, exchanges, and cooperation between the two militaries must expand, he said, because "We have to know what each other are doing." A 2009 U.S.-China joint statement issued in the name of President Obama and his counterpart at the time, then-Chinese President Hu Jintao, pledged the two countries to "take concrete steps to advance sustained and reliable military-to-military relations in the future." A 2011 joint statement similarly pledged the two governments to pursue "a healthy, stable, and reliable military-to-military relationship." Moves to strengthen the military-to-military relationship did not begin to gain momentum until after the 2011 joint statement, however, as the transition from Hu Jintao to Xi Jinping as China's top leader began unfolding. Some analysts believe an unusual visit to the Pentagon accorded to Xi in February 2012, when he visited the United States as Vice President, may have helped win his support for more regular exchanges, and that his strong relationship with the Chinese military has allowed him to bring the Chinese military along with him. Operational cooperation between the two militaries remains extremely limited, but in remarks in Singapore in June 2013, Secretary of Defense Hagel characterized dialogue between the two militaries as "steadily improving." Among the positive developments in the relationship that he cited in his remarks were the following. Xi's February 2012 Pentagon visit and visits to China by the chief of the Pacific Command Navy Adm. Samuel J. Locklear III (July 2012); then-Secretary of Defense Leon Panetta (September 2012); and Chairman of the Joint Chiefs of Staff General Martin Dempsey (April 2013); China's first ever participation as an observer of the U.S.-Philippine Balikatan joint military exercise in April 2013; A first-ever U.S.-China joint anti-piracy exercise in the Gulf of Aden in September 2012; A first-ever U.S. invitation to China to participate in the United States' largest military exercises in the Pacific, the Rim of the Pacific or RIMPAC exercise, in the summer of 2014, and China's April 2013 acceptance of the invitation; An agreement for the United States and China to co-host a Pacific Army Chiefs Conference for the first time. Since then, the two governments have agreed that the United States will host a visit from China's Minister of National Defense Chang Wanquan in August 2013, and from China's Naval Commander Wu Shengli in September 2013, and that Hagel will visit China in 2014. In June 2013, the two militaries both participated in a humanitarian assistance and disaster relief military exercise under the auspices of the Association of Southeast Asian Nations Defense Ministers' Meeting Plus. In July 2013, the two countries expanded the agenda of a meeting of the civilian-military Strategic Security Dialogue to include two new topics: missile defense and nuclear policy. The same SSD meeting produced an agreement "to actively explore a notification mechanism for major military activities" and to continue to discuss rules of the road for air and maritime activities." Further development of the military-to-military relationship is subject to restrictions imposed by Congress. The National Defense Authorization Act (NDAA) for Fiscal Year 2000 ( P.L. 106-65 ) bars exchanges or contacts with China's military that include "inappropriate exposure" to a range of subjects, including surveillance and reconnaissance operations and arms sales. The provision remains a major irritant in the bilateral relationship, with Chinese authorities arguing that it signals U.S. ill will. For its part, China remains wary that closer ties will expose vulnerabilities in its weaker force. It has also been suspicious of the intentions behind the U.S. policy of rebalancing to the Asia-Pacific. For more information, see CRS Report RL32496, U.S.-China Military Contacts: Issues for Congress , by [author name scrubbed]. China's Military Modernization China's military modernization has been fueled by two decades of steadily increasing military spending. According to the DOD report to Congress, China's officially disclosed military budget increased an average of 9.7% annually in inflation-adjusted terms over the decade from 2003 to 2012. At $114 billion, China's officially announced budget for 2013 represents an increase of 10.7% over 2012. The Pentagon believes China's actual military spending is higher than the officially disclosed figures, with the report to Congress estimating that China's military spending for 2012 was in the range of $135 billion to $215 billion. The United States has long been concerned about the intentions behind China's military modernization. In the January 2012 Defense Strategic Guidance that outlined the military component of the U.S. rebalancing toward the Asia Pacific, for example, the Department of Defense (DOD) stated that, "The growth of China's military power must be accompanied by greater clarity of its strategic intentions in order to avoid causing friction in the region." China has repeatedly offered assurances that it is committed to peace and to working within the existing international system, not challenging it. Chinese officials have also stated that China has neither the desire nor the capability to challenge the United States position in Asia. In comments following his summit meeting with President Obama in June 2013, President Xi Jinping pledged that, "China will be firmly committed to the path of peaceful development." He also reiterated China's acceptance of the United States presence in Asia, observing, "When I visited the United States last year, I stated that the vast Pacific Ocean has enough space for the two large countries of China and the United States. I still believe so." U.S. officials, however, have pressed China to move beyond such broad assurances to more transparency about its decisions related to modernization of the Chinese military. In its 2013 report to Congress on military developments involving the PRC, the Department of Defense (DOD) stated that it believed China's military modernization is "designed to improve the capacity of [China's] armed forces to fight and win short-duration, high-intensity regional military conflict." DOD assessed that the "principal focus and primary driver of China's military investment" is preparing for a contingency involving Taiwan, over which the PRC claims sovereignty. The DOD report observed, though, that China's military modernization also appears increasingly focused on developing capabilities for extended-range power projection and operations in emerging domains such as cyber, space, and electronic warfare, as well as other missions, including anti-piracy missions, peacekeeping, humanitarian assistance and disaster relief, and regional military operations. Of particular concern to the U.S. government are Chinese capabilities that appear aimed at allowing China to deter intervention by American forces in a conflict in the Western Pacific. The United States describes such capabilities as being for "anti-access/area-denial" (A2/AD) missions; Chinese refers to such missions as "counter-intervention operations." Among Chinese weapons programs of concern to the United States is China's "carrier killer" anti-ship ballistic missile (ASBM) known as the DF-21D. The Pentagon report described the DF-21D as giving the PLA "the capability to attack large ships, including aircraft carriers, in the western Pacific Ocean." China has also test flown an indigenously produced fifth generation stealth fighter aircraft prototype, the J-20, and appears to be developing a second advanced stealth aircraft, tentatively identified as the J-31. The DOD report stated that such planes are intended to strengthen China's "ability to strike regional airbases and facilities," presumably including U.S. military bases in Asia. The military development that has stirred the greatest national pride in China is the September 2012 commissioning of China's first aircraft carrier, although it has so far provided China with more symbolic than real military power. Acquired from Ukraine in 1998, it was previously known as the Varyag and is now known as the Liaoning. The DOD report to Congress predicted that the carrier would reach operational effectiveness "in three to four years" and that, "China will probably build several aircraft carriers over the next 15 years." For more information, see CRS Report RL33153, China Naval Modernization: Implications for U.S. Navy Capabilities—Background and Issues for Congress , by [author name scrubbed]. Cyber Activities Directed Against U.S. National Defense Programs In DOD's 2013 annual report to Congress on military developments involving China, the U.S. government for the first time stated that some cyber-intrusions targeting U.S. government and other computer systems, "appear to be attributable directly to the Chinese government and military." The report went on to accuse China of using "computer network exploitation (CNE)" capabilities to collect intelligence from government and sectors of the U.S. economy that support U.S. national defense programs. The report did not acknowledge what damage might have been caused by such intrusions. Responding to the allegations in the report, a Chinese Foreign Ministry spokesperson told reporters, "We resolutely oppose hacking attacks of any form and stand ready to have calm and constructive dialogue with the U.S. on the cyber security issue. Unwarranted accusations and hyping will do nothing but undermine our joint efforts for dialogue and poison the atmosphere." Although DOD has so far accused China only of ex-filtrating information, it has raised concern about the threat of computer network attacks from China, noting that "the accesses and skills" required for cyber intrusions are closely related to those needed for attacks. For more information about cybersecurity, see " Cyber-Enabled Theft of Commercial Information " below. China's Reaction to U.S. Strategic Rebalancing to the Asia-Pacific While concerns about cyber security have rapidly emerged as a top concern for the United States in the U.S.-China relationship, the U.S. strategic rebalance toward the Asia-Pacific is among China's top concerns. During a trip to the United States in February 2012, shortly after the rebalancing strategy was officially launched, President Xi Jinping, then China's Vice President, responded with the statement, "China welcomes a constructive role by the United States in promoting peace, stability and prosperity in the Asia-Pacific. At the same time, we hope the United States will respect the interests and concerns of China and other countries in this region." Since then, Chinese officials have repeatedly raised questions about whether the U.S. rebalancing is, in fact, contributing to peace, stability, and prosperity, and whether, despite U.S. assurances to the contrary, it is in fact intended to "contain" China. July 2012, China's Vice Foreign Minister with responsibility for the United States, who is now China's Ambassador to the United States, co-authored an article with a fellow diplomat raising questions about the United States' "true motive" in rebalancing to the Asia-Pacific and demanding greater reassurance about U.S. intentions. "The United States must face the issue and convince China, other countries in the region and the international community that there is no gap between its policy statements on China and its true intentions," the diplomats wrote. They identified as particular areas of concern for China the U.S. effort to strengthen the U.S. alliance system in Asia, U.S. plans to advance ballistic missile defense in the region, the U.S. "air-sea battle concept"—an effort to increase the joint operating effectiveness of U.S. naval and air units, particularly in "anti-access" environments, such as those China has allegedly sought to create; and alleged U.S. intervention in disputes between China and its neighbors. That many in China still do not feel reassured was made plain at a security summit in Singapore in June 2013, when a senior Chinese PLA scholar told Secretary of Defense Hagel that the rebalance has been interpreted in China as an "attempt to contain China's rising influence and to offset the increasing military capabilities of the Chinese PLA." U.S. government officials "have on several occasions clarified that the rebalance is not against China," she noted. "However, China is not convinced." The PLA scholar went on to question Hagel on apparent tensions between the United States' stated desire to build a more positive relationship with China, and U.S. plans to step up military deployments in Asia and reassure U.S. allies. The most common charge from Chinese critics is that the United States' higher profile in Asia, including its deeper engagement with multilateral groupings such as ASEAN and its strengthening of its military alliances, is destabilizing the region by emboldening countries with which China has territorial disputes, including Japan, the Philippines, and Vietnam, to press their claims more assertively. Chinese commentators have been critical, too, of the flagship economic initiative of the U.S. rebalancing to Asia, the Trans-Pacific Partnership (TPP). The TPP has been characterized in the Chinese media as an initiative that deliberately excludes China, that is intended to thwart regional economic integration, and that challenges ASEAN's leadership role in promoting trade and investment liberalization in the region. Chinese views of the TPP may be softening, however. At the Obama-Xi summit in June 2013, President Obama agreed to a request from President Xi for briefings on U.S. progress toward a TPP agreement, and at the Strategic and Economic Dialogue meeting in July, China agreed to move into the "substantive" phase of negotiations over a bilateral investment treaty that would, if the U.S. has its way, mirror the investment provisions of the TPP. For more information, see CRS Report R42448, Pivot to the Pacific? The Obama Administration's "Rebalancing" Toward Asia , coordinated by [author name scrubbed] and CRS Report R43116, Ballistic Missile Defense in the Asia-Pacific Region: Cooperation and Opposition , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. Maritime Territorial Disputes China has long placed a high priority on sovereignty and territorial integrity, a priority reflected in its decades-long effort to bring Taiwan under its control. The same priority has propelled China into a series of disputes with its neighbors over maritime territory in the South China Sea and East China Sea. Beijing's increasing willingness to bring its maritime power and growing economic clout to bear on those disputes has raised concerns in Asia and among policymakers in the United States about whether China's continued rise will be as peaceful as China has long promised. Two of China's rival claimants, Japan and the Philippines, are U.S. treaty allies, and the United States has specifically acknowledged that the U.S. security treaty with Japan covers all areas under Japanese administration, including islands that are currently at the center of a territorial dispute between Japan and China. On July 29, 2013, the Senate passed a resolution ( S.Res. 167 ), reaffirming strong U.S. support for the peaceful resolution of territorial, sovereignty, and jurisdictional disputes in the Asia-Pacific maritime domains. China formally complained to the U.S. government about the resolution and a Chinese Foreign Ministry statement denounced it as "unjustifiably blaming China and sending the wrong message." (For details of the resolution, see Appendix A .) For more information, see CRS Report R42930, Maritime Territorial Disputes in East Asia: Issues for Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed] and CRS Report R42784, Maritime Territorial and Exclusive Economic Zone (EEZ) Disputes Involving China: Issues for Congress , by [author name scrubbed]. South China Sea Tensions among rival claimants to territory in the South China Sea (SCS) have emerged as a major U.S. security concern in the Asia Pacific. China has extensive, though imprecise, claims to large parts of the SCS, which is believed to be rich in oil and gas deposits as well as fisheries, and through which a major portion of world's trade passes. China physically controls the Paracel Islands and seven reefs among the Spratly Islands. Territory claimed by China is also claimed in part by Brunei, Malaysia, the Philippines, and Vietnam, and in entirety by Taiwan, with the fiercest territorial disputes being those between China and Vietnam and China and the Philippines. The SCS is bordered by a U.S. treaty ally, the Philippines, and is a key strategic waterway for the U.S. Navy. In July 2010, then Secretary of State Hillary Clinton explicitly declared a U.S. "national interest" in maintaining freedom of navigation in the SCS. An August 2012 State Department statement further defined that national interest as being in "the maintenance of peace and stability, respect for international law, freedom of navigation, and unimpeded lawful commerce" in the sea. The statement noted that United States does not take a position on the competing sovereignty claims, but believes that, "the nations of the region should work collaboratively and diplomatically to resolve disputes without coercion, without intimidation, without threats, and without the use of force." China's Foreign Minister declared Secretary Clinton's comments to have been "in effect an attack on China." The territorial disputes at the heart of the tensions are decades, or even centuries, old, but observers have noted a sharp uptick in incidents at sea since 2005-2006, from claimants seeking to assert sovereignty or exploit offshore hydrocarbons and fishery resources. A major incident occurred in 2012 at Scarborough Shoal, known in China as Huangyan Dao, a set of landmasses disputed between China and the Philippines. Chinese vessels confronted a Philippine Naval vessel that had interdicted Chinese fishing boats. After a weeks-long standoff, Philippine vessels left the area, leaving China in control of an area it had not previously held. This development was among several that prompted the August 2012 State Department statement opposing coercion, threats and the use of force. China and the Philippines have been facing off since May 2013 over a remote coral reef, the Second Thomas Shoal, known in China as Ren'ai Reef. The United States has supported efforts by China's rival claimants to place the issue of the tensions in the South China Sea on the discussion agenda for regional meetings. China, which argues that the disputes are best handled among the rival claimants alone, has resisted what it calls U.S. efforts to "internationalize" the disputes. The United States has also publicly urged the Association of Southeast Asian Nations (ASEAN) and China to move forward with long-stalled negotiations over the text of a binding code of conduct that would govern behavior in the SCS, and would include specific dispute-resolution mechanisms. ASEAN and China announced on June 30, 2013 they will begin official consultations on a code of conduct at a meeting in China in September 2013. East China Sea In the East China Sea, China is involved in a territorial dispute with Japan over the sovereignty of uninhabited islets known in Japan as the Senkakus and in China as the Diaoyu Dao. The islets are also claimed by Taiwan, which refers to them as the Diaoyutai. The United States does not take a position on the sovereignty dispute, but has a strong interest in the issue because the U.S.-Japan Treaty of Mutual Cooperation and Security covers areas under Japanese administration, and the United States government has repeatedly confirmed that such areas include the Senkakus/Diaoyu Islets. Japan-China tensions over the islets have run high since September 11, 2012, when Japan's government purchased three of the islands from their private Japanese owners, a move that China charged was equivalent to "nationalizing" the islands. Since then, China has maintained a nearly continuous presence near the islets and repeatedly sent its vessels into the 12 nautical mile territorial waters around them. China has mainly deployed vessels from the two civilian agencies, China Maritime Surveillance and the Bureau of Fisheries, but it has also sent Navy vessels and military aircraft into the area near the islands. Japan has responded with stepped-up coast guard patrols and missions by Japanese Self Defense Force fighter planes. Chinese officials have indicated that among their immediate goals is to force Japan to acknowledge that sovereignty of the islets is in dispute, an acknowledgement that Japan has resisted. Some observers believe that China may also have hoped to undermine the case for possible U.S. intervention in a conflict over the islets by arguing that the Chinese presence near the islands proves the islets are no longer administered solely by Japan, and thus may not fall within the scope of the U.S.-Japan security treaty. Congress sought to address that line of argument in Section 1286 of the FY2013 National Defense Authorization Act ( P.L. 112-239 ). The section stated that it was the sense of Congress that "the unilateral action of a third party"—a reference to China—"will not affect the United States' acknowledgement" of Japanese administration over the islands. The section also reaffirmed the United States commitment to Japan under Article V of the security treaty. Then-Secretary of State Hillary Clinton adopted the same position in remarks in January 2013, as did Secretary of Defense Chuck Hagel in remarks in April 2013. A Chinese Foreign Ministry spokesman denounced Clinton's statement as "ignorant of facts and indiscriminate of rights and wrongs." After the Obama-Xi summit in June 2013, National Security Advisor Donilon paraphrased President Obama as telling his Chinese counterpart that the United States does not take a position on the sovereignty of the disputed islets, but "the parties should seek to de-escalate, not escalate; and the parties should seek to have conversations about this through diplomatic channels and not through actions out of the East China Sea." The China-Japan dispute over the Senkakus/Diaoyu previously rose to the level of an international crisis in September 2010, after a collision between Japanese Coast Guard vessels and a Chinese fishing trawler near the islands, and the Japanese decision to detain the Chinese crew and charge the Chinese captain under Japanese law. For more information, see CRS Report R42761, Senkaku (Diaoyu/Diaoyutai) Islands Dispute: U.S. Treaty Obligations , by [author name scrubbed] and CRS Report RL33436, Japan-U.S. Relations: Issues for Congress , coordinated by [author name scrubbed]. Exclusive Economic Zone (EEZ) Disputes The issue that has for years provided the greatest day-to-day threat of inadvertent military confrontation between the United States and China is disagreement over whether the United Nations Convention on the Law of the Sea (UNCLOS)—a treaty to which China but not the United States is a party—gives coastal states a right to regulate foreign military activities in their maritime exclusive economic zones (EEZs). A coastal state's EEZ generally extends from the edge of its territorial sea (12 nautical miles from its coast) to a distance of 200 nautical miles from its coast. China's view, which is shared by a small number of other countries, has been that it has the legal right under UNCLOS to regulate foreign military activities in its EEZ. The U.S. view, which is shared by most other nations, is that international law as reflected in UNCLOS does not give coastal states this right. The United States, acting on its view, has long operated military ships and aircraft in China's EEZ, carrying out surveillance missions to monitor China's military deployments and capabilities, surveying the ocean floor to facilitate submarine navigation, and engaging in military exercises with allies such as South Korea and Japan. China, acting on its view, has long protested, and sometimes physically resisted, these operations. The issue appears to be at the heart of multiple incidents between Chinese and U.S. ships and aircraft in international waters and airspace, including incidents in March 2001, March 2009, and May 2009 in which Chinese ships and aircraft confronted and harassed the U.S. naval ships as they were conducting survey and ocean surveillance operations in China's EEZ, and an incident on April 1, 2001, in which a U.S. Navy EP-3 electronic surveillance aircraft flying in international airspace about 65 miles southeast of China's Hainan Island in the South China Sea was intercepted by Chinese fighters. In 2010, China reiterated its opposition to foreign military activities in its EEZ in response to the announcement of joint military exercises between the United States and South Korea in the Yellow Sea, following provocations by North Korea. Revelations in 2013 have raised questions about whether the Chinese position may be changing, however. DOD's 2013 report to Congress on military developments involving China noted that the United States had "observed over the past year several instances of Chinese naval activities in the EEZ around Guam and Hawaii." The DOD report observed that the United States considers such activities to be "lawful," but noted that "the activity undercuts China's decades-old position that similar foreign military activities in China's EEZ are unlawful." In June 2013, a PLA officer attending a security dialogue in Singapore reportedly publicly acknowledged that China has sent vessels into the United States' EEZ "a few times." For more information, see CRS Report R42784, Maritime Territorial and Exclusive Economic Zone (EEZ) Disputes Involving China: Issues for Congress , by [author name scrubbed]. Managing North Korea The United States and China share a common interest in peace and stability on the Korean peninsula and in verifiable denuclearization of the peninsula. With China serving as North Korea's largest supplier of fuel and food supplies and its most powerful diplomatic ally, however, the United States continues to call on China to do more to leverage its relationship with Pyongyang to persuade it to avoid provocations and denuclearize. Washington also wants Beijing to strengthen its implementation of U.N. sanctions against North Korea. "We believe that no country, including China, should conduct 'business as usual' with a North Korea that threatens its neighbors," then-National Security Advisor Tom Donilon remarked in a speech on Asia policy in March 2013. Since the death of former North Korean leader Kim Jong-il in December 2011 and the installation of his son, Kim Jong-un, as North Korea's supreme leader, Chinese-North Korean relations have frequently appeared strained. North Korea repeatedly ignored China's warnings not to carry out the rocket launches and a nuclear test and in May 2012 North Korea stirred angry populist passions in China when its Navy boarded a Chinese fishing boat and held the crew for more than two weeks. In January 2013, soon after China's new leaders took up their Communist Party posts, China supported U.N. Resolution 2087 condemning North Korea's December 2012 rocket launch. In March, China supported Resolution 2094, which strengthened existing sanctions against North Korea in response to the country's February 2013 nuclear test. In April 2013, shortly after he took office as China's state President, Xi Jinping raised eyebrows among observers of the China-North Korea relations when he warned that, "No one should be allowed to throw a region or even the whole world into chaos for selfish gain." The comment was widely interpreted to be directed at Pyongyang. In May 2013, a major Chinese state bank, Bank of China, announced that it had closed the account of North Korea's primary foreign-exchange bank, the Foreign Trade Bank. In late June 2013, China snubbed North Korea by hosting a high-profile visit by the South Korean President Park Geun-hye when it had yet to host the North's leader. In his meeting with President Park, President Xi issued what was interpreted as another tough warning to North Korea. The Xinhua News Agency paraphrased him as stating that, "China's stance in working to achieve peninsula denuclearization is firm, and its attitude is serious and sincere." It also paraphrased him as saying that China "opposes the action of any party in wrecking peace and stability," a statement seen as referring to North Korea. North Korea was a major topic of discussion both at the summit between President Obama and President Xi in June 2013 and at the Fifth Round of the Strategic and Economic Dialogue in July 2013. After the S&ED, the State Department announced that the two countries "agreed on the fundamental importance of the denuclearization of the Korean Peninsula in a peaceful manner," and on "the importance of working together to ensure full implementation of UN Security Council Resolution 2094 and other relevant resolutions by all UN Member States." China has long been committed to providing material support to the Pyongyang regime because of fears about the potentially destabilizing consequences of the regime's collapse, which China believes could include military hostilities, waves of North Korean refugees flooding into China's northeast provinces, and a reunified Korean peninsula allied with the United States. Scholars are asking whether China's new leaders may now be moving toward the view that it is the status quo that has become destabilizing. In February 2013, the House passed a resolution condemning North Korea for its "flagrant and repeated violations" of U.N. Security Council resolutions and for other provocations. The resolution called on China to use its economic leverage to pressure North Korea's leaders, and also called on China "to take immediate actions to prevent the transshipment of illicit technology, military equipment, and dual-use items through its territory, waters, and airspace that could be used in North Korea's nuclear weapons and ballistic missile programs." China's treatment of North Korean refugees has been an issue of concern for Congress. China considers North Koreans who have fled their homeland to China to be economic migrants, rather than refugees, and continues to resist allowing the United Nations High Commissioner on Refugees access to them. China's official policy is to repatriate the refugees to North Korea, where they face prison camp sentences or worse. North Korean refugees continue to trickle out of China to neighboring countries in North and Southeast Asia, however, and substantial numbers of North Korean refugees continue to live underground in China. For more information, see " June 7-8, 2013: The Presidential Summit in Rancho Mirage, CA " above. See also CRS Report R41259, North Korea: U.S. Relations, Nuclear Diplomacy, and Internal Situation , by [author name scrubbed] and [author name scrubbed]; CRS Report R40684, North Korea's Second Nuclear Test: Implications of U.N. Security Council Resolution 1874 , coordinated by [author name scrubbed] and [author name scrubbed]; CRS Report RL31555, China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues , by [author name scrubbed]; and CRS Report RS22973, Congress and U.S. Policy on North Korean Human Rights and Refugees: Recent Legislation and Implementation , by [author name scrubbed]. Curbing Iran's Nuclear Program Since 2006, China has been an important player in United States- and European-led multilateral efforts to rein in Iran's suspected nuclear weapons program. As a permanent member of the U.N. Security Council, China has participated in negotiations with Iran over the nuclear program as part of the P5+1 grouping (permanent members of the United Nations Security Council plus Germany). It has also supported a series of U.N. resolutions imposing limited U.N. sanctions against Iran, although it has frequently urged the use of dialogue rather than sanctions to address the nuclear program and joined Russia in pushing for more narrowly targeted sanctions than the U.S. and European nations sought. In the case of U.N. Resolution 1929, passed in June 2010, for example, Russia and China successfully insisted that new sanctions not target Iran's civilian economy or its population. China's policy toward Iran is also of crucial importance to U.S. efforts to pressure the Iranian regime because China is Iran's largest trading partner, single largest customer for oil, and a major investor in the Iranian energy and other sectors. Since passage of U.N. Resolution 1929, the United States has sought to encourage China to follow the lead of the United States and European Union countries in imposing bilateral sanctions on Iran's energy and financial sector that exceed those mandated in U.N. Security Council resolutions. China has declined to impose its own bilateral sanctions and has criticized other countries for doing so. It did substantially decrease its oil imports from Iran in 2012, though, reportedly in part because of disputes with Iran over the terms of annual purchase contracts. The Administration granted China P.L. 112-81 sanctions exemptions on June 28, 2012, December 7, 2012, and June 5, 2013. At the same time, the United States has also sanctioned Chinese businesses for their involvement in Iran. In July 2012, for example, the Administration sanctioned the Xinjiang-based Bank of Kunlun, which is affiliated with the China National Petroleum Corporation, "for knowingly facilitating significant transactions and providing significant financial services for designated Iranian banks." China angrily protested the move and defended China's business ties with Iran. A Chinese Foreign Ministry spokesman insisted that China's cooperation with Iran, "has nothing to do with Iran's nuclear program, is not in violation of any U.N. Security Council resolutions or other international norms, and does not harm the interests of any third party." U.S. officials give China credit for not moving to take over contracts given up by other countries, a behavior that the United States refers to as "backfilling." In March 2011, Robert Einhorn, then the State Department's Special Advisor for Nonproliferation and Arms Control, cited "substantial evidence that Beijing has taken a cautious, go-slow approach toward its energy cooperation with Iran." The United States has for many years implicated Chinese firms in sales to Iran of missile technology. The Central Intelligence Agency's 2012 report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, covering the 2011 calendar year, stated that, "Chinese entities—primarily private companies and individuals—continue to supply a variety of missile-related items to multiple customers, including Iran and Pakistan." For more information, see CRS Report RS20871, Iran Sanctions , by [author name scrubbed]; and CRS Report RL31555, China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues , by [author name scrubbed]. Resolving the Crisis in Syria The United States has looked to China, a fellow permanent member of the United Nations Security Council, to play a constructive role in helping to resolve the crisis in Syria. China has opposed all military intervention in Syria, including proposals for U.N. authorization of use of force, and has on three occasions joined Russia in blocking U.S.-backed Security Council resolutions on Syria. In the 112 th Congress, S.Res. 379 expressed "strong disappointment" with both Russia and China for their vetoes of one such resolution, which would have adopted an Arab League plan outlining a Syrian-led political transition to a democratic, plural political system. Repeating a longstanding position, China's Foreign Ministry spokesman stated in early July 2013 that, "We respect the Syrian people's choice, and appeal to the parties concerned to work together to promote a ceasefire and end of violence in Syria as soon as possible, and launch a political dialogue process." For more information, see CRS Report RL33487, Armed Conflict in Syria: U.S. and International Response , by [author name scrubbed] and [author name scrubbed]. Taiwan The U.S. relationship with the island democracy of Taiwan, also known as the Republic of China, is one of the most sensitive and complex issues in the bilateral U.S.-China relationship. In 1949, following a civil war between the Kuomintang (KMT) and the Chinese Communist Party (CCP) that brought the CCP to power in mainland China, the KMT re-established itself on Taiwan. The PRC has consistently claimed sovereignty over Taiwan in the six decades since, but has never controlled it. Unification with Taiwan and its 23 million people remains one of the PRC's most cherished national goals, one Beijing has vowed to achieve by force if necessary. Beijing sees the United States, which is required by law to "maintain the capacity …to resist any resort to force or other forms of coercion" against Taiwan, as a major obstacle to that goal. Finding language on Taiwan that both the PRC and the United States could accept was a prerequisite for the establishment of diplomatic relations between the two countries in 1979. In the 1972 Shanghai Communiqué, the United States declared that it "acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China." In the 1979 communiqué on the establishment of U.S.-China diplomatic relations, the United States agreed that it would henceforth have only "unofficial" relations with Taiwan. In a subsequent 1982 communiqué, the United States said it intended "gradually to reduce its sale of arms to Taiwan." Concerned that the Joint Communiqués did not do enough to protect Taiwan's interests, Congress in March 1979 passed the Taiwan Relations Act or TRA ( P.L. 96-8 ). The TRA declared that it is U.S. policy "to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people of Taiwan." The TRA also mandated that the United States would sell Taiwan defense items "in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability." Washington continues to sell arms to Taiwan, over strenuous PRC objections, and Washington and Beijing continue to plan for the possibility that they could one day find themselves involved in a military confrontation over Taiwan's fate. Despite reduced cross-strait tensions since 2008, when President Ma Ying-jeou of the KMT took office, the Department of Defense estimates that the PRC deploys more than 1,100 short-range ballistic missiles opposite Taiwan's coast. China has also engaged in a program of military modernization that includes the development or deployment of military capabilities "to coerce Taiwan or attempt an invasion, if necessary," according to DOD. The United States has repeatedly assured China that it does not support independence for Taiwan, but it has retained ambiguity about its willingness to defend Taiwan in a conflict with China. That ambiguity is intended both to deter China from attempting to use force to bring Taiwan under its control, and to deter Taiwan from moves that might trigger China's use of force, such as a declaration of formal independence. As part of a statement known as the "Three No's," President Clinton also in 1998 publicly stated that the United States does not support Taiwan's membership in any international organizations for which statehood is a requirement. An additional factor influencing U.S. policy is the fact that Taiwan has blossomed into a vibrant and unpredictable democracy. As Taiwan's elected leaders have sought to define Taiwan's place in the world and expand its "international space," the United States has sometimes found itself urging restraint, opening Washington to charges that it is placing its interest in regional stability and cooperative relations with Beijing above the aspirations of the Taiwan people. Supporters of Taiwan's largest opposition party, the independence-minded Democratic Progressive Party (DPP), charged that in the run-up to January 2012 presidential and legislative elections, the United States inappropriately signaled its support for President Ma's candidacy because of a fear of heightened tensions between Taipei and Beijing if the DPP candidate were to win. President Ma was re-elected to a second four-year term, which is scheduled to conclude in May 2016. For more information, see CRS Report R41952, U.S.-Taiwan Relationship: Overview of Policy Issues , by [author name scrubbed] and [author name scrubbed]; CRS Report R41263, Democratic Reforms in Taiwan: Issues for Congress , by [author name scrubbed]; and CRS Report RL30341, China/Taiwan: Evolution of the "One China" Policy—Key Statements from Washington, Beijing, and Taipei , by [author name scrubbed]. Cross-Strait Relations Tensions between Beijing and Taipei have eased since President Ma first took office in Taiwan in 2008, following eight years of rule by the Democratic Progressive Party (DPP). Under President Ma, long-stalled official talks with China reconvened in June 2008 in Beijing, resulting in groundbreaking agreements on direct charter flights, the opening of permanent offices in each other's territories, and Chinese tourist travel to Taiwan, among others. Other rounds produced accords related to postal links, food safety, and Chinese investment in Taiwan. In April 2009, in an indication of greater flexibility on both sides, the World Health Organization (WHO) invited Taiwan to attend the 2009 World Health Assembly (WHA) as an observer under the name "Chinese Taipei." The invitation, issued with China's assent, marked the first time that Taiwan had been permitted to participate in an activity of a U.N. specialized agency since it lost its U.N. seat to China in 1971. Some analysts have questioned how much Taiwan gained, h owever, noting that China has a memorandum of understanding with the WHO requiring that any interaction between Taiwan and the WHO be approved first by the Chinese Ministry of Health, and noting, too, that in WHO documents, Taiwan is referred to as "Taiwan Province of China." Taiwan is now seeking observer status in a second specialized agency of the United Nations, the International Civil Aviation Organization (ICAO). In a September 2012 meeting between China's then-President Hu Jintao and Lien Chan, Honorary Chairman of Taiwan's KMT, Hu pledged that Beijing would, in the KMT's words, "seriously study how to allow Taiwan to participate in ICAO events in an appropriate way." Hu is now retired, but Beijing still appears to consider itself bound by Hu's words. It has not sought to block Taiwan's bid for observer status in the ICAO, but has made clear that it expects to be heavily involved in negotiating the terms of any Taiwan participation. P.L. 113-17 , signed into law in July 2013, directs the Secretary of State to develop a strategy to obtain observer status for Taiwan at the triennial International Civil Aviation Organization Assembly, to be held in September 2013 in Montreal, Canada. Beijing and Taipei signed a landmark free trade arrangement, the Economic Cooperation Framework Agreement (ECFA), in June 2010, removing many remaining barriers to trade and investment across the Taiwan Strait and hastening cross-strait economic integration. That integration has raised fears among some in both Taiwan and the United States about a possible erosion of Taiwan's autonomy. At the same time, some analysts believe that closer economic ties may deter cross-straits conflict by increasing the potential economic and human costs for both sides. In the joint statement issued during Chinese President Hu Jintao's state visit to Washington in January 2011, the United States said that it "applauded" the ECFA and "welcomed the new lines of communication developing between" the two sides of the Taiwan Strait. U.S. Arms Sales to Taiwan The issue of U.S. arms sales to Taiwan is among the most contentious in the U.S.-China relationship. The PRC argues that U.S. arms sales embolden those in Taiwan who seek Taiwan's formal independence—China calls them "separatist forces"—and that the arms sales are therefore destabilizing. China also charges that continued U.S. arms sales represent a betrayal of U.S. commitments under the August 17 th Communiqué of 1982, in which the United States stated its intention "gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution." The U.S. government argues that arms sales to Taiwan give Taiwan's leaders the confidence and "capacity to resist intimidation and coercion" required to engage with China. The United States also cites its obligation under the Taiwan Relations Act ( P.L. 96-8 ) to provide Taiwan with defense articles and services "in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability." In October 2011, the Obama Administration notified Congress of a $5.85 billion arms package, including upgrades to 145 F-16A/B fighter jets, the extension of a pilot training program, and spare parts for three types of aircraft. Although China has previously suspended the military-to-military relationship with the United States to protest U.S. arms sales packages to Taiwan, it did not do so in this case, perhaps because the Obama Administration chose not to sell Taiwan more advanced F-16C/D fighters. China strenuously opposes the sale of F-16C/Ds to Taiwan, arguing that they are offensive, rather than defensive in nature, and that selling them to Taiwan would run counter to the U.S. pledge in the 1982 Communiqué not to sell arms to Taiwan that "exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years." Sec. 1281 of the FY2013 National Defense Authorization Act ( P.L. 112-239 ) stated that it was the Sense of the Congress that the President should take steps to address Taiwan's shortfall in fighter aircraft, "whether through the sale of F-16 C/D aircraft or other aircraft of similar capacity." For more information, see CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990 , by [author name scrubbed]. Economic Issues The U.S. and Chinese economies are the first and second largest in the world respectively, and are heavily interdependent. The Obama Administration has sought to cooperate with China in rebalancing the global economy, while acknowledging that the two nations are engaged in what President Obama calls "healthy economic competition." Bilateral economic issues include the issue of commercial cyber espionage allegedly originating from China; China's currency and industrial policies; and China's weak enforcement of intellectual property rights. Both countries have welcomed the growth of Chinese foreign direct investment in the United States, although China has complained about U.S. scrutiny of investments on national security grounds. The primary bilateral fora for discussion of economic issues are the U.S.-China Strategic and Economic Dialogue (S&ED) and the Joint Commission on Commerce and Trade (JCCT). For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed], and CRS Report RL33534, China's Economic Rise: History, Trends, Challenges, and Implications for the United States , by [author name scrubbed]. Basic Facts About the U.S.-China Economic Relationship Basic facts about the bilateral economic relationship include The U.S. and Chinese economies are the first and second largest in the world respectively on both a nominal dollar basis and a purchasing power parity basis. In 2012, according to the World Bank, U.S. nominal GDP was nearly twice the size of China's, at $15.68 trillion compared to China's $8.227 trillion. According to official U.S. trade data, China is the United States' second largest trading partner, after Canada. Two-way trade in 2012 topped $536 billion. China's exports to the United States totaled $426 billion, and U.S. exports to China totaled $111 billion. The U.S. goods trade deficit with China was $315 billion. According to official Chinese data, the United States is China's largest trading partner and U.S.-China two-way trade in 2012 was $480 billion, with Chinese exports to the United States totaling $352 billion and U.S. exports to China totaling $128 billion. Chinese data shows the Chinese trade surplus with the United States to be $224 billion. According to official U.S. data, China is the United States' largest supplier of imports, third largest export market (after Canada and Mexico), second largest agricultural export market (after Canada), and fifth largest market for exports of private services. Imports from China make up 19% of all U.S. imports and exports to China account for 7% of all U.S. exports. According to an Associated Press analysis, for at least 124 countries, China is now a larger trading partner than the United States. China is the largest foreign holder of U.S. Treasury securities, holding $1.32 trillion in U.S. Treasury securities as of the end of May 2013. At that time, China's holdings represented 23.3% of all foreign holdings of U.S. Treasury securities, and 7.9% of total outstanding U.S. debt. According to official U.S. data, by the end of 2010 U.S. businesses had invested a cumulative $60.5 billion in China, an increase of 21.4% from 2009. According to U.S. Bureau of Economic Analysis (BEA) figures, cumulative Chinese foreign direct investment (FDI) in the United States, reached $3.8 billion in 2011, just 6% of U.S. FDI in China, but a six-fold increase over 2007. According to official Chinese data, by 2013, Chinese FDI in the United States had reached $20 billion. Private-sector researchers in the United States believe that the cumulative volume of Chinese FDI in the United States is larger still. Global Rebalancing and China's 12th Five-Year Plan World leaders have acknowledged the need for fundamental restructuring of the global economy, with major onus for action on the United States and China. According to the World Bank, the United States had the world's largest current account deficit in 2011, while China had the world's second largest surplus. Many economists say that such huge imbalances in global trade undermine the health of the global economy, and that the United States needs to save more and consume less, while China needs to reduce its dependence on exports and investment and consume more. China signaled its intention to tackle its side of the equation in its 12 th Five-Year Plan, an authoritative plan for national economic and social development covering the years 2011 to 2015. Adopted by China's National People's Congress in March 2011, the 12 th Five-Year Plan includes plans for: slower GDP growth than China has enjoyed in the past, with a target of 7% annual GDP growth over the five years of the plan; boosting domestic consumption as a percentage of GDP, in part by increasing wages for Chinese workers and improving China's social welfare net, so that citizens do not need to set aside so much of their incomes to pay for education, health care, and retirement; increasing the service sector's contribution to GDP; expanding urbanization, with a target of creating more than 45 million jobs in urban areas and increasing China's urbanization rate to 51.5%, an increase of four percentage points; prioritizing development of seven "emerging strategic industries," three intended to support China's goal of moving toward more environmentally sustainable growth, and four intended to support China's goal of moving away from labor-intensive low-end manufacturing; meeting ambitious energy and environmental targets, including increasing the proportion of non-fossil fuels in China's energy mix to 11.4% and reducing energy consumption per unit of GDP by16%. Cyber-Enabled Theft of Commercial Information Cyber-enabled theft of commercial information is a rapidly growing issue in the U.S.-China relationship. After years of discussing the issue only in classified writings, the U.S. government in 2011 made public some of its concerns in a report to Congress issued by the Office of the National Counterintelligence Executive (NCIX). The NCIX report described Chinese actors as "the world's most active and persistent perpetrators of economic espionage," and both the Chinese and Russian governments as "aggressive and capable collectors of sensitive U.S. economic information and technologies, particularly in cyberspace." The report noted that U.S. businesses and cyber security experts had reported "an onslaught of computer network intrusions originating from Internet Protocol (IP) addresses in China," although it also noted the difficulty of "attribution," or determining what entities were behind the attacks, whether individuals, corporate actors or state actors. In February 2013, Mandiant, a private information security company, published a report accusing a Shanghai-based unit of China's People's Liberation Army of cyber espionage targeting multiple U.S. and other corporations. In remarks to the Asia Society the next month, then-National Security Advisor Tom Donilon spoke out against "sophisticated, targeted theft of confidential business information and proprietary technologies through cyber intrusions emanating from China on an unprecedented scale," but did not explicitly accuse the Chinese Communist Party or the government of complicity in the intrusions. The U.S. government for the first time publicly pinned responsibility on official Chinese actors in May 2013. In a report to Congress that month, the Department of Defense wrote that cyber-intrusions targeting U.S. government and other computer systems "appear to be attributable directly to the Chinese government and military." As accusations of official Chinese actors' involvement in enabled-theft of intellectual property, trade secrets, and business proprietary information have mounted, official Chinese spokespeople have frequently dismissed the allegations as "groundless," citing the difficulty of attribution of cyberattacks and intrusions. Responding to the Mandiant report in February 2013, a spokesman for China's Ministry of National Defense stated that, "the Chinese military has never supported any hacker activity." He noted that Chinese law prohibits hacker attacks and "other such activities that undermine the security of the Internet." He also stated that China is itself a major victim of network attacks, with the networks of the Ministry of National Defense and China Military Online coming under attack more than 144,000 times a month on average, with 63% of the attacks allegedly originating from the United States. The U.S. and Chinese governments in 2013 established a high-level working group on cyber security under U.S.-China Strategic Security Dialogue, a sub-dialogue of the two countries' Strategic and Economic Dialogue. The Cyber Working Group (CWG) met for the first time on July 8, 2013. According to the State Department, at the meeting the two governments "decided to take practical measures to enhance dialogue on international norms and principles in order to guide action in cyber space." They also agreed to strengthen coordination and cooperation between the U.S. Computer Emergency Readiness Team (US-CERT) and the National Computer Network Emergy Response Technical Team/Coordination Center of China (CNCERT/CC). Former National Security Agency contractor Edward Snowden's allegations related to U.S. intelligence collection programs may have complicated the U.S. effort to hold China to account for its alleged involvement in cyber-enabled theft targeting the United States. A report from China's state news agency, Xinhua, claimed that information provided by Snowden had revealed U.S. "hypocrisy" on the cyber-security issue, and added "a dose of conviction" to China's denials of state-sponsored hacking and its claim to be a victim of cyber-crimes. A Xinhua commentary claimed that Snowden's allegations "demonstrate that the United States, which has long been trying to play innocent as a victim of cyber attacks, has turned out to be the biggest villain in our age." A senior administration official, speaking on background to the media in July 2013, sought to draw a distinction between Snowden's allegations and U.S. concerns related to China's behavior, arguing that, "there is a vast distinction between intelligence-gathering activities that all countries do and the theft of intellectual property for the benefit of business in the country, which we don't do and we don't think any country should do." For more information, see CRS Report R42984, The 2013 Cybersecurity Executive Order: Overview and Considerations for Congress , by [author name scrubbed] et al. The Bilateral Trade Deficit Trade between the United States and China has expanded dramatically in the years since China acceded to the World Trade Organization in December 2001. The size of the U.S. trade deficit with China has risen with the greater volume of trade. Economists argue that the global trade balance is a more meaningful indicator of an economy's health than bilateral balances, and in recent years, China's current account surplus has fallen significantly, as a share of GDP, from 10.1% in 2007 to 2.3% in 2012. Many U.S. analysts nonetheless point to the United States' bilateral goods trade imbalance with China to highlight China's allegedly unfair trade practices and undervalued currency, and their impact on the U.S. economy. Chinese officials, who cite different figures for the bilateral trade deficit than the United States, routinely seek to shift some of the blame for the trade deficit to the United States by criticizing U.S. controls on exports of advanced technology. They also argue that the increase in exports to the United States reflects the shifting of production from other countries to China, with many "made in China" products containing components made in other countries, and China adding only a small percentage of the value. In trade statistics, however, the entire value of such products is counted as being from China. For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed], and CRS Report RS22640, What's the Difference?—Comparing U.S. and Chinese Trade Data , by [author name scrubbed]. China's Currency Policy The issue of China's management of its currency, the renminbi ("people's money") or RMB, once topped the Obama Administration's shortlist of economic disputes with China. It remains a major concern, but appears to have lost some of its urgency as other economic disputes with China have moved to the fore, and as China has continued to allow its currency to appreciate gradually. According to the U.S. Treasury Department, Chinese leaders increasingly acknowledge the value of a stronger RMB as a tool to combat inflation, and have made commitments at the G-20 and the S&ED to promote greater flexibility in the exchange rate and to "gradually reduce the pace of accumulation of foreign reserves." According to Treasury Department data, from June 2010, when China's central bank, the People's Bank of China, announced a policy of greater exchange rate "flexibility," to early April 2013, the RMB appreciated against the U.S. dollar by 10% in nominal terms. In real, inflation-adjusted terms, it appreciated 16.2% between June 2010 and February 2013. From July 2005 to April 2013, China's "real effective exchange rate" (REER) appreciated 33.8% in real terms. The Treasury Department believes that "While the estimated range of misalignment has narrowed, China's real effective exchange rate continues to exhibit significant undervaluation." The U.S. government argues that an undervalued RMB makes China's exports to the world artificially cheap, and China's imports from the rest of the world, including the United States, artificially expensive for Chinese consumers. For more information about China's currency policy, see CRS Report RS21625, China's Currency Policy: An Analysis of the Economic Issues , by [author name scrubbed] and [author name scrubbed]. China's Holdings of U.S. Treasuries The U.S. federal budget deficit has increased rapidly since 2008, financed by sales of Treasury securities. China, with $3.3 trillion in foreign currency reserves in December 2012, has been either the largest or the number two foreign holder of U.S. Treasury securities since then, and thus one of the largest foreign financers of the U.S. federal budget deficit. China's holdings of U.S. Treasury securities totaled $1.32 trillion as of the end of March 2013, accounting for 23.3 of all foreign holdings of U.S. Treasury securities, and nearly 7.9% of total outstanding U.S. debt. Japan was the second-largest holder of U.S. Treasury securities. Some observers have raised concerns about the possibility of China destabilizing the U.S. economy by drawing down its holdings of U.S. Treasuries. Economists familiar with China's financial system note, however, that it does not allow foreign currency to be spent in China, meaning that China has no choice but to invest its large current account surplus overseas. The United States is the only economy large enough to absorb foreign exchange on the scale that China is accumulating it. The combination of China's large volume of exports to the United States and its purchase of U.S. debt has given China a major stake in the health of the U.S. economy. Some analysts argue that China's holdings of U.S. Treasuries have also shifted the balance of financial power between Washington and Beijing, emboldening China to speak out with criticisms of the way the U.S. economy is managed. Beijing has spoken out, for example, about its concerns regarding the U.S. use of quantitative easing monetary policy to stimulate its economy. China fears the policy, by suppressing interest rates, could produce inflation and/or a devaluation of the U.S. dollar, which would lessen the value of China's U.S. dollar assets. For more information, see CRS Report RL34314, China's Holdings of U.S. Securities: Implications for the U.S. Economy , by [author name scrubbed] and [author name scrubbed]. China's Compliance with World Trade Organization (WTO) Commitments Since 2006, the U.S. government has repeatedly raised concerns about alleged backsliding in China's implementation of commitments it made as part of its 2001 accession to the World Trade Organization. In December 2012, in the midst of China's transition to a new leadership team, the U.S. Trade Representative charged in a report to Congress that, "For much of the past decade, the Chinese government has been re-emphasizing the state's role in the economy, diverging from the path of economic reform that drove China's accession to the WTO." Of particular concern to USTR has been China's use of "new and more expansive industrial policies, often designed to limit market access for imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government guidance, resources and regulatory support to Chinese industries, particularly ones dominated by state-owned enterprises." The United States and China routinely discuss U.S. concerns in detail in the context of two bilateral dialogues, the Joint Commission on Commerce and Trade (JCCT) and the Strategic and Economic Dialogue (S&ED), as well as in other bilateral settings. Each round of the two dialogues produces new commitments from China to review and often revise specific policies. When bilateral negotiations have failed to resolve U.S. concerns, the United States has taken disputes to the World Trade Organization (WTO). The United States has brought 15 dispute settlement cases against China to the WTO, including eight under the Obama Administration (three in 2012, one in 2011, three in 2010, and one in 2009). China has brought eight WTO cases against the United States to the WTO, five of them during the Obama Administration's time in office (two in 2012, one in 2011, and two in 2009). Two of China's cases against the United States have challenged legislation passed by the U.S. Congress. In September 2010, a WTO panel found for China in determining that that Section 727 of P.L. 111-8 was inconsistent with the United States' WTO obligations, but did not recommend further action because the provision had expired. A pending Chinese case against the United States at the WTO challenges P.L. 112-99 , An Act to Apply the Countervailing Duty Provisions of the Tariff Act of 1930 to Nonmarket Economy Countries, and For Other Purposes. For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed]; and CRS Report RL33976, U.S. Trade Remedy Laws and Nonmarket Economies: A Legal Overview , by [author name scrubbed]. China and the WTO Government Procurement Agreement Although China acceded to the World Trade Organization in 2001, and although its government procurement market has since grown to be among the largest in the world, China has yet to join the WTO's Government Procurement Agreement (GPA). Its procurement policies are thus not subject to most WTO rules. The United States has been eager to see China join the agreement so as to ensure access for U.S. firms to what China says was a $179 billion in 2011. China has so far submitted four offers to join the GPA, but none acceptable to current GPA members. At the meeting of the U.S.-China Strategic and Economic Dialogue in July 2013, China made a new commitment to submit a revised offer to join the GPA by the end of 2013, and to "begin intensive technical discussions with the United States this summer with the aim of tackling remaining obstacles to China's GPA accession." For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed]. Negotiations Over a U.S.-China Bilateral Investment Treaty (BIT) At the July 2013 round of the U.S.-China Strategic and Economic Dialogue (S&ED), the United States and China agreed to re-start negotiations over a Bilateral Investment Treaty (BIT), which could serve to resolve disagreements between the two countries over such issues as market access and protections for intellectual property. The two sides previously undertook nine rounds of negotiations over a BIT, but the talks ultimately stalled, in part over China's insistence on exempting its service sector and certain other industries from the proposed BIT. According to the Treasury Department, China has now agreed that the BIT will cover all phases of investment, including market access, and all sectors of the Chinese economy "except for any limited and transparent negotiated exceptions." At a briefing during the S&ED, China's Commerce Minister, Gao Hucheng, suggested that rapidly growing Chinese direct investment in the United States, combined with China's continued substantial Chinese holdings of U.S. Treasuries, convinced China of the need to re-start negotiations. "With such an extensive investment relationship, it is necessary for the two sides to have an institutional environment for the protection of these investments," Gao told reporters. The BIT negotiations are led by the State Department and the U.S. Trade Representative, with participation from the Treasury Department and others. The proposed BIT would ultimately need to be ratified by the U.S. Senate. For more information, see CRS Report R43052, U.S. International Investment Agreements: Issues for Congress , by [author name scrubbed] and [author name scrubbed]. Chinese Foreign Direct Investment in the United States With both the U.S. and Chinese governments officially supporting greater Chinese investment in the United States, Chinese foreign direct investment (FDI) has been growing steadily in recent years, although the Obama Administration's blocking of several Chinese investments on national security grounds has led to complaints from China that investors feel the U.S. government's welcome is not entirely wholehearted. The U.S. Bureau of Economic Analysis reports that at the end of 2011, cumulative Chinese investment in the United States totaled $3.8 billion. China puts the current figure much higher, saying that Chinese direct investment in the United States now totals $20 billion. The Rhodium Group, a private U.S.-based economic research firm, reports that it has tracked 670 deals involving Chinese FDI in the United States, with a total value of $27.9 billion. The largest proposed acquisition of a U.S. firm by a Chinese firm to date is Shuanghui International Holdings' bid to purchase Virginia-based Smithfield Foods, the world's largest hog producer, for $4.7 billion in cash. (Shuanghui's planned assumption of Smithfield's debts makes the deal worth $7.1 billion in total.) Shuanghui, which announced its bid in May 2013, is the majority owner of China's largest meat processing enterprise, Henan Shuanghui Investment and Development Company, Ltd. The deal is currently under review by the U.S. Committee on Foreign Investment in the United States (CFIUS). A number of Members of Congress have expressed concerns about the proposed transaction. On July 10, 2013, the Senate Committee on Agriculture, Nutrition, and Forestry held a hearing to examine the deal and "more broadly examine how the government review process of foreign acquisitions of U.S. companies addresses American food safety, protection of American technologies and intellectual property, and the effects of increased foreign ownership of the U.S. food supply." For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed] and CRS Report RL33388, The Committee on Foreign Investment in the United States (CFIUS) , by [author name scrubbed]. China's Enforcement of Intellectual Property Rights (IPR) The United States Trade Representative continues to place China on its Priority Watch List of countries that are the worst violators of intellectual property rights, a list that currently comprises 10 countries. In its annual Special 301 Report to Congress, USTR highlighted "the growing problem of misappropriation of trade secrets in China and elsewhere" and "troubling 'indigenous innovation' policies that may unfairly disadvantage U.S. rights holders in China." The report noted that Chinese theft of trade secrets can occur in a wide range of circumstances, including "departing employees, failed joint ventures, cyber intrusion and hacking, and misuse of information submitted to government entities for the purposes of complying with regulatory obligations." It stated that, "In practice, remedies under Chinese law are difficult to obtain." In May 2013, a report by the Commission on the Theft of American Intellectual Property, headed by Dennis C. Blair, former Director of National Intelligence, and Jon M. Huntsman, Jr., a former U.S. Ambassador to China, estimated that annual U.S. losses due to international theft of U.S. intellectual property "are likely to be comparable to the current annual level of U.S. exports to Asia," or over $300 billion. The report attributed "between 50% and 80%" of the problem to China. "National industrial goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in the practice," the Commission alleged. For more information, see CRS Report RL33536, China-U.S. Trade Issues , by [author name scrubbed] and CRS Report RL34292, Intellectual Property Rights and International Trade , by [author name scrubbed] and [author name scrubbed]. Climate Change and Energy Cooperation China relies heavily on coal to power its fast-growing economy and is the world's largest emitter of the most common greenhouse gas, carbon dioxide (CO 2 ). According to the International Energy Agency (IEA), China accounted for 24.1% of all global CO 2 emissions in 2010, well ahead of the United States. The IEA reports that its preliminary estimates show China's emissions grew 300 million tonnes (Mt), or 3.8%, in 2012, while U.S. emissions dropped 200 Mt. The agency notes, however, that China's emissions growth rate for 2012 was one of its lowest in a decade, thanks to a greater reliance on renewable energy sources, particularly hydropower, and a decline in the energy intensity of the Chinese economy. With China and the United States together responsible for nearly half of the world's CO 2 emissions, both countries are by necessity key players in efforts to address climate change. The Obama Administration has long sought to make cooperation with China in battling climate change a pillar of a new relationship focused on global issues. In the first term of the Obama Administration, the two countries' different perspectives on international climate change negotiations frequently produced friction. Disagreements have centered on the relative responsibilities of developed and major developing nations for addressing climate change. China, along with many other developing countries, has long argued that developed nations bear the lion's share of the historical responsibility for climate change and continue to have far higher levels of emissions per capita, so they alone should be subject to legally binding commitments to reduce emissions, while developing nations' reductions should be voluntary. Chinese officials have described pressures on developing countries to accept legally binding emissions targets as an attempt to restrict those countries' rights to develop. The U.S. Congress has long indicated that it will not support legally binding commitments, such as the Kyoto Protocol, to reduce U.S. emissions without binding commitments from other major emitters, such as China. The Obama Administration has adopted the same position. In the second Obama Administration term, cooperation on climate change-related issues has had a more positive tone. When Secretary of State Kerry, a long-time advocate of action on climate change, visited China in April 2013, the two countries issued a joint statement on climate change committing to "forceful, nationally appropriate action by the United States and China—including large-scale cooperative action." They also established a high-level U.S.-China Climate Change Working Group to explore ways to advance cooperation. The group, led by the U.S. Special Envoy for Climate Change and a Vice Chairman of China's National Development and Reform Commission, delivered its findings at the July 2013 meeting of the bilateral Strategic and Economic Dialogue, calling for "new pragmatic cooperation" in five areas: heavy-duty and other vehicles; smart grids; carbon capture, utilization and storage; collecting and managing greenhouse gas data; and energy efficiency in buildings and industry. One of the first tangible products of the group's work was a bilateral agreement announced at the Obama-Xi presidential summit in June to address climate change through a joint commitment to reduce use of hydrofluorocarbons. Without agreeing to binding international commitments, China has set itself ambitious national targets for reducing growth in its carbon emissions. In its 12 th Five-Year Plan, an authoritative economic planning document covering the years from 2011 through 2015, for example, the PRC committed that by 2015, it would increase the share of non-fossil fuels in its primary energy mix to 11.4%, cut energy consumption per unit of GDP by 16%, and cut carbon dioxide emissions per unit of GDP by 17%. A government report adopted at the annual National People's Congress plenary session in March 2013 stated that China reduced carbon dioxide emissions per unit of GDP by 5.02% over the previous year, 1.5 percentage points higher than the planned target for the year. Secretary Kerry has argued that, "Energy policy is the solution to climate change." During President Obama's November 2009 state visit to China, the United States and China announced the establishment of a $150 million initiative surrounding a new, virtual U.S.-China Clean Energy Research Center (CERC). The CERC and other components were tasked with researching and jointly developing energy efficient buildings, electric vehicles, and clean coal technologies over the subsequent five years. It took the nongovernmental participants until September 2011, however, to work out formal agreements to protect intellectual property necessary for the research to move forward. Areas of bilateral collaboration on clean energy include joint government and public-private initiatives to determine roadmaps for broad renewable energy deployment in both countries, increase efficiency of renewable energy power plants, promote cleaner use of coal and large-scale carbon capture and storage, and assess China's shale gas resources. China has become a leader in the production of some renewable energy technologies, such as photovoltaic solar panels, as well as carbon capture and storage, although experts say the PRC continues to lag behind the United States in research and development. The United States and China have engaged in heated trade disputes over some renewable technologies. In October 2012, the U.S. Department of Commerce announced a decision to impose anti-dumping tariffs ranging from 18% to 250% on solar-energy cells imported from China, having determined that without the tariffs, the imports threatened to injure the domestic solar industry. The United States also challenged the Chinese government's support for its domestic wind turbine industry through the World Trade Organization, winning an agreement from China to end certain subsidies. China's ambitious plans to double its hydropower capacity by 2020 have embroiled it in disputes with down-river neighbors in Southeast and South Asia and fed criticism from overseas groups about China's management of transboundary water resources. For more information, see CRS Report R41919, China's Greenhouse Gas Emissions and Mitigation Policies , by [author name scrubbed]; CRS Report R40001, A U.S.-Centric Chronology of the International Climate Change Negotiations , by [author name scrubbed]; and CRS Report R41748, China and the United States—A Comparison of Green Energy Programs and Policies , by [author name scrubbed]. Democracy Promotion and Human Rights Issues The PRC is an authoritarian state that has been governed since its founding in 1949 by the Chinese Communist Party (CCP). While other minor political parties exist, they are authorized by the CCP and are essentially powerless. The CCP is deeply intolerant of dissent and suspicious that forms of speech, assembly, religion, and association that it does not control could be used to topple it from power. That said, Chinese citizens are today freer to choose where they want to live, work, and travel than at any time in the PRC's history, and the rapid growth of social media has dramatically broadened the scope of public debate, even as both social media and the mainstream media continue to be subject to Communist Party censorship. In speeches about their vision for Asia, President Obama and officials in his Administration have often spoken about the need to advance democracy and, without directly naming China, appeared to criticize China's political system and to cast doubt on China's fitness to serve as a model for the developing world. Speaking at a press conference in Bangkok in November 2012, for example, President Obama responded to a question about the attractiveness of China's system of government by arguing that "the notion somehow that you can take shortcuts and avoid democracy, and that that somehow is going to be the mechanism whereby you deliver economic growth, I think is absolutely false." The alternative to democracy, he continued, "is a false hope that, over time, I think erodes and collapses under the weight of people whose aspirations are not being met." In remarks in Canberra, Australia a year earlier that some in China saw as directed at Beijing, Obama spoke of U.S. support for fundamental rights, including "the freedom of citizens to choose their own leaders." He described communism and rule by committee as "failed" models of governance, and declared that "prosperity without freedom is just another form of poverty." The Administration's rhetoric has contributed to strategic mistrust between the United States and China's ruling Communist Party, which has long suspected the United States of being uncomfortable with China's political system and of wanting to end the Chinese Communist Party's monopoly on power. In its direct engagement with China, however, the Obama Administration has tended to prioritize the overall stability of the U.S.-China relationship over progress on its democracy promotion agenda. W ith Chinese officials, U.S. officials press the argument that, in the words of former Assistant Secretary of State Michael H. Posner, "societies that respect human rights and address aspirations of their own people are more prosperous, successful, and stable." In that context, the United States has urged China to ease restrictions on freedom of speech, internet freedom, religious and ethnic minorities, and labor rights. U.S. tools to register its concerns about China's human rights record include public statements from senior U.S. officials; the annual State Department reports on human rights and international religious freedom; meetings with Chinese officials; exchanges in bilateral dialogues, including a bilateral dialogue on human rights; Congressional hearings, public statements, and legislation; and Congressionally-mandated U.S. assistance programs. For more information, see CRS Report RL34729, Human Rights in China and U.S. Policy , by [author name scrubbed]. The Annual State Department Human Rights Report on China A primary means for the United States to highlight its concerns about the human rights situation in China is through the State Department's annual publication of a report on human rights practices in the country, part of a suite of such reports covering the world. The Chinese government has long been critical of the reports. In May 2013, a month after the release of the State Department's report on human rights in China in 2012, China released a white paper defending its human rights record and implicitly criticizing the State Department reports' focus on civil and political rights. The Chinese white paper stated that China prioritizes rights to subsistence and development, and promotes economic, social, and cultural rights, as well as civil and political rights. The State Department's report on human rights in China in 2012 raised U.S. concerns about "repression and coercion" aimed at those involved in rights advocacy. Using language similar to that in the report covering 2011, the report for 2012 stated that those the government deemed politically sensitive continued to face "tight restrictions on their freedom to assemble, practice religion, and travel." It also noted that "[e]fforts to silence and intimidate political activists and public interest lawyers continued to increase." An April 2013 State Department briefing on the suite of human rights reports identified China, Egypt, and Russia as countries with "a shrinking space for civil society." The China report for 2012 also focused on "severe official repression of the freedoms of speech, religion, association, and harsh restrictions on the movement of ethnic Uighurs in the Xinjiang Uighur Autonomous Region (XUAR) and of ethnic Tibetans in the Tibet Autonomous Region (TAR) and other Tibetan areas." U.S.-China Dialogues on Human Rights The primary forum for U.S.-China discussion of human rights is the bilateral Human Rights Dialogue, which resumed in 2008 after a six-year hiatus. Some critics have argued that holding human rights discussions as a stand-alone dialogue isolates human rights from the core areas of U.S.-China relations. Critics also note that the chief Chinese interlocutor for the dialogue heads the International Organizations and Conferences Department of China's Foreign Ministry, which has little involvement with the formulation or implementation of policies affecting the political and civil rights of Chinese citizens. In a statement before the 18 th round of the dialogue, which was held July 30-31, 2013 in Kunming, China, Human Rights Watch, a leading New York-based advocacy group, called on the U.S. government to press China "to adopt concrete and clear benchmarks" that could be evaluated in later dialogues. "Without these benchmarks," the group argued, "the human rights dialogue risks serving as a perfunctory diplomatic exercise, rather than a genuinely useful advocacy tool." The Obama Administration argues that the stand-alone dialogue allows for thorough discussion of sensitive and contentious issues. A second U.S.-China dialogue, the Legal Experts Dialogue (LED), resumed in June 2011, after a six-year hiatus. Its next session is scheduled to be held in the United States November 7-8, 2013. The LED is designed to serve as a forum to discuss the means of implementing an effective system of rule of law. Xinjiang The State Department's report on human rights practices in China in 2012 highlighted an ongoing official campaign in northwest China's Xinjiang Uyghur Autonomous Region against what the Chinese government refers to as the "three forces" of religious extremism, ethnic separatism, and terrorism. The crackdown primarily targets Uighurs (also spelled Uyghurs), a Turkic and traditionally Muslim ethnic minority. The report observed that, "It was believed that some raids, detentions, and judicial punishments ostensibly directed at individuals or organizations suspected of promoting the 'three forces' were actually used to target groups or individuals peacefully seeking to express their political or religious views." The report added that in Xinjiang, "Officials continued to use the threat of violence as justification for extreme security measures directed at the local population, journalists, and visiting foreigners." One such security measure was arguably the government's decision to close down access to the Internet in Xinjiang for ten months following ethnic riots in the Xinjiang capital of Urumqi in July 2009 that left 197 dead. In late 2009, the Xinjiang People's Congress passed regulations banning speech deemed "detrimental to ethnic unity," reportedly the first such regional legislation of its kind in China. Tibet Tibet is among the most sensitive issues in U.S.-China relations. The Chinese Communist Party has controlled the Tibetan Autonomous Region (TAR) and other Tibetan areas within the PRC since 1951, and the U.S. government recognizes all those areas as parts of China. Nonetheless, the Communist Party continues to face resistance to its rule from Tibetans, most recently in the form of a wave of self-immolations among Tibetans protesting Chinese policies. Chinese leaders have long feared that the Tibet exile community and foreign governments seek to "split" Tibet from China; China's commitment to defending its sovereignty over Tibet has long been one of China's most fundamental "core interests," on a par with China's commitment to asserting its sovereignty over Taiwan. U.S. policy toward Tibet is guided by the Tibetan Policy Act of 2002 ( P.L. 107-228 ), which requires the U.S. government to promote and report on dialogue between Beijing and Tibet's exiled spiritual leader, the Dalai Lama, or his representatives; to help protect Tibet's religious, cultural, and linguistic heritages; and to support development projects in Tibet. The act requires the State Department to maintain a Special Coordinator for Tibetan Issues. Until she stepped down on February 4, 2013, Under Secretary of State for Civilian Security, Democracy, and Human Rights Maria Otero served concurrently in the Tibet coordinator position, which is currently vacant. The act also calls on the Secretary of State to "make best efforts" to establish a U.S. consular office in the Tibetan capital, Lhasa; and directs U.S. officials to press for the release of Tibetan political prisoners in meetings with the Chinese government. With strong encouragement from the international community, including the United States, Chinese officials and personal representatives of the Dalai Lama participated in nine rounds of talks between 2002 and 2010. The Dalai Lama's envoys came to the eighth round of the negotiations with a proposal entitled, "Memorandum on Genuine Autonomy for All Tibetans." In it and a follow-up note, the Dalai Lama's envoys argued for "genuine autonomy" for Tibetan districts within the framework of the PRC. The documents stressed that the proposal "in no way challenges or brings into question the leadership of the Communist Party in the PRC" or "the socialist system of the PRC." After the ninth round of talks in January 2010, senior Chinese officials dismissed the proposal as tantamount to "half independence." The Tibetan exile government's political leader, Lobsang Sangay, has appealed to China for a resumption of the dialogue process, saying that the Tibetan exile side is "ready to engage in meaningful dialogue anywhere, at any time." He has called on the international community to help pressure China to return to the negotiations, as well as to allow the U.N. High Commissioner for Human Rights, diplomats, and the international media to visit Tibet. So far, however, no progress has been reported in scheduling a tenth round of talks. The U.S. government and human rights groups have been critical of increasingly expansive official Chinese controls on religious life and practice in Tibetan areas instituted in the wake of anti-Chinese protests in Tibetan areas in 2008. Human rights groups have catalogued arbitrary detentions and disappearances; a heightened Chinese security presence within monasteries; continued "patriotic education" and "legal education" campaigns that require monks to denounce the Dalai Lama; strengthened media controls; and policies that weaken Tibetan-language education. In July 2013, Tibet advocacy groups in the West reported that Chinese police opened fire on a crowd that had gathered in a Tibetan area of China to celebrate the Dalai Lama's 78 th birthday, and that two Tibetan monks were shot in the head. Since February 27, 2009, at least 121 Tibetans in China have set fire to themselves to protest PRC policies, and 101 of them are known to have died. In a December 2012 statement, the Obama Administration's then-Special Coordinator for Tibetan Issues stated that the Administration was "deeply concerned and saddened by the continuing violence in Tibetan areas of China and the increasing frequency of self-immolations by Tibetans." The statement called on China "to address policies in Tibetan areas that have created tensions." China accuses the Dalai Lama and his supporters of directing or encouraging the self-immolations, which have garnered world headlines and shone an unfavorable light on the PRC's policies. China lobbies strenuously to prevent world leaders from meeting with the Dalai Lama, the 1989 Nobel Peace Prize winner and 2006 recipient of the Congressional Gold Medal. Over China's objections, President Obama has met twice with the Dalai Lama at the White House, in February 2010 and July 2011. Appendix A. Laws and Resolutions Related to China in the 113 th Congress Appendix B. Laws and Resolutions Related to China in the 112 th Congress Appendix C. Select Upcoming Events in the U.S.-China Relationship August 2013 : Visit to the United States by China's Minister of National Defense Chang Wanquan, a member of China's 11-man Central Military Commission. August 29, 2013 : 2 nd Association of Southeast Asian Nations (ASEAN) Defense Ministers' Meeting-Plus in Brunei Darussalam, involving the defense ministers of the 10 ASEAN nations plus their 8 dialogue partners, including the United States and China. Second half of 2013 : Meeting in China of the Energy Policy Dialogue, co-chaired by the U.S. Secretary of Energy Ernest Moniz and the Director of China's National Energy Administration, Xu Shaoshi. September 5-6, 2013 : 8 th G-20 Leaders' Summit in St. Petersburg, Russia, involving the leaders of the G-20 nations, including the United States and China. September 17, 2013 : Opening of the 68 th Session of the United Nations General Assembly in New York City, involving the leaders of the 193 UN member states, including the United States and China. September 2013 : Visit to the United States by Admiral Wu Shengli, Commander of the People's Liberation Army Navy and member of China's Central Military Commission. September 2013 : Meeting of the U.S. China Maritime Safety Dialogue, involving the United States Coast Guard and the China Maritime Safety Administration. October 1-8, 2013 : 25 th Asia-Pacific Economic Cooperation (APEC) Economic Leaders' Week in Bali, Indonesia, involving the leaders of the 21 APEC economies, including President Obama and Chinese President Xi. October 9-10, 2013 : 8 th East Asia Summit (EAS) in Brunei Darussalam, involving the leaders of the 18 EAS nations, including the United States and China. October 11-13, 2013 : Annual Meetings of the World Bank Group and the International Monetary Fund in Washington, DC, involving senior finance officials including the U.S. Treasury Secretary and U.S. Chairman of the Federal Reserve, and the Governor of China's central bank and the Chinese Minister of Finance. November 7-8, 2013 : Meeting of the U.S.-China Legal Experts Dialogue in the United States. November 11-22, 2013 : 19 th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Warsaw, Poland. Fall/Winter 2013 : 10 th Meeting of the Military Maritime Consultative Agreement in the United States, involving the Director of the Strategic Planning and Policy Bureau at the U.S. Pacific Command and the Deputy Chief of Staff of the Chinese People's Liberation Army Navy. 6 th Asia-Pacific Consultations between the U.S. Assistant Secretary of State for East Asian and Pacific Affairs and the Chinese Vice Foreign Minister with responsibility for the United States. 11 th Plenary Session of the U.S.-China Joint Liaison Group on Law Enforcement Cooperation (JLG) in the United States, involving the U.S. Assistant Secretary of State for International Narcotics and Law Enforcement Affairs and the U.S. Deputy Assistant Attorney General, and two Deputy Director-Generals from the Chinese Ministry of Foreign Affairs and the Ministry of Public Security. 24 th Session of the U.S.-China Joint Commission on Commerce and Trade, involving, on the U.S. side, the Secretary of Commerce, the U.S. Trade Representative, and the Secretary of Agriculture, and on the Chinese side, Vice Premier Wang Yang. 14 th Round of Defense Consultative Talks, involving the U.S. Undersecretary of Defense for policy and a Deputy Chief of the People's Liberation Army General Staff.

The United States relationship with China touches on an exceptionally broad range of issues, from security, trade, and broader economic issues, to the environment and human rights. Congress faces important questions about what sort of relationship the United States should have with China and how the United States should respond to China's "rise." After more than 30 years of fast-paced economic growth, China's economy is now the second-largest in the world after that of the United States. With economic success, China has developed significant global strategic clout. It is also engaged in an ambitious military modernization drive, including development of extended-range power projection capabilities. At home, it continues to suppress all perceived challenges to the Communist Party's monopoly on power. In previous eras, the rise of new powers has often produced conflict. China's new leader Xi Jinping has pressed hard for a U.S. commitment to a "new model of major country relationship" with the United States that seeks to avoid such an outcome. The Obama Administration has repeatedly assured Beijing that the United States "welcomes a strong, prosperous and successful China that plays a greater role in world affairs," and that the United States does not seek to prevent China's re-emergence as a great power. China, for its part, has pledged to follow "the path of peaceful development." Washington has wrestled, however, with how to engage China on issues affecting stability and security in the Asia-Pacific region. Issues of concern for Washington include the intentions behind China's military modernization program, China's use of its paramilitary forces and military in disputes with its neighbors over territorial claims in the South China Sea and East China Sea, and its continuing threat to use force to bring Taiwan under its control. With U.S.-China military-to-military ties improving but still fragile, Washington has struggled to convince Beijing that the U.S. policy of rebalancing toward the Asia Pacific is not intended to contain China. The two countries have cooperated, with mixed results, to address nuclear proliferation concerns related to Iran and North Korea. While working with China to revive the global economy, the United States has also wrestled with how to persuade China to address economic policies the United States sees as denying a level playing field to U.S. firms trading with and operating in China. High on the U.S. agenda is commercial cyber espionage that the U.S. government says appears to be directly attributable to official Chinese actors. Other economic concerns for the United States include China's apparent backsliding on its World Trade Organization commitments, its weak protections for intellectual property rights, and its currency policy. In recent months, the United States has strengthened cooperation with China on efforts to combat climate change, while continuing to work with China on the development of clean energy technologies. Human rights remains one of the thorniest areas of the relationship, with the United States pressing China to ease restrictions on freedom of speech, internet freedom, religious expression, and ethnic minorities, and China's leaders suspicious that the United States' real goal is to end Communist Party rule. This report opens with an overview of the U.S.-China relationship, recent developments in the relationship, Obama Administration policy toward China, and a summary of legislation related to China in the 113th Congress. The report then reviews major policy issues in the relationship. Throughout, the report directs the reader to other CRS reports for more detailed information about individual topics. This report will be updated periodically. A detailed summary of 113th and 112th Congress legislative provisions related to China is provided in appendices.

Introduction The legislative process on the Senate floor is governed by a set of standing rules, a body of precedents created by rulings of presiding officers or by votes of the Senate, a variety of established and customary practices, and ad hoc arrangements the Senate makes to meet specific parliamentary and political circumstances. A knowledge of the Senate's formal rules is not sufficient to understand Senate procedures, and Senate practices cannot be understood without knowing the rules to which the practices relate. The essential characteristic of the Senate's rules, and the characteristic that most clearly distinguishes its procedures from those of the House of Representatives, is their emphasis on the rights and prerogatives of individual Senators. Like any legislative institution, the Senate is both a deliberative and a decision-making body; its procedures must embody some balance between the opportunity to deliberate or debate and the need to decide. The Senate's rules give greater weight to the value of full and free deliberation than they give to the value of expeditious decisions. Put differently, legislative rules also must strike a balance between minority rights and majority prerogatives. The Senate's standing rules place greater emphasis on the rights of individual Senators—and, therefore, of minorities within the Senate—than on the powers of the majority. The Senate's legislative agenda and its policy decisions are influenced not merely by the preferences of its Members but also by the intensity of their preferences. Precisely because of the nature of its standing rules, the Senate cannot rely on them exclusively. If all Senators took full advantage of their rights under the rules whenever it might be in their immediate interests, the Senate would have great difficulty reaching timely decisions. Therefore, the Senate has developed a variety of practices by which Senators set aside some of their prerogatives under the rules to expedite the conduct of its business or to accommodate the needs and interests of its Members. Some of these practices have become well-established by precedent; others are arranged to suit the particular circumstances the Senate confronts from day to day and from issue to issue. In most cases, these alternative arrangements require the unanimous consent of the Senate—the explicit or implicit concurrence of each of the 100 Senators. The Senate relies on unanimous consent agreements every day for many purposes—purposes great and small, important and routine. However, Senators can protect their rights under Senate rules simply by objecting to a unanimous consent request to waive one or more of the rules. Generally, the Senate can act more efficiently and expeditiously when its Members agree by unanimous consent to operate outside of its standing rules. Generally also, Senators insist that the rules be enforced strictly only when the questions before them are divisive and controversial. Compromise and accommodation normally prevail. Senators frequently exercise self-restraint by not taking full advantage of their rights and opportunities under the standing rules, and often by agreeing to unanimous consent requests for arrangements that may not promote their individual legislative interests. The standing rules remain available, however, for Senators to invoke when, in their judgment, the costs of compromise and accommodation become too great. Thus, the legislative procedures on the Senate floor reflect a balance—and sometimes an uneasy balance—between the operation of its rules and the principles they embody, on the one hand, and pragmatic arrangements to expedite the conduct of business, on the other. The interplay between the principles of the Senate's standing rules and the pragmatism of its daily practices will be a theme running throughout the following sections of this report. The Right to Debate The standing rule that is probably most pivotal for shaping what does and does not occur on the Senate floor is paragraph 1(a) of Rule XIX, which governs debate: When a Senator desires to speak, he shall rise and address the Presiding Officer, and shall not proceed until he is recognized, and the Presiding Officer shall recognize the Senator who shall first address him . No Senator shall interrupt another Senator in debate without his consent, and to obtain such consent he shall first address the Presiding Officer, and no Senator shall speak more than twice upon any one question in debate on the same legislative day without leave of the Senate, which shall be determined without debate. (Emphasis added.) The presiding officer of the Senate (unlike the Speaker of the House) may not use the power to recognize only certain Senators in order to control the flow of business. If no Senator holds the floor, any Senator seeking recognition has a right to be recognized. Moreover, once a Senator has been recognized, he or she may make any motion that Senate rules permit, including motions affecting what bills the Senate will consider (though a Senator loses the floor when he or she makes a motion, offers an amendment, or takes one of many other actions). In practice, however, the Senate has modified the effect of this rule by precedent and custom. By precedent, the majority and minority leaders are recognized first if the leader and another Senator are seeking recognition at the same time. In addition, by custom, only the majority leader (or another Senator acting at his behest) typically makes motions or requests affecting when the Senate will meet and what legislation it will consider. In these respects, Senators relinquish their equal right to recognition and their right to make certain motions, and they do so in order to lend some order and predictability to the Senate's proceedings. Otherwise, it would be nearly impossible for any Senator to predict with assurance when the Senate will be in session and what legislation it will consider. For example, during debate on one bill, any Senator could move that the Senate turn to another bill instead. This would make it very difficult for the Senate to conduct its business in an orderly fashion, and it would be equally difficult for Senators to plan their own schedules with any confidence. Thus, Senate precedents and practices modify the operation of this rule, as it affects recognition, in the interests of the Senate as an institution and in the interests of its Members individually. Even more important is what paragraph 1(a) of Rule XIX says and does not say about the length of debate. The rule imposes a limit of two speeches per Senator per question per legislative day (though Senators rarely insist on imposing this limit on their colleagues). Beyond this restriction, it imposes no limit at all on the number of Senators who may make those two speeches or on the length of the speeches. In fact, there are few Senate rules that limit the right to debate, and no rules that permit a simple majority of the Senate to end a debate whenever it is ready to vote for a bill, amendment, or most other questions being considered. When Senators are recognized by the presiding officer, the rules normally permit them to speak for as long as they wish, and questions generally cannot be put to a vote so long as there are Senators who still wish to make the speeches they are permitted to make under Rule XIX. The House of Representatives may bring a question to a vote if a simple majority agrees to a motion to order the previous question. When meeting in Committee of the Whole, a majority of Representatives also can move to close debate on a pending amendment or sometimes on a bill and all amendments to it. No such motions are possible in the Senate. As a result, a majority of Senators does not have nearly the same control over the pace and timing of their deliberations as does a majority of the House. There is one partial exception to this generalization. The Senate often disposes of an amendment by agreeing to a motion to lay the amendment on the table. When a Senator who has been recognized makes this motion, it cannot be debated (except by unanimous consent, of course). If the Senate agrees to this motion to table, the amendment is rejected; to table is to kill. On the other hand, if the Senate defeats the motion, debate on the amendment may resume; the Senate only has determined that it is not prepared at that time to reject the amendment. Thus, a tabling motion can be used by a simple majority to stop debate even if there still are Senators wishing to speak, but only by defeating the amendment at issue. Although the effect of the motion is essentially negative, it frequently is a test vote on Senate support for an amendment. If the motion fails, the Senate may agree to the amendment shortly thereafter. But this is a reflection of political reality, not a requirement of Senate rules or precedents. Filibusters and Cloture The dearth of debate limitations in Senate rules creates the possibility of filibusters. Individual Senators or minority groups of Senators who adamantly oppose a bill or amendment may speak against it at great length (or threaten to), in the hope of changing their colleagues' minds, winning support for amendments that address their objections, or convincing the Senate to withdraw the bill or amendment from further consideration on the floor. Opposing Senators also can delay final floor action by offering numerous amendments and motions, demanding roll call votes on amendments and motions, and by using a variety of other devices. The only formal procedure that Senate rules provide for breaking filibusters is to invoke cloture under the provisions of Rule XXII (commonly called the "cloture rule"). Under the rules, however, once cloture is proposed, the cloture vote cannot occur until after a further period of time (typically two days of Senate session); further, a simple majority of the Senate is insufficient to invoke cloture (except in very limited circumstances). Cloture requires the support of three-fifths of the Senators duly chosen and sworn, or a minimum of 60 votes if there is no more than one vacancy. (If the matter being considered changes the standing rules, cloture requires a vote of two-thirds of the Senators present and voting. Pursuant to precedents set in 2013 and 2017, cloture can be invoked by a simple majority on any nomination.) For this reason alone, cloture can be difficult to invoke and almost always requires some bipartisan support. In addition, some Senators are reluctant to vote for cloture, even if they support the legislation being jeopardized by the filibuster, precisely because the right of extended debate is such an integral element of Senate history and procedure. Even if the Senate does invoke cloture on a bill, the result is not an immediate vote on passing the bill. The cloture rule permits a maximum of 30 additional hours for considering the bill, during which each Senator may speak for one hour. (On a limited number of motions, Rule XXII does not permit additional consideration after cloture has been invoked; in those cases, the Senate proceeds to an immediate vote on the motion in question.) The time consumed by rollcall votes and quorum calls is deducted from the 30-hour total; as a result, each Senator does not have an opportunity to speak for a full hour, although he or she is guaranteed at least 10 minutes for debate. Thus, cloture does not typically stop debate immediately; it only ensures that debate cannot continue indefinitely. Even the additional 30 hours allowed on a bill under cloture is quite a long time for the Senate to devote to any one bill, especially since Senators may not be willing to invoke cloture until the bill already has been debated at considerable length. Restraint and Delay Any Senator can filibuster almost any legislative proposal (or most other matters) that the Senate is considering. The only bills that cannot be filibustered are the relatively few which are considered under provisions of law that limit the time available for debating them. For example, Section 305(b)(1) of the Budget Act of 1974 restricts debate on a budget resolution, "and all amendments thereto and debatable motions and appeals in connection therewith," to not more than 50 hours. If no such provision applies, Senators can prolong the debate indefinitely on any bill or amendment (or nomination or treaty), as well as on many motions, subject only to tabling motions or to a successful cloture process. Although there may be many matters to which some Senators may be adamantly opposed, filibusters are not daily events. One reason is that conducting a filibuster may be physically demanding (at least if it is not supported by a number of other Senators), but there are more compelling reasons for self-restraint. If Senators filibustered every bill they opposed, the Senate as an institution would suffer. It could not meet its constitutional responsibilities in a timely fashion and it could not respond effectively to pressing national needs. Public support for the Senate as an institution, and for its Members as individuals, would be undermined. Furthermore, all Senators have legislation they want to promote. They appreciate that if they used the filibuster regularly against bills they oppose, other Senators would be likely to do the same, and every Senator's legislative objectives would be jeopardized. In short, Senators typically have resorted to filibusters only on matters of pronounced significance to them because this practice serves the long-term interests of the Senate and all Senators alike. Nonetheless, the right to debate at length remains, and the possibility of filibusters affects much of what happens on the Senate floor. Many of the ways in which the Senate agrees to set aside its standing rules are designed in response to the possibility of filibusters. Simply threatening to filibuster can give Senators great influence over whether the Senate considers a bill, when it considers it, and how it may be amended. If a majority of Senators support a bill that is being filibustered, they may be able to pass it eventually if they are committed and patient enough—and especially if they are able to invoke cloture. Even if cloture is not invoked, devices such as late-night sessions may strain the endurance and determination of a filibustering Senator (though, in most circumstances, the burden imposed by such sessions is borne more by those supporting an end to debate, and in any case, requires the use of considerable floor time). The potency of filibusters does not depend, however, solely on Senators' ability to prolong the debate indefinitely. From the right to debate flows the ability to delay, and the prospect of delay alone can often be sufficient to influence the Senate's agenda and decisions. The legislative process is laborious and time-consuming, and the time available for Senate floor action each year is limited. Every day devoted to one bill is a day denied for consideration of other legislation, and there are not enough days to act on all the bills that Senators and Senate committees wish to see enacted. Naturally, the time pressures become even greater with the approach of deadlines such as the date for adjournment and the end of the fiscal year. So, for all but the most important bills, even the threat of a filibuster can provide significant leverage to Senators. Before a bill reaches the floor or while it is being debated, its supporters often seek ways to accommodate the concerns of opponents, preferring an amended bill that can be passed without protracted debate to the time, effort, and risks involved in confronting a filibuster or the threat of one. Scheduling Legislative Business Routine Agenda Setting One way in which the possibility of extended debate affects the Senate's procedures is in how the Senate determines its legislative agenda—the order in which it decides to consider bills and other business on the floor. When a Senate standing committee reports a bill back to the Senate for floor debate and passage, the bill is placed on the Senate's Calendar of Business (under the heading of "General Orders"). The Senate gives its majority leader the primary responsibility for proposing the order in which bills on the calendar should come to the floor for action. The majority leader's right to preferential recognition already has been mentioned, as has Senators' general willingness to relinquish to him the right to make the motion (provided for in the standing rules) for deciding the order of legislative business—namely, the motion that the Senate proceed to the consideration of a particular bill. Whenever possible, however, bills reach the Senate floor not by motion but by unanimous consent. Under the Senate standing rules, the motion to proceed to a bill usually is debatable and, therefore, subject to a filibuster. (The question of proceeding to certain matters—for example, to a conference report or to executive session to take up and consider a nomination on the calendar—is not, however, subject to a filibuster, though the matter itself is.) Even before the bill can reach the floor (and perhaps face a filibuster), there may be extended debate on the question of whether the Senate should even consider the bill at all. To avoid this possibility, the majority leader attempts to get all Senators to agree by unanimous consent to take up the bill he wishes to have debated. If Senators withhold their consent, they are implicitly threatening extended debate on the question of considering the bill. Senators may do so because they oppose that bill or because they wish to delay consideration of one measure in the hope of influencing the fate of some other, possibly unrelated, measure. Senators can even place a "hold" on a bill, by which they ask their party's floor leader to object on their behalf to any unanimous consent request to consider the bill, at least until they have been consulted. The practice of holds is not recognized in Senate standing rules or precedents (though both a provision in public law and a recently adopted Senate standing order govern their use); more often than not, however, the majority leader will not even make such a unanimous consent request if there is a hold on a bill. In attempting to devise a schedule for the Senate floor, the majority leader seeks to promote the legislative program of his party (and perhaps the President) as he also tries to ensure that the Senate considers necessary legislation in a timely fashion. When the majority leader is confronted with two bills, one of which can be brought up by unanimous consent and the other of which cannot, he is naturally inclined to ask the Senate to take up the bill that can be considered without objection. Time is limited, and the majority leader is concerned to use that time with reasonable efficiency. Some bills, of course, are too important to be delayed only because some Senators object to considering them. Most are not, however, especially if the objections can be met through negotiation and compromise. Thus, the possibility of extended debate affects decisions for scheduling legislation in two ways: by discouraging the majority leader and the Senate from attempting to take up bills to which some Senators object, and by encouraging negotiations over substantive changes in the bills in order to meet these objections. The right of Senators to debate at length is not the only way in which they can influence the Senate's legislative agenda. The standing rules of the Senate give its Members at least two other opportunities to influence the matters that reach the Senate floor for debate and decision. One opportunity affects the prerogatives of Senate committees; the other affects the amendments that Senators may propose on the floor. Committee Referral and Rule XIV The Senate's standing committees play an essential part in the legislative process, as they select the small percentage of the bills introduced each Congress that, in their judgment, deserve the attention of the Senate as a whole, and as they recommend amendments to these bills based on their expert knowledge and experience. Most bills are routinely referred to the committee with appropriate jurisdiction as soon as they are introduced. However, paragraph 4 of Rule XIV permits a Senator to bypass a committee referral and have the bill placed directly on the Calendar of Business, with exactly the same formal status the bill would have if it had been considered and reported by a Senate committee. By the same token, if a committee fails to act on a bill that was referred to it, while this may mean the bill will die for lack of action, the proposal it embodies may not. The Senator sponsoring the bill may introduce a new bill with exactly the same provisions as the first, and have the second bill placed directly on the calendar. However, taking the bill off the calendar (via unanimous consent or a motion to proceed) remains a question the Senate expects the majority leader to propose; thus, a Senator who uses Rule XIV to bypass a committee is not in a position to ensure the bill's movement to the floor. In recent practice, the majority leader more frequently uses this method to put a measure directly on the calendar—often to expedite consideration of a complicated or high-profile bill that has been drafted outside of the committee process or in relation to a legislative vehicle that closely resembles another bill already considered in committee (or by multiple committees). Non-Germane Amendments An even more important opportunity for individual Senators is a result of the absence in the standing rules of any general requirement that the amendments offered by Senators on the floor must be germane or relevant to the bill being considered. The rules impose a germaneness requirement only on amendments to general appropriations and budget measures and to matters being considered under cloture; various statutes impose such a requirement on a limited number of other bills. (The Senate generally interprets germaneness strictly, to preclude amendments that expand the scope of a bill or introduce a specific additional topic.) In all other cases, Senators may propose whatever amendments they choose on whatever subjects to whatever bill the Senate is considering. The right to offer non-germane amendments is extraordinarily important because it permits Senators to present issues to the Senate for debate and decision, without regard to the judgments of the Senate's committees or the scheduling decisions and preferences of its majority leader. Again consider the position of a Senator whose bill is not being acted on by the committee to which it was referred. Instead of introducing an identical bill and having it placed directly on the calendar, he or she may have a second and typically more attractive option: to offer the text of the bill as a floor amendment to another bill that has reached the floor and that can serve as a useful legislative "vehicle." The possibility of this opportunity can make it extremely difficult to anticipate what will happen to a bill when it reaches the floor and how much of the Senate's time it will consume. The party leaders and the bill's floor managers (typically, the chair and ranking minority Member of the committee with jurisdiction over the bill) may know what amendments on the subject of the bill are likely to be offered, but they cannot be certain that Senators will not want to also offer non-germane (and often quite controversial) amendments. In fact, it is not unusual for one or more non-germane amendments to occupy more of the Senate's attention than the subject the bill itself addresses. Unanimous Consent Agreements The Nature of Unanimous Consent Agreements Just as the right of extended debate encourages Senate committee and party leaders to bring up bills for consideration by unanimous consent, the right to debate combined with the right to offer non-germane amendments encourages the same leaders to seek unanimous consent agreements limiting or foreclosing the exercise of these rights while a bill is being considered. Without such an agreement (or in the absence of a successful cloture process), the bill could be debated for as long as Senators wish—as could each amendment offered, whether germane or not, unless the Senate votes to table it. These are the essential conditions under which the Senate considers a bill if it adheres to its standing rules. It is precisely to avoid these conditions that the Senate often debates, amends, and passes bills under very different sets of parliamentary ground rules—ground rules that are far more restrictive, but that can be imposed only by unanimous consent. One of the frequent purposes of these unanimous consent agreements is to limit the time available for debate, and thereby ensure that there will be no filibuster. Complex unanimous consent agreements of this special kind are sometimes called "time agreements." In addition, before taking up a bill, or after the Senate has begun debating it, Senators often reach unanimous consent agreements to govern consideration of individual amendments that have been or will be offered. Less often today, the Senate reaches an encompassing agreement, limiting debate on a bill and all amendments to it, before or at the time the bill is called up for floor action. The following example illustrates several contemporary features of such a comprehensive unanimous consent agreement: Ordered , That on Tuesday, July 29, 2014, upon the confirmation of the Polaschik nomination, the Senate proceed to the consideration of H.R. 5021, an Act to provide an extension of Federal-aid highway, highway safety, motor carrier safety, transit, and other programs funded out of the Highway Trust Fund, and for other purposes; provided, that the only amendments in order to the bill be the following: Wyden Amdt. No. 3582; Carper-Corker-Boxer Amdt. No. 3583; Lee Amdt. No. 3584; and Toomey Amdt. No. 3585; provided further, that there be one hour of debate, equally divided between the proponents and opponents of each amendment and up to two hours of general debate on the bill, equally divided between the two Leaders, or their designees. Ordered further , That upon the use of yielding back of time, the Senate vote in relation to the amendments in the order listed; provided, that no second degree amendments be in order to any of the amendments prior to the votes; provided, that no motions to commit be in order; provided further, that upon disposition of the Toomey amendment, the bill, as amended, if amended, be read a third time and the Senate vote on passage of the bill, as amended, if amended; further, that the vote on each amendment and the vote on passage of the bill be subject to a 60 affirmative vote threshold; provided further, that the Secretary be authorized to make technical changes to amendments if necessary to allow for proper page and line number alignment. Ordered further , That if the Senate passes H.R. 5021, the Senate proceed to the consideration of H.Con.Res. 108, providing for the correction of the enrollment of H.R. 5012; provided, that the concurrent resolution be agreed to and the motion to reconsider be laid upon the table with no intervening action or debate. (July 23, 28, 2014.) The two essential features of this and comparable unanimous consent agreements are (1) a prohibition on any amendments not listed in the agreement, and (2) strict limitations on the time available for debating the bill and any questions that may arise during its consideration. Under the terms of this agreement, for example, the Senate as a whole may debate each amendment for no more than one hour. There is also a two-hour time limit for debate on the bill itself (that is, "general debate"). The differences between considering a bill under the terms of the Senate's standing rules and considering it under this kind of unanimous consent agreement are so great and so fundamental that they bear repeating. Under the standing rules, Senators may be able to offer whatever amendments, even if non-germane, that they want (as long as there are not already pending amendments that must first be disposed of); under this agreement, only specified amendments are in order. Under the standing rules, Senators may debate the bill, each amendment, and a variety of other questions for as long as they want, subject only to limits that would be imposed under a successful cloture process; under this agreement, on each question, time for debate is strictly limited. Under the standing rules, each amendment (and passage of the bill) would be subject to a simple-majority vote threshold; under this agreement, a super-majority vote is required (reflecting the understanding by Senators that opponents of these questions could require a super-majority to invoke cloture in order to reach a vote). The differences could hardly be more dramatic. It must be emphasized, however, that such agreements are unanimous consent agreements. They cannot be imposed on the Senate by any vote of the Senate; they require the concurrence or acquiescence of each and every Senator. Negotiating Time Agreements Negotiating these complex unanimous consent agreements can be a difficult and time-consuming process, the responsibility for which falls primarily on the majority and minority leaders and the leaders of the committee with jurisdiction over the bill at issue. They consult interested Senators, but it would be impractical to consult every Senator about every bill scheduled for floor action. For this reason, individual Senators and their staffs take the initiative to protect their own interests by advising the leaders of their preferences and intentions. Negotiations sometimes take place on the floor and on the public record, but at least the preliminary discussions and consultations usually occur in meetings during quorum calls or off the floor. (The negotiation process may also be facilitated by use of the clearance process [or "hotline"], an informal communication mechanism by which each party's leadership gauges the preferences of its conference members.) Senators prefer to expedite the conduct of legislative business whenever possible, and so normally cooperate in reaching time agreements. However, when Senators have special concerns—for instance, when they are intent on offering particular amendments or guaranteeing themselves ample time for debate—their interests must be accommodated. Any Senator who is dissatisfied with the terms of a proposed time agreement has only to object when it is propounded on the floor; so long as any one Senator objects, the standing rules remain in force with all the rights and opportunities they provide. As a result, time agreements may include exceptions to their general provisions in order to satisfy individual Senators. For example, a comprehensive agreement that generally limits debate on each first degree amendment to an hour and prohibits non-germane amendments may identify one or more specific amendments that are exempted from the germaneness requirement, and also may provide different amounts of time for debating them. In these ways, time agreements can be less restrictive than the one quoted earlier. There may be no agreement at all if one or more Senators decide to fully preserve their rights to debate and offer amendments. On many other occasions, however, an agreement's provisions are even more restrictive—for example, all amendments to the bill may be prohibited except for a few that are identified specifically in the agreement itself. If the Senate does accept a unanimous consent agreement, whatever its terms, it may be modified at a later time only by unanimous consent. Other Unanimous Consent Agreements In current practice, the Senate usually begins consideration of most bills without first having reached a time limitation agreement. In some cases, the floor managers expect few amendments and relatively little debate, making an elaborate agreement unnecessary. In other cases, the majority leader and committee chair cannot reach an agreement with all Senators, but proceed with the bill anyway because of its timeliness and importance. After the Senate has debated such a bill and controversial amendments for many hours or even days, the leaders often renew their attempts to reach an overall agreement limiting debate on each remaining amendment or setting a time for the Senate to vote on passage of the bill. In the absence of a time agreement covering all amendments and other questions, the party leaders and the floor managers often try to arrange unanimous consent agreements for more limited purposes while the Senate is debating a bill. During consideration of a controversial amendment, a Senator may propose that the Senate agree—by unanimous consent—to limit any further debate on it. Senators also may agree to time limits on individual amendments before offering them. By unanimous consent, the Senate may set aside one amendment temporarily in order to consider another one that could not otherwise be offered at that time. Other agreements may define the order in which Senators will offer their amendments, postpone roll call votes until a later time that is more convenient for Senators, or even set a super-majority threshold for the adoption of a particular amendment. These examples only begin to illustrate the many ways in which the Senate relies every day on unanimous consent arrangements. From routine requests to end a quorum call to extremely elaborate and complicated procedural "treaties," the Senate depends on unanimous consent requests and the willingness of Senators to agree to them. The Daily Order of Business The extent to which the Senate uses unanimous consent arrangements to supplement or supplant operation of its standing rules makes it difficult to predict with confidence what will actually take place on the Senate floor each day. This report already has mentioned some of the problems that can arise in scheduling legislation and in anticipating the time that will be consumed (and the amendments that Senators will offer) during consideration of each bill. In addition, the other proceedings that occur each day also depend on whether the Senate decides to operate under or outside of its rules. The time at which the Senate convenes each day is set by a resolution the Senate adopts at the beginning of each Congress, but that time is often changed from day to day by unanimous consent—at the request of the majority leader—to suit changing circumstances. When the Senate does convene, and after the opening prayer and the Pledge of Allegiance, a brief period of "leader time" is set aside for the majority leader and for the minority leader, under a standing order also established at the beginning of the Congress. During this time, the two party leaders may discuss the legislative schedule as well as their views on policy issues, and they also may conduct non-controversial business by unanimous consent. What happens thereafter depends on whether the Senate is beginning a new legislative day. A legislative day begins when the Senate convenes after an adjournment, and it continues until the next adjournment. When the Senate recesses at the end of a day, as it sometimes does, a legislative day continues for two or more calendar days. (Standing Rules VII and VIII prescribe what the Senate should do at the beginning of each new legislative day, and one of the reasons the Senate may recess from day to day is to set aside the requirements imposed by these rules.) Under the two standing rules, the first two hours of session on each new legislative day are called the "morning hour." They are a period for conducting routine business at a predictable time each day that does not interfere with the consideration of major legislation. The morning hour begins with the transaction of "morning business," which includes the introduction of bills and joint resolutions and the submission of Senate and concurrent resolutions and committee reports. During the remainder of the morning hour, the Senate can act on bills on the Calendar of Business. At the end of the morning hour, the Senate resumes consideration of the unfinished business—whatever bill, if any, was the pending business when the Senate adjourned. In current practice, however, the Senate typically adjourns but, by unanimous consent, deems the morning hour to have expired; alternatively, occasionally the Senate recesses at the end of the day. In either case, there is no morning hour on the following day of session. Instead, the majority leader usually arranges by unanimous consent that "a period for transacting routine morning business" follow "leader time." Senators make brief statements on whatever subjects they like during this period, the length of which can change from day to day, depending on the legislative schedule. Also by unanimous consent, there may be other periods for transacting morning business during the course of the day when time is available and Senators wish to speak on subjects unrelated to the pending bill. After the morning hour or the period (set by unanimous consent) for transacting routine morning business, the Senate normally resumes consideration of the bill that is either the unfinished business (if the Senate had adjourned on the preceding day) or the pending business (if the Senate had recessed instead). However, this bill may be set aside—temporarily or indefinitely—in favor of other legislative or executive business if the Senate agrees to motions or unanimous consent requests made for that purpose by the majority leader (or his designee). Before the end of the day, the majority leader also makes arrangements for the following day—establishing a meeting time by unanimous consent and commenting on the expected legislative program. The Amending Process The amending process is at the heart of the Senate's floor deliberations. If the Senate reaches a final vote on passing or defeating a bill, the bill is very likely to pass. It is through the amending process that Senators have an opportunity to influence the content of the bill before the vote on final passage occurs; this is an especially important opportunity for Senators who do not serve on the committee that marked up the bill and reported it. When a bill is called up for floor consideration, opening statements usually are made by the two floor managers—the chair and ranking minority Member of the committee (or sometimes the subcommittee) with jurisdiction over the bill—and often by other Senators as well. These statements lay the groundwork for the debate that follows, describing the purposes and provisions of the bill, the state of current law and the developments that make new legislation desirable or necessary, and the major points of controversy. These opening statements are a matter of custom and practice, however; the bill is open to amendment as soon as it is before the Senate. The first amendments to be considered are any recommended by the committee reporting the bill, and so designated in the printed version of the bill "as reported." As each committee amendment is being debated, Senators may propose amendments to it and to the part of the bill the committee amendment would change. The Senate votes on any such amendments before it votes on the committee amendment itself. Thereafter, Senators may offer amendments in any order to any part of the bill that has not already been amended. The order in which amendments are offered depends largely on the convenience of the Senators proposing them, not on requirements imposed by standing rules or precedents. As a general rule, a Senator cannot propose an amendment to a bill while first degree (and possibly second degree) amendments to the bill are pending. It is not unusual, however, for the Senate to agree by unanimous consent to lay aside pending amendments temporarily in order to consider another amendment that a Senator wishes to offer at that time. After a Senator offers an amendment, it must be read unless the Senate dispenses with the reading by unanimous consent (or by non-debatable motion, in the case of certain amendments that have been previously available). The Senate then debates the amendment and may eventually dispose of it either by voting "up or down" on the amendment itself or by voting to table it. (In some cases, an amendment is disposed of when it falls on a successful point of order.) However, the amending process can become far more complicated. Bills are amendable in two degrees, so before the Senate votes on a first degree amendment, it is subject to second degree amendments that propose to change its text. After voting on any second degree amendments, the Senate votes on the first degree amendment as it may have been amended. Third degree amendments—amendments to second degree amendments—are not in order. Additional complications are possible, depending on whether the first degree amendment proposes (1) to insert additional language in the bill without altering anything already in the bill; (2) to strike out language from the bill without inserting anything in its place; (3) to strike out language from the bill and insert different language instead; or (4) to strike out the entire text of the bill (everything after the enacting or resolving clause at the very beginning of the measure) and replace it with a different text. In the case of a motion to insert, for example, Senators can offer as many as three first and second degree amendments before the Senate would potentially face votes on any of them; in the case of an amendment that is a complete substitute for the text of the bill, Senators can propose six or more first and second degree amendments to the substitute and to the original text of the bill before any offered amendments could receive votes. These possibilities depend on several principles of precedence among amendments—principles governing the amendments that may be offered while other amendments are pending and also governing the order in which the Senate votes on the amendments that have been offered. Complicated amendment situations do not arise very often, but they are most likely to occur when the policy and political stakes are high. Majority leaders of the Senate have sometimes offered a series of amendments, one immediately after another, taking up available slots for pending amendments for the purpose of "freezing" the amendment process so that no other amendments can be offered (except by unanimous consent) at that time. Once a Senator has offered an amendment, the conditions for debating it depend on whether or not there is a time limitation for considering that particular amendment or all amendments to the bill (imposed either through a unanimous consent agreement, or via a successful cloture process). If there is no such limitation, each Senator typically may debate the amendment for as long as he or she pleases. However, any Senator who has been recognized may move to table the amendment, and that motion is not debatable. If there is a time limitation, the time provided is both a minimum and a maximum. Senators may not make motions or points of order, propose other amendments, or move to table, until all the time for debating the amendment has been used or until all remaining time has been yielded back. After the time has expired, on the other hand, the amendment can be debated further only by unanimous consent or if the Senators controlling time for debating the bill as a whole choose to yield part of that time. A number of general principles govern the amending process. For example, an amendment that has been defeated may not be offered again without substantive change. An amendment should not make changes in two or more different places in the bill, nor may it propose only to amend a part of the bill that already has been amended. If an amendment consists of two or more parts that could each stand as separate and independent propositions, any Senator may demand that the amendment be divided and each division treated as if it were a separate amendment (except that a motion to strike out and insert is not divisible). Generally speaking, Senators may not propose amendments to their own amendments, but they can modify or withdraw their amendments instead. If the Senate takes some "action" on an amendment (such as ordering the yeas and nays on it), the Senator who offered the amendment loses his right to modify it, but now gains the right to offer an amendment to his or her own amendment. As mentioned before, floor amendments to most bills need not be germane unless cloture has been invoked, or unless a germaneness requirement is part of the unanimous consent agreement under which a particular bill is being considered (or under a few other specific circumstances). Alternatively, the Senate may, by unanimous consent, require that amendments to a bill be relevant to it; relevancy is a somewhat less restrictive standard that seeks to ensure that unrelated issues will not be raised in the form of amendments. The amending process continues until Senators have no other amendments they wish to offer, until the entire bill has been changed by amendments, or until the completion of a successful cloture process. At that point, the Senate orders the bill engrossed and read a third time—a formal stage that precludes further amendments—and then votes on final passage. Quorum Calls and Rollcall Votes The Constitution requires that a quorum—that is, a majority of all Senators—be present to conduct business on the floor. Even though Senators have many responsibilities that frequently keep them from the floor, the Senate presumes that a quorum is present unless a quorum call demonstrates that it is not. A Senator who has been recognized may suggest the absence of a quorum at almost any time; a clerk then begins to call the roll of Senators. Senators may not debate or conduct business while a quorum call is in progress. If a majority of Senators do not appear and respond to their names, the Senate can only adjourn or recess, or attempt to secure the attendance of additional Senators. However, quorum calls usually are ended by unanimous consent before the clerk completes the call of the roll and the absence of a quorum is demonstrated. The reason is that most quorum calls are not really intended to determine whether a quorum is present. The purpose of a quorum call usually is to suspend floor activity temporarily. If a Senator is coming to the floor to speak, a colleague may suggest the absence of a quorum until the expected Senator arrives. If the Senate finds itself confronted with unexpected procedural complications, if the majority leader needs to meet with several Senators on the floor about a possible unanimous consent agreement, or if the floor manager of a bill wants to discuss a compromise alternative to an amendment another Senator has offered—for any of these or many other reasons—a Senator may suggest the absence of a quorum to permit time for informal consultations. The time consumed by many of these quorum calls permits intensive and productive discussions that would be far more difficult to hold under the rules of formal Senate debate. The Constitution also provides that one-fifth of the Senators on the floor (assuming that a quorum is present) can demand a rollcall vote. Since the smallest possible quorum is 51 Senators, the support of at least 11 Senators is required to order a rollcall vote. A Senator who has been recognized can ask for "the yeas and nays" at any time that the Senate is considering a motion, amendment, bill, or other question. Agreement to this request does not terminate debate. Instead, if a rollcall is ordered pursuant to his request, then that is how the Senate will vote on the question when (or if) the time for the vote arrives. Thus, the Senate may order a rollcall vote on an amendment as soon as it is offered, but the vote itself may not take place for several hours or more (or, potentially, not at all), when Senators no longer wish to debate the amendment (or if a cloture process forces a vote). The alternative to a rollcall vote usually is a voice vote in which the Senators favoring the bill or amendment (or whatever question is to be decided) vote "aye" in unison, followed by those voting "no." (Sometimes in relation to a voice vote—when the outcome of the vote is not in question—the presiding officer will note that "without objection, the amendment (or bill) is agreed to.") Although a voice vote does not create a public record of how each Senator voted, it is an equally valid and conclusive way for the Senate to reach a decision. Sources of Additional Information The standing rules of the Senate are published periodically in a separate Senate document and in the Senate Manual , which contains other related documents as well. The most recent compilation of the Senate's precedents is Riddick's Senate Procedure , prepared by Floyd M. Riddick and Alan S. Frumin (Senate Document No. 101-28; 101 st Congress, second session). The parliamentarian and her assistants field inquiries from congressional offices about Senate procedures, and offer expert assistance compatible with their other responsibilities. The Congressional Research Service has prepared numerous other reports on the Senate and its procedures, including CRS Report RL30788, Parliamentary Reference Sources: Senate , by [author name scrubbed] and [author name scrubbed]; CRS Report 98-836, Calling Up Business on the Senate Floor , by [author name scrubbed]; CRS Report R43563, "Holds" in the Senate , by [author name scrubbed]; CRS Report RL30360, Filibusters and Cloture in the Senate , by [author name scrubbed] and [author name scrubbed]; CRS Report 98-853, The Amending Process in the Senate , by [author name scrubbed]; CRS Report 98-306, Points of Order, Rulings, and Appeals in the Senate , by [author name scrubbed]; CRS Report 96-452, Voting and Quorum Procedures in the Senate , coordinated by [author name scrubbed], and CRS Report 98-696, Resolving Legislative Differences in Congress: Conference Committees and Amendments Between the Houses , by [author name scrubbed]. A large number of additional reports on specific topics related to Senate procedure are also available (categorized by subject area) at http://www.crs.gov/iap/congressional-process-administration-and-elections . Senate procedures in specific relation to executive business—that is, nominations and treaties—are not covered extensively in this report, but CRS has prepared additional reports on these topics, as well; for an overview, see CRS Report RL31980, Senate Consideration of Presidential Nominations: Committee and Floor Procedure , by [author name scrubbed], and CRS Report 98-384, Senate Consideration of Treaties , by [author name scrubbed]. CRS analysts with expertise in legislative procedure are available to consult with individual Senators and staff; they also present periodic staff seminars and institutes on legislative procedures.

The standing rules of the Senate promote deliberation by permitting Senators to debate at length and by precluding a simple majority from ending debate when they are prepared to vote to approve a bill. This right of extended debate permits filibusters that can be brought to an end if the Senate invokes cloture, usually by a vote of three-fifths of all Senators. Even then, consideration can typically continue under cloture for an additional 30 hours. The possibility of filibusters encourages the Senate to seek consensus whenever possible and to conduct business under the terms of unanimous consent agreements that limit the time available for debate and amending. Except when the Senate has invoked cloture or is considering appropriations, budget, and certain other measures, Senators also may propose floor amendments that are not germane to the subject or purpose of the bill being debated. This permits individual Senators to raise issues and potentially have the Senate vote on them, even if they have not been studied and evaluated by the relevant standing committees. These characteristics of Senate rules make the Senate's daily floor schedule potentially unpredictable unless all Senators agree by unanimous consent to accept limits on their right to debate and offer non-germane amendments to a bill. Also to promote predictability and order, Senators traditionally have agreed to give certain procedural privileges to the majority leader. The majority leader enjoys priority in being recognized to speak, and only the majority leader (or a Senator acting at his behest) is able to successfully propose what bills and resolutions the Senate should consider. Thus, the legislative process on the Senate floor reflects a balance between the rights guaranteed to Senators under the standing rules and the willingness of Senators to forego exercising some of these rights in order to expedite the conduct of business.

Introduction Supreme Court Justice Louis Brandeis famously praised the division of sovereign powers included within America's constitutional structure for its capacity to encourage states to "serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." This legislative freedom is constrained, however, by various constitutional restrictions including the Supremacy Clause, which provides that federal law "shall be the supreme Law of the Land." Pursuant to this established principle of federal legal preeminence, any state law that conflicts with federal law is generally considered preempted and therefore void. Although simple in theory, the task of determining whether a state law is "in conflict" with federal law can be incredibly complex in practice. The ongoing national debate over marijuana provides a clear example of the confusion associated with the states' ability to pursue policies that deviate from those advanced by the federal government. In addition to the 20 states and the District of Columbia that currently exempt qualified users of medicinal marijuana from penalties imposed under state law, Colorado and Washington in late 2012 became the first states to legalize, regulate, and tax small amounts of marijuana for personal (i.e., nonmedicinal) use by individuals over the age of 21. These broad legalization initiatives stand in stark contrast to federal law, which makes the cultivation, distribution, or possession of any amount of marijuana—for any purpose other than bona fide, federally approved scientific research—a criminal offense. Therefore, the possession, cultivation, or distribution of marijuana remains a federal crime within Colorado, Washington, and every other state. As a result, individuals who grow, possess, use, sell, transport, or distribute marijuana, even when done in a manner consistent with state law or pursuant to a state-issued license, are nonetheless in violation of the federal Controlled Substances Act (CSA) and remain subject to federal criminal prosecution or other consequences under federal law. Given the federal government's continued ability to enforce its own prohibition, it cannot be said that the Washington and Colorado laws create a right to use marijuana. Nor does compliance with state law provide a defense to a prosecution brought under federal law. Nevertheless, President Obama expressed to Barbara Walters on ABC's Nightline program in a December 2012 television interview that in the hierarchy of federal drug enforcement priorities, his Administration has "bigger fish to fry" than arresting recreational marijuana users in jurisdictions where such use is authorized by state law. His personal views on this topic were later reflected in an August 2013 memorandum authored by the Deputy Attorney General, which instructed all federal prosecutors to use their "limited investigative and prosecutorial resources" toward certain specified marijuana-related criminal activities that the Obama Administration wants most to prevent, such as the distribution of marijuana to minors, the growing of marijuana on public lands, and the flow of revenue from marijuana sales to criminal enterprises, gangs, and cartels. The memorandum implied that the federal government's drug enforcement priorities would likely not include prosecuting individuals or organizations engaged in marijuana activities that are conducted in clear compliance with state laws that permit and regulate them. The memorandum noted, however, that "Congress has determined that marijuana is a dangerous drug" that remains illegal under federal law. The memorandum is an example of the doctrine of prosecutorial discretion, which gives the U.S. Department of Justice (DOJ) great leeway in choosing whether, and to what extent, to bring criminal prosecutions for violations of the Controlled Substances Act. However, a new Administration in the White House could easily change this federal approach toward marijuana. Washington Initiative 502 Approved by a majority of Washington voters in November 2012, Washington Initiative 502 legalizes marijuana possession by amending state law to provide that the possession of small amounts of marijuana "is not a violation of this section, this chapter, or any other provision of Washington law." Under the Initiative, individuals over the age of 21 may possess up to one ounce of dried marijuana, 16 ounces of marijuana infused product in solid form, or 72 ounces of marijuana infused product in liquid form. However, marijuana must be used in private, as it is unlawful to "open a package containing marijuana ... or consume marijuana ... in view of the general public." In addition to legalizing possession, the Initiative provides that the "possession, delivery, distribution, and sale" by a validly licensed producer, processor, or retailer, in accordance with the newly established regulatory scheme administered by the state Liquor Control Board (LCB), "shall not be a criminal or civil offense under Washington state law." The Initiative establishes a three-tiered production, processing, and retail licensing system that permits the state to retain regulatory control over the commercial life cycle of marijuana. Qualified individuals must obtain a producer's license to grow or cultivate marijuana, a processor's license to process, package, and label the drug, or a retail license to sell marijuana to the general public. The Initiative establishes various restrictions and requirements for obtaining the proper license and directs the state LCB to adopt procedures for the issuance of such licenses. On October 16, 2013, the LCB adopted detailed rules for implementing Initiative 502. These rules describe the marijuana license qualifications and application process, application fees, marijuana packaging and labeling restrictions, recordkeeping and security requirements for marijuana facilities, and reasonable time, place, and manner advertising restrictions. According to the adopted rules, Washington will impose an excise tax of 25% of the selling price on each marijuana sale within the established distribution system. The state excise tax will, therefore, be imposed on three separate transactions: the sale of marijuana from producer to processor, from processor to retailer, and from retailer to consumer. All collected taxes are deposited into the Dedicated Marijuana Fund and distributed, mostly to social and health services, as outlined in the Initiative. The Initiative also specifically provides that operation of a motor vehicle while under the influence of marijuana remains a crime. As of the date of this report, recreational marijuana retail stores have yet to open in Washington, although the LCB has received well over 3,000 applications to grow, process, or sell marijuana. The LCB has estimated that the application review process may take approximately 90 days to complete and that the state may begin issuing licenses by the end of February 2014. Colorado Amendment 64 Unlike the relatively specific Initiative 502, Colorado Amendment 64 provides only a general framework for the legalization, regulation, and taxation of marijuana in Colorado—leaving regulatory implementation to the Colorado Department of Revenue. In November 2012, Colorado voters approved an amendment to the Colorado Constitution to ensure that it "shall not be an offense under Colorado law or the law of any locality within Colorado" for an individual 21 years of age or older to possess, use, display, purchase, consume, or transport one ounce of marijuana; or possess, grow, process, or transport up to six marijuana plants. Unlike Initiative 502, which permits only state-licensed facilities to grow marijuana, Amendment 64 allows any individual over the age of 21 to grow small amounts of marijuana (up to six plants) for personal use. Marijuana may not, however, be consumed "openly and publicly or in a manner that endangers others." In addition, the amendment also provides that it shall not be unlawful for a marijuana-related facility to purchase, manufacture, cultivate, process, transport, or sell larger quantities of marijuana so long as the facility obtains a current and valid state-issued license. However, the amendment expressly permits local governments within Colorado to regulate or prohibit the operation of such facilities. By comparison, Washington's Initiative 502 does not expressly allow Washington cities to ban marijuana stores from opening within their borders, and there is uncertainty about the degree to which such local prohibitions or moratoriums on the operation of recreational marijuana businesses may be enforced. Amendment 64 appears to envision a three-tier distribution and regulatory system, similar to that established in Washington, involving the licensing of marijuana cultivation facilities, marijuana product manufacturing facilities, and retail marijuana stores. In December 2012, Governor John Hickenlooper established the Amendment 64 Implementation Task Force (Task Force) to "identify the legal, policy and procedural issues that need to be resolved, and to offer suggestions and proposals ... that need to be taken" to effectively implement Amendment 64. The Task Force issued a final report on March 13, 2013, consisting of 58 recommendations. Of those recommendations, the most significant include establishing a "vertical integration" model in which "cultivation, processing and manufacturing, and retail sales must be a common enterprise under common ownership"; imposing the required 15% excise tax while preserving the option for a future marijuana sales tax; restricting commercial licenses to grow, process, or sell marijuana to state residents only; and permitting both residents and nonresidents to purchase marijuana, but imposing more restrictive limits on the quantity of marijuana that may be purchased by out-of-state consumers (a quarter ounce versus an ounce for individuals with a Colorado state-issued identification card). To implement Amendment 64, the Colorado General Assembly passed three bills that were signed into law by Governor Hickenlooper on May 28, 2013. On September 9, 2013, the Colorado Department of Revenue and State Licensing Authority adopted regulations to implement licensing qualifications and procedures for retail marijuana facilities. The regulations establish procedures for the issuance, renewal, suspension, and revocation of licenses; provide a schedule of licensing and renewal fees; and specify requirements for licensees to follow regarding physical security, video surveillance, labeling, health and safety precautions, and product advertising. On November 5, 2013, Colorado voters approved a 25% tax on retail marijuana (a 15% excise tax that would raise revenues to be used for public school capital construction, and an additional 10% sales tax that would generate revenues to fund the enforcement of the retail marijuana regulations). On December 23, 2013, the Colorado Marijuana Enforcement Division issued its first recreational marijuana licenses to 348 businesses (136 retail stores, 31 product companies, 178 growing facilities, and 3 testing laboratories). While these businesses have been granted state approval to produce and sell marijuana, they may also have to gain the licensing approval from local governments prior to their operation. On January 1, 2014, 40 licensed retail marijuana stores opened their doors to sell marijuana to anyone 21 years of age or over. Federal Law Congress enacted the Controlled Substances Act (CSA) as Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970. The purpose of the CSA is to regulate and facilitate the manufacture, distribution, and use of controlled substances for legitimate medical, scientific, research, and industrial purposes, and to prevent these substances from being diverted for illegal purposes. The CSA places various plants, drugs, and chemicals (such as narcotics, stimulants, depressants, hallucinogens, and anabolic steroids) into one of five schedules based on the substance's medical use, potential for abuse, and safety or dependence liability; Schedule I substances are deemed to have no currently accepted medical use in treatment and can only be used in very limited circumstances, whereas substances classified in Schedules II, III, IV, and V have recognized medical uses and may be manufactured, distributed, and used in accordance with the CSA. The CSA requires persons who handle controlled substances (such as drug manufacturers, wholesale distributors, doctors, hospitals, pharmacies, and scientific researchers) to register with the Drug Enforcement Administration (DEA) in the U.S. Department of Justice, the federal agency that administers and enforces the CSA. Such registrants are subject to strict requirements regarding drug security, recordkeeping, reporting and production quotas, in order to minimize theft and diversion. Federal civil and criminal penalties are available for anyone who manufactures, distributes, imports, or possesses controlled substances in violation of the CSA (both "regulatory" offenses as well as illicit drug trafficking and possession). Because controlled substances classified as Schedule I drugs have "a high potential for abuse" with "no currently accepted medical use in treatment in the United States" and lack "accepted safety for use of the drug [] under medical supervisions," they may not be dispensed under a prescription, and such substances may only be used for bona fide, federal government-approved research studies. Under the CSA, only DEA-licensed doctors are allowed to prescribe controlled substances listed in Schedules II-V to patients. Federal regulations stipulate that a lawful prescription for a controlled substance may only be "issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice." The CSA establishes an administrative mechanism for substances to be controlled (added to a schedule); decontrolled (removed from the scheduling framework altogether); and rescheduled or transferred from one schedule to another. Federal rulemaking proceedings to add, delete, or change the schedule of a drug or substance may be initiated by the DEA, the U.S. Department of Health and Human Services (HHS), or by petition by any interested person. Congress may also change the scheduling status of a drug or substance through legislation. When Congress enacted the CSA in 1970, marijuana was classified as a Schedule I drug. Today, marijuana is still categorized as a Schedule I controlled substance and is therefore subject to the most severe restrictions contained within the CSA. Pursuant to the CSA, the unauthorized cultivation, distribution, or possession of marijuana is a federal crime. Although various factors contribute to the ultimate sentence received, the mere possession of marijuana generally constitutes a misdemeanor subject to up to one year imprisonment and a minimum fine of $1,000. A violation of the federal "simple possession" statute that occurs after a single prior conviction under any federal or state drug law triggers a mandatory minimum fine of $2,500 and a minimum imprisonment term of 15 days (up to a maximum of two years); if the defendant has multiple prior drug offense convictions at the time of his or her federal simple possession offense, the sentencing court must impose a mandatory minimum fine of $5,000 and a mandatory minimum imprisonment term of 90 days (up to a maximum term of three years). On the other hand, the cultivation or distribution of marijuana, or the possession of marijuana with the intent to distribute is subject to more severe penalties. Such conduct generally constitutes a felony subject to as much as five years imprisonment and a fine of up to $250,000. Federal Preemption of State Law The Colorado and Washington laws, which legalize, regulate, and tax an activity the federal government expressly prohibits, appear to be logically inconsistent with established federal policy and are therefore likely subject to a legal challenge under the constitutional doctrine of preemption. The principal that states cannot enact laws that contradict federal law is grounded in the Supremacy Clause of Article VI, cl. 2, which states that "[t]he Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made ... under the Authority of the United States, shall be the supreme Law of the Land." The Supremacy Clause, therefore, "elevates" the U.S. Constitution, federal statutes, federal regulations, and treaties above the laws of the states. As a result, where federal and state law are in conflict, the state law is generally preempted, leaving it void and without effect. The Supreme Court has established three general classes of preemption: express preemption, conflict preemption, and field preemption. Express preemption exists where the language of a federal statute explicitly states the degree to which related state laws are superseded by federal law. In contrast, where Congress does not articulate its view as to a statute's intended impact on state laws, a court may imply preemption if there is evidence that Congress intended to supplant state authority. Preemption is generally implied in two situations. First, under field preemption, a state law is preempted where a "scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.... " Second, under conflict preemption, a state law is preempted "where compliance with both federal law and state regulations is a physical impossibility ... or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Regardless of the type of preemption at play, the task of evaluating the preemptive effect of a federal law is "one of determining congressional intent." By making its intent clear, Congress may choose to preempt all related state laws, no state laws, or only select state laws. Preemption Under the Controlled Substances Act In Section 708 of the CSA (21 U.S.C. §903), Congress specifically articulated the degree to which federal law was to preempt state drug laws. This express preemption provision recites language that evokes the principles of conflict preemption, stating, No provision of this subchapter shall be construed as indicating an intent on the part of the Congress to occupy the field in which that provision operates, including criminal penalties, to the exclusion of any State law on the same subject matter which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and that State law so that the two cannot consistently stand together . Notably, the provision clarifies that Congress did not intend to entirely occupy the regulatory field concerning controlled substances or wholly supplant traditional state authority in the area. Indeed, Congress expressly declined to assert field preemption as grounds for preempting state law under the CSA. The Supreme Court has stated that this provision suggests that Congress "explicitly contemplate[d] a role for the States in regulating controlled substances." As such, the preemptive effect of the CSA is not as broad as congressional authority could have allowed. States remain free to pass laws relating to marijuana, or other controlled substances, so long as they do not create a "positive conflict" with federal law, such that the two laws "cannot consistently stand together." In attempting to give effect to Congress's intent, courts have differed in the proper standard to be applied in determining whether a state law is in "positive conflict" with the CSA. Most courts have established that a state law is preempted by the CSA if it meets either prong of the conflict preemption test. Under this interpretation a state law is preempted if 1. it is "physically impossible" to comply with both the state and federal law ("impossibility preemption"); or 2. the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" ("obstacle preemption"). This dual-prong interpretation of the CSA is further supported by a 2009 Supreme Court opinion that applied both impossibility and obstacle preemption in interpreting the effect of a similar preemption provision found within the Food Drug and Cosmetic Act (FDCA). That provision provided that a state law would be preempted only where it was in "direct and positive conflict" with federal law. In contrast however, at least two lower state courts—including a Colorado court—have held that by adopting language displacing only those state laws in "positive conflict" with the CSA, without including any reference to those state laws that pose an obstacle to the CSA, Congress expressed its intent to preempt state laws only under impossibility preemption and not under obstacle preemption. In People v. Crouse , which involved the Colorado medical marijuana law, the Court of Appeals of Colorado determined that Section 903 "demands more than that the state law 'stands as an obstacle to the accomplishment and execution' of the federal law.'" As a result, the court held that the language of the CSA "cannot be used to preempt a state law under the obstacle preemption doctrine." The decision in Crouse adopted the reasoning of County of San Diego v. San Diego NORML , a California state court decision that also determined that obstacle preemption should not be applied in determining whether a state marijuana law is preempted by the CSA. Under this line of reasoning, a state marijuana law is only in "positive conflict" with the CSA when it is "physically impossible" to simultaneously comply with the state and federal law. The importance of this threshold interpretation cannot be overstated. The reasoning adopted in Crouse and County of San Diego significantly narrows the CSA's preemptive effect and, if adopted by other courts, would likely lead to a conclusion that the CSA does not preempt state recreational legalization measures like those adopted in Colorado and Washington. Courts have only rarely invalidated a state law as preempted under the impossibility prong of the positive conflict test. Pursuant to the generally adopted standard, unless state law requires what federal law prohibits , or state law prohibits what federal law requires , it is not "impossible" to comply with both laws. In the medical marijuana context, for example, courts have generally asserted that an individual can comply with the CSA and a state medical marijuana exemption by refraining from the use of marijuana altogether. As a general matter, it is clear that the principle provisions of the Colorado and Washington laws do not require individuals to engage in activity prohibited by federal law, but rather only permit such activity, and thus likely do not make it physically impossible to comply with both federal and state law. Notably, after concluding that obstacle preemption was inapplicable, both the Colorado court in Crouse and the California court in County of San Diego nevertheless proceeded to an obstacle preemption analysis because their interpretation of Section 903 had not been adopted by other courts. Moreover, in light of the Supreme Court's interpretation of the FDCA preemption provision in Wyeth v. Levine and the fact that most lower courts have applied both impossibility and obstacle preemption in determining whether state drug laws are in "positive conflict" with the CSA, it would appear that the preemptive effect of Section 903 may reasonably be interpreted to extend to both those state laws that make it impossible to comply with federal law and those that create an obstacle to the accomplishment of Congress's objectives. Given that the Colorado and Washington laws would likely survive the impossibility prong of the conflict preemption test, most of the following analysis will focus on whether the Washington and Colorado laws represent an "obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Application of Obstacle Preemption Principles to Washington and Colorado Legalization Measures The extent to which a state law that legalizes, regulates, and taxes marijuana for recreational purposes may be preempted by the CSA is a novel and unresolved legal question. The federal courts, for instance, have not engaged in any substantial analysis of whether federal law preempts state marijuana laws. Existing applicable precedent, which has arisen as a result of challenges to state medical marijuana laws, has been developed almost exclusively by state courts, and even then, mostly by lower court decisions that range widely in their approach to the preemption question. This divergent body of precedent, in conjunction with the general preemption principles previously outlined, would appear to be the most likely source for the standards upon which the validity of the Washington and Colorado laws may be judged. Before proceeding, it is important to note the structural similarities of both the Washington and Colorado laws. Each law seeks to achieve three different but interrelated objectives: the legalization of marijuana, the regulation and licensing of marijuana producers, processors, and retailers, and the taxation of marijuana sales. Because each of these objectives conflicts with federal law to a different degree, for purposes of a preemption analysis each aspect of the state laws must be considered separately. The Supreme Court has emphasized "two cornerstones of pre-emption jurisprudence," that will likely play a significant role in any review of the Washington or Colorado laws. First, "the purpose of Congress is the ultimate touchstone in every pre-emption case." Thus, in considering the preemptive scope of the CSA, it is necessary to establish Congress's "purpose" in enacting the law. The Supreme Court has previously identified the "main objectives" of the CSA as "conquer[ing] drug abuse" and "control[ing] the legitimate and illegitimate traffic in controlled substances." Second, "[i]n all pre-emption cases ... we 'start with the assumption that the historic police powers of the States were not to be superseded by [federal law] unless that was the clear and manifest purpose of Congress." State drug laws, including those connected to marijuana cultivation, distribution, or possession have generally been considered to be within "the historic police powers of the States." Consequently, the Washington and Colorado laws would likely be accorded a presumption of validity. Legalization Both Colorado and Washington have provided that the possession of marijuana in accordance with certain restrictions shall not be a violation of state law. It would appear unlikely that these aspects of both state laws—which only exempt certain individuals who possess marijuana from penalties under state law—would be preempted by federal law. It is important to reiterate however, that even if otherwise valid, permitting the possession, distribution or production of marijuana under state law does not alter the fact that the conduct remains a crime under federal law. Under the police power, states are generally free to criminalize any conduct (within the bounds of state and federal constitutional protections) which they wish to deter. Although the federal government may use its power of the purse to encourage states to adopt certain criminal laws, it is limited by the Tenth Amendment—which prevents the federal government from directing states to enact specific legislation—in its ability to directly influence state policy or requiring state officials to enforce federal law. As such, the fact that the federal government has criminalized conduct does not mean that the state, in turn, must also criminalize or prosecute that same conduct. It has generally been recognized that the states and the federal government operate as two distinct sovereigns, enacting separate and independent criminal regimes with separate and independent enforcement mechanisms, in which certain conduct may be prohibited under one sovereign and not the other. If prohibiting certain conduct under federal law had the effect of barring any state attempt to permit that same conduct, the result would be a legal environment in which states were compelled to adopt criminal measures that mirrored federal law. The Tenth Amendment prohibits such a requirement. In situations where states are unwilling to voluntarily prohibit conduct that Congress has determined should be deterred "the proper response—according to [the Tenth Amendment]—is to ratchet up the federal regulatory regime, not to commandeer that of the state." These principles of federalism would appear to both inform and restrict the reach of federal preemption. Under both Tenth Amendment and preemption principles, federal and state courts have previously held that a state's decision to simply permit what the federal government prohibits does not create a "positive conflict" with federal law. As discussed above, under the impossibility prong of conflict preemption, the Supreme Court has specifically held that so long as an individual is not compelled by state law to engage in conduct prohibited by federal law, then simultaneous compliance with both laws is not "impossible." Nor have courts generally found that simply permitting conduct that the federal government prohibits stands as an "obstacle to the execution of Congress's objectives." The Supreme Court has interpreted this prong relatively narrowly, holding that a state law is preempted where the obstacle is of such a degree that "the purpose of the [federal] act cannot otherwise be accomplished." In the medical marijuana context, courts have generally found that exempting individuals from state penalties has only a limited impact on the federal government's ability to combat the use of marijuana because an exemption under state law does not obstruct the federal government's ability to investigate and prosecute violations of federal law . It is well established that compliance with state medical marijuana laws is no defense, and provides no immunity to a federal criminal prosecution under the CSA. The federal government remains free to expend its own resources to implement and enforce its own law, regardless of whether the state chooses to criminalize that same conduct. The fact that a state does not wish to expend its resources to implement a policy similar to that of the federal government, though likely making overall enforcement less effective, has not, in the past, created an obstacle to the federal law sufficient to trigger preemption. In light of this dynamic, it would appear that those aspects of the Colorado and Washington laws that remove state penalties for possession of marijuana may properly be characterized as an exercise of the state's "power to decide what is criminal and what is not." Neither law purports to shield its residents from the legal consequences of violating federal law. Given both the limitations on congressional power imposed by the Tenth Amendment and preemption precedent arising from challenges to state medical marijuana laws, it would appear unlikely that a reviewing court would invalidate either Colorado or Washington's decision to simply exempt certain marijuana-related conduct from state penalties under state law. Regulation and Licensing Although the legalization aspects of both the Washington and Colorado laws would likely survive a legal challenge, the regulation and licensing aspects of each law may raise more substantial preemption concerns. In addition to removing state penalties relating to certain marijuana-related activities, both states envision comprehensive, state implemented regulatory and licensing regimes to control the cultivation, distribution and sale of marijuana within the state. These provisions can arguably be distinguished from the legalization provisions in two key ways, both of which appear to support a finding of preemption. First, the regulatory and licensing provisions potentially create an increased "obstacle" to the accomplishment of federal objectives by "authorizing" conduct federal law prohibits. Second, the affirmative act of regulating and licensing marijuana cultivation and distribution may not invoke the same Tenth Amendment protections enjoyed by the states' initial decision to simply remove marijuana-related penalties under state law. To the contrary, arguments can also be made in opposition to preemption. The regulation and licensing provisions could be viewed as a necessary implementation mechanism through which the states may efficiently identify those individuals who have met the requirements of the state marijuana law without impeding the enforcement of federal law. Moreover, the regulatory and licensing provisions could be characterized as imposing additional restrictions on marijuana access—an objective consistent with the purposes of the CSA—and thus are not subject to conflict preemption. These contrasting views, either of which could be invoked in a court's review of the Colorado and Washington laws, are discussed in greater detail below. The Exemption/Authorization Distinction in Obstacle Preemption Where the federal government has prohibited specific conduct, the Supreme Court appears to have expressed concern over state laws that go beyond exempting that conduct from state penalties, and instead attempt to actively "authorize" conduct in violation of federal law. In Michigan Canners & Freezers v. Agricultural Board , the Court held that a state law that permitted a state board to authorize a food producers association to act as an exclusive bargaining agent for all producers of a certain commodity was in conflict with a federal law that prohibited associations from interfering with an individual food producer's decision to sell its products on its own or through an association. The Court determined that although it was possible to simultaneously comply with both the federal and state law, because the state board was empowered to " authorize[] producers' associations to engage in conduct that the federal act forbids, it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Although the Court did not adopt an express distinction, the possibility that state "authorizations" may create a more substantial obstacle to the accomplishment of federal objectives than a state "exemption" from state penalties, could play a significant role in a court's evaluation of the Colorado and Washington laws. Consider, for example, the Oregon Supreme Court decision in Emerald Steel Fabricators v. Bureau of Labor and Industries . In that case the Oregon Supreme Court heard a challenge to the state identification card provisions of the Oregon Medical Marijuana Act. Under Oregon law, the state issued identification cards that permitted qualified individuals to "engage in the medical use … of marijuana" without the threat of state prosecution. In evaluating the state law, the Oregon Supreme Court first affirmed that it was not invalidating Oregon's decision to simply exempt medical marijuana users from criminal liability under state law—suggesting that such measures were within the states' authority and beyond the reach of Congress under the Tenth Amendment. The licensing provisions, however, which authorized an individual with an identification card to engage in the use of marijuana, were distinguishable. The Court held that by "affirmatively authorizing a use that federal law prohibits," the Oregon law stood "as an obstacle to the implementation and execution of the full purposes and objectives of the Controlled Substances Act, " and was therefore preempted. "[T]here is no dispute," the court concluded, "that Congress has the authority under the Supremacy Clause to preempt state laws that affirmatively authorize the use of medical marijuana." Most California courts, however, have not adopted the exemption/authorization distinction, and have instead generally upheld California medical marijuana identification card provisions. These cases have generally stressed that the Tenth Amendment protects California's decision to permit medicinal marijuana and that the state's medical marijuana law in no way affects the federal government's ability to prosecute for violations of federal law. For example, in County of San Diego v. San Diego NORML , and Qualified Patients Association v. City of Anaheim , an intermediate California appellate court twice upheld the identification card provisions of the California Medical Marijuana Program Act (MMPA). Like the Oregon law, the MMPA provides that persons with valid identification cards shall not be subject to criminal sanctions under state law. In both cases, the California appellate court held that the state law did not impose a significant obstruction to the federal objectives embodied within the CSA. In County of San Diego , the court relied principally on a determination that the identification cards did not "insulate the bearer from federal laws," nor did the card "imply the holder is immune from prosecution for federal offenses." The identification cards, the court reasoned, instead represented a "mechanism" by which California law enforcement officers could efficiently identify those individuals who are exempt from prosecution under California law for possessing marijuana. In Qualified Patients , the court relied more heavily on the Supreme Court's statement in Crosby v. National Foreign Trade Council that a state law presents a sufficient obstacle to the accomplishment of federal objectives only where "the purpose of the [federal] act cannot otherwise be accomplished," as well as the anti-commandeering principles of the Tenth Amendment. In determining that the state law did not create a sufficient conflict with federal law, the court noted that "preemption theory [] is not a license to commandeer state or local resources to achieve federal objectives." Decisions in Michigan and Colorado have adopted similar lines of reasoning . In Ter Beek v. City of Wyoming , the Court of Appeals of Michigan held that a Michigan statute which provided immunity from state prosecution to individuals with an identification card did not create an obstacle to the accomplishment of federal objectives and was not preempted by the CSA. Likewise in Crouse , the Colorado court held that a state law which required the return of marijuana seized from a medical marijuana patient if the patient is acquitted of state charges did not create an obstacle to the CSA. However, in a ruling that was later dismissed as moot by the California Supreme Court after the city ordinance in question was repealed, one California appellate court deviated from County of San Diego and Qualified Patients in striking down a marijuana regulatory scheme that had been implemented by the City of Long Beach, California. Pack v. City of Long Beach involved a preemption challenge to a city ordinance that established a "comprehensive regulatory scheme by which medical marijuana collectives" were to be governed. Pursuant to the ordinance, the city issued permits to marijuana collectives and adopted regulations that restricted their operation. In applying the obstacle prong to determine whether the local ordinance was preempted by the CSA, the court clearly addressed the exemption/authorization distinction, reasoning that "there is a distinction, in law, between not making an activity unlawful and making the activity lawful ... The state law does not present an obstacle to Congress's purposes simply by not criminalizing conduct that Congress has criminalized." However, the court concluded that the city ordinance "goes beyond decriminalization into authorization." By establishing a permit scheme that "determines which collectives are permissible and which collectives are not," the city was affirmatively authorizing individuals to engage in conduct barred by federal law. Citing Michigan Canners , the court held that such an action "'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress' and is therefore preempted." In light of these varying approaches, it is apparent that the extent to which state marijuana provisions (whether medicinal or recreational) are preempted by the CSA is unsettled. However, if a reviewing court were to adopt the exemption/authorization distinction applied in Emerald Steel and Pack , it would appear that the Colorado and Washington recreational licensing provisions would likely be invalidated. Both state initiatives involve a significantly higher degree of state involvement in the "authorizing" of marijuana activities than merely issuing identification cards. Both Colorado and Washington plan to implement a robust and comprehensive regulatory distribution scheme (akin to the ordinance at issue in Pack ) that provides state issued licenses to marijuana producers, processors, and retailers. An individual who obtains the proper license from the state would be authorized to grow, transport, or sell marijuana under state law. This licensing of marijuana-related activities by the state could be viewed as exceeding a decision to determine what conduct constitutes an offense under state law, and instead representing an action by the state to "affirmatively authorize" conduct prohibited under federal law. In the alternative, a reviewing court could adopt a line of reasoning similar to that in County of San Diego , Qualified Patients , Ter Beek , or Crouse and determine that the Colorado and Washington licensing provisions are a proper exercise of state power and not in conflict with the CSA. Under this line of precedent, it can be argued that the state regulatory and licensing laws have no impact on the enforcement of federal law; are necessary to implement the state's decision to remove penalties for certain marijuana-related activities; do not immunize or shield the holder from federal prosecution; and, therefore, are not preempted. Moreover, it could be argued that a state license acts only as a means by which the state can impose controls on the production and distribution of marijuana under state law and to identify which individuals have been preapproved to engage in marijuana-related activities. This appears to be the approach taken by the United States Bankruptcy Court for the District of Colorado in an opinion focusing on whether a debtor, who leased space for the purposes of growing medicinal marijuana in compliance with state law, was engaged in an ongoing criminal activity. In what is perhaps the only statement by a federal court relating to preemption of the Colorado and Washington laws, in In re: Rent-Rite Super Kegs West LTD , a bankruptcy court noted (in what was clearly dicta) that "conflict preemption is not an issue here. Colorado constitutional amendments for both medical marijuana, and the more recent amendment legalizing marijuana possession and usage generally, both make it clear that their provisions apply to state law only. Absent from either enactment is any effort to impede the enforcement of federal law." In addition, it has previously been argued that because the licensing and regulatory aspects of medical marijuana laws actually place additional restrictions on access to marijuana, those provisions are more consistent with the objectives of the CSA than the state decision to legalize marijuana production, distribution, possession. By limiting marijuana and production and distribution, it could be argued that the envisioned Colorado and Washington regulatory and licensing provisions "further[] rather than obstruct[] the purposes of the CSA." Under this reasoning, the Washington and Colorado regulatory and licensing aspects could be seen as supporting the federal government's objectives of "control[ing] the legitimate and illegitimate traffic in controlled substances," as opposed to creating an obstacle to that goal. Taxation In addition to regulating and licensing recreational marijuana use, both Colorado and Washington plan to impose a substantial excise tax on marijuana sales. In Colorado, the tax (which may not exceed 15% prior to January 1, 2017) is to be levied on sales of marijuana by cultivation facilities, product manufacturing facilities, or retail stores. In Washington, a 25% tax is to be imposed at each transaction within the distribution chain, including sales from: producer to processor; processor to retailer; and from retailer to consumer. Although little precedent exists relating to state-imposed taxes on medical marijuana, there is evidence to suggest that these taxes would likely be considered permissible. The Supreme Court has held that a state may "legitimately tax criminal activities." Indeed, in Department of Revenue of Montana v. Ranch , the Court specifically suggested, in dicta, that it was within Montana's authority to tax the possession of marijuana. The Montana law challenged in Ranch imposed a tax on the possession of illegal drugs. Although determining that the law's application to the petitioners violated the Double Jeopardy Clause of the Fifth Amendment by subjecting an individual to successive punishments for the same offense, the Court noted briefly that "Montana no doubt could collect its tax on the possession of Marijuana ... if it had not previously punished the taxpayer for the same offense." The Court made clear that "as a general matter, the unlawfulness of an activity does not prevent its taxation." In addition, many states already tax marijuana and other illegal or controlled substances. For example, 20 states require all possessors of marijuana to purchase "tax stamps." Although some of these laws have raised questions relating to the Fifth Amendment's privilege against self-incrimination and double jeopardy clause, no court has found a state drug tax law to be preempted by federal law. Moreover, if analyzing state marijuana taxes within the previously discussed preemption framework, it would appear difficult to argue that by imposing a tax on marijuana the state has authorized conduct prohibited under federal law or imposed an obstacle to the achievement of federal objectives. Taxes are generally imposed to either raise revenue, deter conduct, or both. Taxes on cigarettes for example, exist both to raise revenue and to deter smoking. The excise taxes envisioned by Colorado and Washington appear to be motivated by a desire to raise revenue to both pay for the regulatory and licensing controls on marijuana and to contribute to other budgetary needs, most notably health services and education. In addition, the Washington law states that the Liquor Control Board is authorized to make recommendations to adjust the tax levels "that would further the goal of discouraging use while undercutting illegal market prices." The Colorado law does not explicitly reference any goal of deterring marijuana use, but it would appear that the envisioned tax may also have that effect. Thus, the state tax may more accurately be characterized as "interposing an economic impediment to the activity" as opposed to authorizing the activity. Are the Washington and Colorado Laws Preempted by International Law? The United States is a party to various treaties that impose international obligations relating to the control of marijuana. These treaties generally seek to curb the use of controlled substances while carving out exceptions for "medicinal and scientific" uses. The principle governing treaty in international drug control, which has been agreed to by more than 180 nations, is the Single Convention on Narcotic Drugs (Single Convention). The Single Convention imposes restrictions on the manufacturing, distribution, and trade in narcotic drugs by establishing a multi-schedule classification structure that applies varying controls for each schedule. This framework later served as the blueprint for the CSA and other foreign drug control statutes. "Cannabis" is listed as a Schedule I substance under the Single Convention and is therefore subject to the agreement's most restrictive controls. For example, parties must "take such legislative and administrative measures as may be necessary ... to limit exclusively to medical and scientific purposes the production, manufacture, export, import, distribution of, trade in, use and possession of drugs"; limit the quantity of the drug manufactured and imported to "the quantity consumed ... for medical and scientific purposes"; and furnish the International Narcotics Control Board with information, estimates, and statistics related to the consumption and production of the drug. In addition to the Single Convention, the 1971 Convention on Psychotropic Substances requires that specific controls be placed by parties upon THC, the physiologically active chemical in marijuana, while the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances requires parties to establish criminal penalties for the possession, purchase, or cultivation of marijuana for nonmedicinal consumption, but only to the extent that such action is consistent with the "constitutional principles and basic concepts of [the country's] legal system." Both the U.S. Drug Enforcement Agency (DEA) and the U.S. Department of State have determined that in order to comply with these international obligations, it is necessary that marijuana remain on either Schedule I or Schedule II of the federal CSA. The DEA, for example, has cited the nation's obligations under the Single Convention as the legal justification for denying rulemaking petitions requesting that the Attorney General exercise his authority under the CSA to remove marijuana entirely from control, or to transfer marijuana to Schedule III or lower. The legalization measures enacted by Washington and Colorado would appear to be inconsistent with the obligations imposed upon the United States under existing international drug control treaties. However, existing jurisprudence suggests that a reviewing court may not view these treaty obligations, in and of themselves, as sufficient to preempt and invalidate the state laws. It is well established that treaties, like federal statutes, may preempt conflicting state laws. The Supremacy Clause expressly provides that in addition to federal law, "all treaties made ... under the authority of the United States, shall be the supreme law of the land." Therefore, a state law is generally preempted to the same degree whether it is in conflict with a federal statute or an international treaty obligation. However, not all treaties are accorded "automatic" preemptive effect. Only where a treaty "constitute[s] binding federal law," without the "aid of any [implementing] legislative provision," does it qualify as the "Supreme law of the land" for preemption purposes. Such treaties are known as "self-executing" treaties—meaning an international agreement with "automatic domestic effect as federal law upon ratification." The Supreme Court recently clarified the distinction between the preemptive effect of self-executing and non-self-executing treaties in Medellin v. Texas . Medellin involved an evaluation of whether a decision of the International Court of Justice (ICJ)—and a series of underlying international agreements that required compliance with ICJ decisions—constituted enforceable federal law with the authority to preempt Texas procedural court rules. In holding that the state court rules were not preempted, the court noted that it had "long recognized the distinction between treaties that automatically have effect as domestic law, and those that ... do not by themselves function as binding federal law." Although the ICJ decision had clearly represented an "international obligation," it did not "of its own force constitute binding federal law that preempts state restrictions." Like the ICJ decision at issue in Medellin , neither the Single Convention nor the other international drug control treaties appear to be "self-executing." Each treaty requires the signatory nation to give legal effect to the goals of the treaty through domestic implementing legislation. The provisions of the treaties do not themselves establish binding domestic law. The United States, for example, implemented the obligations of these treaties through the CSA. Because these treaties do not create binding law "of [their] own force," it would appear unlikely that a U.S. court would accord the treaties direct preemptive effect. Indeed, in County of San Diego , the California court explicitly rejected treaty preemption arguments on the grounds that the Single convention is non-self-executing. Thus it would appear unlikely that the Washington and Colorado laws would be found to be preempted by existing international obligations. DOJ Responses to State Efforts to Allow Marijuana Use for Medicinal or Recreational Purposes The Department of Justice (DOJ) may respond in several different ways to state efforts to allow marijuana use. First, DOJ could prioritize the prosecution of certain criminal activities involving marijuana over activities that are conducted in clear compliance with state law. The doctrine of prosecutorial discretion gives DOJ considerable leeway in deciding whether, and to what extent, to bring criminal prosecutions for violations of the CSA. In addition, DOJ may utilize the CSA forfeiture provision to deter certain activities without actually engaging in criminal prosecutions. Finally, DOJ may ask the federal judiciary to directly invalidate state marijuana laws or regulatory schemes by filing a civil lawsuit. Criminal Prosecutions Criminal prosecutions are perhaps DOJ's most potent tool for undercutting the Washington and Colorado laws. However, DOJ is not required to zealously enforce every violation of the CSA. Indeed, pursuant to the doctrine of "prosecutorial discretion," federal law enforcement officials have "broad discretion" as to when, whom, and whether to prosecute for violations of the CSA. Courts have recognized that the "decision to prosecute is particularly ill-suited to judicial review," as it involves the consideration of factors, such as the strength of evidence, deterrence value, and existing enforcement priorities, "not readily susceptible to the kind of analysis the courts are competent to undertake." Through the exercise of prosecutorial discretion, DOJ is free to develop a policy outlining what marijuana-related activities will receive the most attention from federal authorities. Indeed, DOJ has issued three memoranda since 2009 that explain the Obama Administration's position regarding state-authorized marijuana activities, as described in the following sections. The 2009 Ogden Memorandum In 2009, Deputy Attorney General David W. Ogden provided guidance to federal prosecutors in states that have authorized the use of medical marijuana. Citing a desire to make "efficient and rational use of its limited investigative and prosecutorial resources," the memorandum stated that while the "prosecution of significant traffickers of illegal drugs, including marijuana … continues to be a core priority," federal prosecutors "should not focus federal resources [] on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana." The memorandum made clear, however, that "this guidance [does not] preclude investigation or prosecution, even where there is clear and unambiguous compliance with existing state law, in particular circumstances where investigation or prosecution otherwise serves important federal interests." The 2011 Cole Memorandum DOJ released a subsequent memorandum in 2011 drawing a clear distinction between the potential prosecutions of individual patients who require marijuana in the course of medical treatment and "commercial" dispensaries. After noting that several jurisdictions had recently "enacted legislation to authorize multiple large-scale, privately operated industrial marijuana cultivation centers," DOJ stated that The Ogden memorandum was never intended to shield such activities from federal enforcement action and prosecution, even where those activities purport to comply with state law. Persons who are in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the [CSA] regardless of state law. Consistent with resource constraints and the discretion you may exercise in your district, such persons are subject to federal enforcement action, including potential prosecution. The 2013 Cole Memorandum The Obama Administration's official response to the Colorado and Washington initiatives was provided on August 29, 2013, when Deputy Attorney General James M. Cole sent a memorandum to all U.S. Attorneys intended to guide the "exercise of investigative and prosecutorial discretion" when it comes to civil and criminal enforcement of the federal Controlled Substances Act within all states, including those that have legalized marijuana for medicinal or recreational use. The memorandum expresses DOJ's position that, although marijuana is a dangerous drug that remains illegal under federal law, the federal government will not pursue legal challenges against jurisdictions that authorize marijuana in some fashion, assuming those state and local governments maintain strict regulatory and enforcement controls on marijuana cultivation, distribution, sale, and possession that limit the risks to "public safety, public health, and other law enforcement interests." This DOJ decision has received both praise and criticism. The memorandum instructs federal prosecutors to prioritize their "limited investigative and prosecutorial resources to address the most significant [marijuana-related] threats" and identified the following eight activities as those that the federal government wants most to prevent: (1) distributing marijuana to children; (2) revenue from the sale of marijuana going to criminal enterprises, gangs, and cartels; (3) diverting marijuana from states that have legalized its possession to other states that prohibit it; (4) using state-authorized marijuana activity as a pretext for the trafficking of other illegal drugs; (5) using firearms or violent behavior in the cultivation and distribution of marijuana; (6) exacerbating adverse public health and safety consequences due to marijuana use, including driving while under the influence of marijuana; (7) growing marijuana on the nation's public lands; and (8) possessing or using marijuana on federal property. The memorandum advises U.S. Attorneys and federal law enforcement to devote their resources and efforts toward any individual or organization involved in any of these activities, regardless of state law. Furthermore, the memorandum recommends that jurisdictions that have legalized some form of marijuana activity "provide the necessary resources and demonstrate the willingness to enforce their laws and regulations in a manner that ensures they do not undermine federal enforcement priorities." However, the memorandum cautions that, to the extent that state enforcement efforts fail to sufficiently protect against the eight harms listed above, the federal government retains the right to challenge those states' marijuana laws. Two additional points made in the memorandum are worth highlighting. First, the memorandum acknowledges a change in Administration policy with respect to "large scale, for-profit commercial enterprises" that may ease the concerns of potential state-licensed marijuana distributors and retailers in Colorado and Washington. In previous guidance issued to U.S. Attorneys in states with medical marijuana laws, DOJ had suggested that large-scale marijuana enterprises were more likely to be involved in marijuana trafficking, and thus could be appropriate targets for federal enforcement actions. In the new guidance, DOJ directs prosecutors "not to consider the size or commercial nature of a marijuana operation alone as a proxy for assessing whether marijuana trafficking implicates the Department's enforcement priorities ..." Although apparently acknowledging the legitimacy of the emerging for-profit marijuana industry, the memorandum makes no statements with regard to the application of various federal money laundering and banking laws that have hampered the ability of commercial marijuana establishments to obtain the necessary financing and financial services to establish and grow their businesses. The second point is that the memorandum suggests that a state with a robust regulatory system for the control of recreational marijuana "is less likely to threaten [] federal priorities ..." than a state that lacks such controls. This statement may inform the long-running debate over the extent to which state marijuana regulatory and licensing laws (as opposed to mere penalty exemptions) conflict with federal law. Some courts have suggested, for example, that whereas a state is generally free to remove state penalties for marijuana use, the more robust a state's licensing and regulatory program, the more likely the law is to be preempted by federal law. The Oregon Supreme Court, for instance, has suggested that states may not "affirmatively authorize" an individual to participate in conduct prohibited by federal law. It would appear that DOJ does not concur with this assessment, but rather supports the implementation of "strong and effective," state-run "regulatory and enforcement systems" that control who is authorized to participate in the production, distribution, and sale of marijuana. Forfeiture Either in addition to, or in lieu of bringing criminal prosecutions, DOJ may choose to rely more heavily on the civil forfeiture provisions of the CSA in order to disrupt the operation of marijuana dispensaries and production facilities. Forfeiture is a penalty associated with a particular crime in which property is confiscated or otherwise divested from the owner and forfeited to the government, in accordance with constitutionally required due process procedures. Property forfeiture is used both to enforce criminal laws and to deter crime. Forfeitures are classified as civil or criminal depending on the nature of the judicial procedure which ends in confiscation. Civil forfeiture is ordinarily the product of a civil, in rem (against the property) proceeding in which the property is treated as the offender. No criminal charges are necessary against the owner because the guilt or innocence of the property owner is irrelevant; it is enough that the property was involved in, or otherwise connected to, an illegal activity (in which forfeiture is authorized). Criminal forfeiture proceedings, on the other hand, are in personam (against the person) actions, and confiscation is only possible upon the conviction of the owner of the property and only to the extent of the defendant's interest in the property. Property that is subject to forfeiture includes both the direct and indirect proceeds of illegal activities as well as any property used, or intended to be used, to facilitate that crime. Section 511 of the CSA (21 U.S.C. §881) makes a wide array of property associated with violations of the CSA subject to seizure by the Attorney General and forfeiture to the United States. Property subject to the CSA's civil forfeiture provision includes any controlled substance that has been manufactured, distributed, dispensed, acquired, or possessed in violation of federal law, as well as any equipment, firearm, money, mode of transportation, or real property used or intended to be used to facilitate a violation of the CSA . In order to seize the covered property, the government need only show that the property is subject to forfeiture by a preponderance of the evidence. Once forfeited, the Attorney General may destroy the controlled substances seized, and sell the other property at public auction. After expenses of the forfeiture proceeding are recouped, excess funds are forwarded to the DOJ Asset Forfeiture Fund. Forfeiture proceedings are generally less resource intensive than a criminal prosecution and have been used in the past against medical marijuana dispensaries. In practice, DOJ would be able to seize and liquidate property, both real and personal, associated with marijuana production distribution and retail sale facilities operating in Colorado and Washington without bringing any criminal action. As explained above, a civil asset forfeiture proceeding is a civil proceeding against the property in question. Although an interested party may object to the seizure, given that such facilities are in clear violation of federal law, so long as the property is indeed being used for marijuana-related activities, it would appear unlikely that many successful challenges to these actions could be waged. Civil Lawsuit The broadest single action DOJ could take to prevent the implementation of the Colorado and Washington laws would be to directly challenge the laws in federal court on the grounds that they are preempted by federal law. Procedurally speaking, this lawsuit would look very much like the federal government's recent challenge of a controversial Arizona immigration law. If the federal government chose to file such a claim, and a federal court were to reach the merits, the court would likely be forced to directly confront the preemption issues identified in the previous sections. Additional Legal Consequences of Marijuana Use Given the Obama Administration's informal statements and current approach to medical marijuana, it would appear unlikely that DOJ is going to expend significant resources to investigate and prosecute individuals who merely possess and use less than one ounce of marijuana, in private, pursuant to Washington or Colorado law. However, even if the probability of becoming the subject of a federal criminal prosecution for a violation of the CSA appears remote, there does exist a number of other consequences under federal law that are triggered by the mere use of marijuana, even absent an arrest or conviction. Perhaps most prominent among these concerns is the possibility that marijuana users may lose their ability to purchase and possess a firearm, be barred from living in public housing, or find themselves subject to employment consequences in the workplace. Under the Gun Control Act, it is unlawful to possess, ship, transport, receive, or dispose of any firearm or ammunition to any person "who is an unlawful user of or addicted to any controlled substance" as defined by the CSA. Federal regulation defines an "unlawful user" or addict of a controlled substance as one who "has lost the power of self-control with reference to the controlled substance; and any person who is a current user of a controlled substance in a manner other than as prescribed by a licensed physician." Furthermore, a person may be considered an unlawful user even if he is not using the substance at the precise time the person seeks to acquire a firearm or receives or possesses a firearm. However, after state laws regarding medical marijuana were enacted, the Bureau of Alcohol, Tobacco Firearms, and Explosives (ATF) issued an open notice stating that "any person who uses or is addicted to marijuana, regardless of whether his or her State has passed legislation authorizing marijuana use for medicinal purposes, is an unlawful user of or addicted to a controlled substance, and is prohibited by Federal law from possessing firearms or ammunition." These individuals are to answer "yes" when asked on the firearms transfer form if they are unlawful users of a controlled substance. With the legalization of marijuana for recreational purposes in Colorado and Washington, it seems likely the ATF will take the same approach and consider a recreational user of marijuana to be a prohibited possessor of firearms regardless of whether the use is lawful under state provisions. In addition to potentially losing the ability to purchase and possess a firearm, federal law also establishes that "illegal drug users" are ineligible for federally assisted housing. 42 U.S.C. §§13661 and 13662 require public housing agencies and owners of federally assisted housing to establish standards that would allow the agency or owner to prohibit admission to, or terminate the tenancy or assistance of, any applicant or tenant who is an illegal drug user. An agency or an owner can take these actions if a determination is made, pursuant to the standards established, that an individual is "illegally using a controlled substance," or if there is reasonable cause to believe that an individual has a "pattern of illegal use" of a controlled substance that could "interfere with the health, safety, or right to a peaceful enjoyment of the premises by other residents." Under federal law, marijuana remains a controlled substance, thus, it would appear that any individual who the housing authority reasonably believes is using marijuana could be denied access to, or evicted from, federally assisted housing. With respect to medical marijuana, the Department of Housing and Urban Development previously concluded that public housing agencies or owners "must deny admission " to applicants who are using medical marijuana, but "have statutorily-authorized discretion with respect to evicting or refraining from evicting current residents on account of their use of medical marijuana." Some employers may face the loss of federal funding or could be subject to administrative fines if they do not maintain and enforce policies aimed at achieving a drug-free, safe workplace. The federal Drug-Free Workplace Act of 1988 (DFWA) imposes a drug-free workplace requirement on any entity that receives federal contracts with a value of more than $100,000 or that receives any federal grant. DFWA requires these entities to make ongoing, good faith efforts to comply with the drug-free workplace requirement in order to qualify, and remain eligible, for federal funds. Employees who work for federal contractors and grantees could potentially be subject to employer discipline or even termination if they use marijuana while on the job or show up for work under the influence of marijuana, even if the marijuana use is permitted by state law, as such usage may create risks to others' safety. (Similarly, the Drug-Free Schools and Communities Act Amendment of 1989 renders any institution of higher education ineligible for federal funding if it fails to establish and implement a program to prevent the abuse of illicit drugs by students and employees on campus grounds.) In addition, employers under the jurisdiction of the Occupational Safety and Health Administration have a general duty to provide to their employees a safe workplace under the Occupational Safety and Health Act. An employee who uses marijuana at work may be considered a workplace hazard if he or she poses a danger to other workers; employers thus risk administrative fines if they do not enforce policies that seek to avoid such a hazard. Congressional Response Several bills concerning marijuana have been introduced that reflect different approaches in response to the state legalization initiatives. H.R. 499 , Ending Federal Marijuana Prohibition Act of 2013. This bill would direct the Attorney General to issue a final order, within 60 days of the bill's enactment, that entirely removes marijuana from any CSA schedule. In addition, the bill would amend the CSA by adding a new Section 103 that declares that no provision of the CSA shall apply to marijuana, with the following new exception: shipping or transporting marijuana from anywhere outside a jurisdiction of the United States into such a jurisdiction where marijuana use, possession, or sale is prohibited. The bill would make conforming amendments to the CSA as well as other sections of the U.S. Code to expressly remove the word "marijuana" or "marihuana" from various penalty, enforcement, and definition provisions. The bill also would amend the Federal Alcohol Administration Act to create a new section entitled "Unlawful Businesses Without Marijuana Permit." This section would make it unlawful to engage in importing, shipping, or selling marijuana in interstate or foreign commerce, or cultivating, producing, manufacturing, packaging, or warehousing marijuana, without a permit issued by the Secretary of the Treasury. The criminal fine for persons engaging in such activity without a permit would be not more than $1,000, although the Secretary would be allowed to collect a payment from the violator of up to $500 in lieu of referring the violation to the Attorney General for prosecution. The Secretary would have to follow specific eligibility criteria set forth in the bill in selecting applicants for a marijuana business permit and the Secretary would also be required to establish a reasonable permit fee to cover the cost of implementing and overseeing all aspects of federal regulation of marijuana. Finally, the bill would grant the Food and Drug Administration the same authorities with respect to marijuana as it has with respect to alcohol, and would transfer all current functions of the DEA Administrator relating to marijuana enforcement to the Director of the Bureau of Alcohol, Tobacco, Firearms and Explosives. H.R. 501 , Marijuana Tax Equity Act of 2013. This bill would amend the Internal Revenue Code to impose an excise tax on the sale of marijuana by the producer or importer of the drug, equivalent to 50% of the price for which it was sold. In addition, the bill would require anyone engaged in a "marijuana enterprise" to pay an occupational tax in the amount of $1,000 per year (for producers, importers, or manufacturers of marijuana), or $500 per year (for distributors, retailers, or anyone who transports, stores, or displays marijuana products). The bill would require all individuals, prior to commencing business as a marijuana enterprise, to obtain a permit from the Secretary of the Treasury. Finally, the bill would impose civil and criminal penalties for violation of the duty to pay the new taxes regarding marijuana as well as engaging in business as a marijuana enterprise without obtaining the requisite permit. H.R. 689 , States' Medical Marijuana Patient Protection Act. This bill would direct the Secretary of Health and Human Services, in cooperation with the National Academy of Sciences' Institute of Medicine, to submit to the DEA Administrator a recommendation on the scheduling of marijuana within the CSA, although the bill precludes the Secretary from selecting either Schedule I or II. The Secretary would be required to issue such recommendation within 180 days of the enactment of the bill, and the DEA administrator would need to issue a proposed rulemaking for the rescheduling of marijuana in accordance with the recommendation within a year of enactment of the bill. The legislation declares that no provision of the CSA, nor any provision of the Federal Food, Drug, and Cosmetic Act, shall prohibit or otherwise restrict in a state where the medical use of marijuana is lawful under state law, the production, prescription, transportation, distribution, possession, or use of marijuana for medical use. Finally, the bill would require the Attorney General, within 180 days of the bill's enactment, to transfer control over access to marijuana for research purposes (currently the responsibility of the National Institute on Drug Abuse, a component of the National Institutes of Health, U.S. Department of Health and Human Services) to an Executive Branch entity "that is not focused on researching the addictive properties of substances." The bill would require such entity to "take appropriate actions to ensure that an adequate supply of marijuana is available for therapeutic and medicinal research." H.R. 710 , Truth in Trials Act. This bill would amend the federal criminal code (Title 18 of the U.S. Code ) to provide an affirmative defense for conduct regarding the medical use of marijuana in a prosecution or proceeding for any marijuana-related offense under any federal law. Individuals asserting such defense must establish, by a preponderance of the evidence, that their marijuana-related activities were conducted in compliance with state law regarding medical use of marijuana. The bill would require that any property seized by the government in connection with such prosecution or proceeding be returned to the owner within 10 days of the court finding that the owner has established a valid affirmative defense. Finally, the bill would permit a court to hold liable for the marijuana-related offense a defendant who has engaged primarily, but not exclusively, in medical marijuana activities, only with respect to the amount of marijuana that was used for nonmedical purposes. H.R. 784 , States' Medical Marijuana Property Rights Protection Act. This bill would amend the civil forfeiture provisions of the CSA to provide that no real property may be subject to civil forfeiture to the United States due to medical marijuana-related activities that are performed in compliance with state law. H.R. 964 , Respect States' and Citizens' Rights Act of 2013. This bill would amend the CSA's preemption provision, Section 708 (codified at 21 U.S.C. §903), to provide a specific rule of construction pertaining to state marijuana laws: that no provision of the CSA shall be construed as—(1) indicating an intent on the part of Congress to occupy the field in which that provision operates, including criminal penalties, to the exclusion of state law regarding marijuana, or (2) preempting any such state law. H.R. 1523 , Respect State Marijuana Laws Act of 2013. This bill would amend federal law to provide that no provision of the CSA related to marijuana may be applied to any person acting in compliance with state laws relating to marijuana. H.R. 1635 , National Commission on Federal Marijuana Policy Act of 2013. This bill would establish a federal commission to undertake a comprehensive review of current federal policies toward marijuana. H.R. 2652 , Marijuana Businesses Access to Banking Act of 2013. This bill would provide legal immunity from federal criminal prosecution to banks and credit unions that provide financial services to marijuana-related businesses that are operating pursuant to state law.

May a state authorize the use of marijuana for recreational purposes even if such use is forbidden by federal law? This novel and unresolved legal question has vexed judges, politicians, and legal scholars, and it has also generated considerable public debate among supporters and opponents of "legalizing" the recreational use of marijuana. Under the federal Controlled Substances Act (CSA), the cultivation, distribution, and possession of marijuana are prohibited for any reason other than to engage in federally approved research. Yet 18 states and the District of Columbia currently exempt qualified users of medicinal marijuana from penalties imposed under state law. In addition, in November 2012, Colorado and Washington became the first states to legalize, regulate, and tax small amounts of marijuana for nonmedicinal (so-called "recreational") use by individuals over the age of 21. Thus, the current legal status of marijuana appears to be both contradictory and in a state of flux: as a matter of federal law, activities related to marijuana are generally prohibited and punishable by criminal penalties; whereas at the state level, certain marijuana usage is increasingly being permitted. Individuals and businesses engaging in marijuana-related activities that are authorized by state law nonetheless remain subject to federal criminal prosecution or other consequences under federal law. The Colorado and Washington laws that legalize, regulate, and tax an activity the federal government expressly prohibits appear to be logically inconsistent with established federal policy toward marijuana, and are therefore potentially subject to a legal challenge under the constitutional doctrine of preemption. This doctrine generally prevents states from enacting laws that are inconsistent with federal law. Under the Supremacy Clause, state laws that conflict with federal law are generally preempted and therefore void and without effect. Yet Congress intended that the CSA would not displace all state laws associated with controlled substances, as it wanted to preserve a role for the states in regulating controlled substances. States thus remain free to pass laws relating to marijuana, or any other controlled substance, so long as they do not create a "positive conflict" with federal law, such that the two laws "cannot consistently stand together." This report summarizes the Washington and Colorado marijuana legalization laws and evaluates whether, or the extent to which, they may be preempted by the CSA or by international agreements. It also describes and analyzes the U.S. Department of Justice's (DOJ's) response to these legalization initiatives as set forth in a memorandum sent to all federal prosecutors in late August 2013. The report then identifies certain noncriminal consequences that marijuana users may face under federal law. Finally, the report closes with a description of selected legislative proposals introduced in the 113th Congress relating to the treatment of marijuana under federal law, including H.R. 499 (Ending Federal Marijuana Prohibition Act of 2013); H.R. 501 (Marijuana Tax Equity Act of 2013); H.R. 689 (States' Medical Marijuana Patient Protection Act); H.R. 710 (Truth in Trials Act); H.R. 784 (States' Medical Marijuana Property Rights Protection Act); H.R. 964 (Respect States' and Citizens' Rights Act of 2013); H.R. 1523 (Respect State Marijuana Laws Act of 2013); H.R. 1635 (National Commission on Federal Marijuana Policy Act of 2013); and H.R. 2652 (Marijuana Businesses Access to Banking Act of 2013).

Changes in Federal Spending Assuming that the BCA's Automatic Spending Reductions are Implemented On January 2, 2013, a set of "across-the-board" reductions in non-exempt programs are set to take effect via a sequestration process. These cuts will affect the remainder of FY2013 and will occur unless Congress and the President act to cancel the cuts. Between FY2014 and FY2021, the dollar amount of the cuts will remain the same, though the cuts will be implemented in a different way. In those years, the reductions to mandatory spending will be implemented via a sequestration process, while the reductions to discretionary spending will be made via a lowering of the discretionary spending caps, effectively leaving it up to Congress to decide, via the appropriations process, how the cuts would be implemented under the new, lowered caps. Because Congress retains control over how the discretionary spending cuts in later years (FY2014-FY2021) will be implemented, they can choose to target specific programs, rather than have the more non-discriminatory cuts made via the sequester. The automatic reductions will total $1.2 trillion over the FY2013-FY2021 period. Cuts to discretionary programs as a result of the automatic spending reduction process would be in addition to the cuts to discretionary programs resulting from the BCA discretionary caps. Based on estimates issued by OMB and CBO, Table 1 shows the reductions in spending to different portions of the budget in dollar terms and percentage terms from this process. Because large portions of the budget are exempt from the BCA's automatic reduction process, the effects on non-exempt programs are much larger than if the same reductions were spread over all programs (i.e., there were no exemptions). For example, total spending (gross outlays) would be reduced by about 2.5% in FY2014, but, as shown in Table 1 , CBO estimates the automatic process would reduce discretionary caps for defense by 9.8% and non-defense by 7.4% in FY2014. It would also reduce non-exempt mandatory outlays by 2% for Medicare, as stipulated by the BCA, and, CBO estimates, by 7.4% for other non-defense, non-exempt mandatory accounts in FY2014. Table 2 shows how the deficit reduction from the BCA and various replacement proposals (discussed later in more detail) will be distributed across discretionary and mandatory spending categories. The amount of deficit reduction shown in Table 2 differs from the amount of the reduction in budgetary resources because the deficit is measured as the difference between outlays and revenue. There is a lag in the time a cut to budgetary resources would result in a reduction in outlays. Due to the provisions of the BCA, no changes are made to revenue in the automatic process under that law; however, some proposals to replace the automatic cuts recommend raising revenues to achieve the desired deficit reduction. Proposals to Replace the FY2013 Sequester Some Members of Congress have offered proposals for repealing or modifying the automatic spending reductions before they go into effect. In some instances, the proposals replace the entire process through FY2021, and in other instances, they only replace the process in FY2013. The President's FY2013 budget proposal eliminates the automatic spending reductions for all nine years and replaces them with alternative measures to reduce the deficit. The Sequester Replacement Reconciliation Act ( H.R. 5652 ) and the Van Hollen Amendment to H.R. 5652 propose eliminating different elements of the automatic spending reductions in FY2013 only and replacing them with alternative measures to reduce the deficit. These measures and their resulting levels of deficit reductions are shown in Table 2 . Other alternatives have been proposed, but in order to facilitate comparisons between the different proposals, only those with CBO or OMB cost estimates having a budgetary impact are included in Table 2 . Because this report is not intended to be a legislative tracking report, other legislation will only be included in this report if it has been issued a CBO score or been passed by the House or the Senate. President Obama's Proposal In his FY2013 budget, President Obama proposes replacing the BCA automatic cuts with prescribed spending cuts and tax increases. The largest of these proposals include allowing the 2001/2003/2010 tax cuts for single filers making over $200,000 and married joint filers making over $250,000 to expire; savings generated from changes to Medicare, Medicaid, agriculture, and other mandatory programs; and placing caps on spending for Overseas Contingency Operations (OCO). Together, this proposal totals $2,221 billion more in deficit reduction (see Table 1 ) than what would be achieved by the BCA's automatic spending reduction process between FY2012 and FY2022. Sequester Replacement Reconciliation Act (H.R. 5652) The House-passed FY2013 budget resolution proposes to replace the Budget Control Act's automatic cuts with spending cuts to be achieved elsewhere. Pursuant to instructions included in the FY2013 budget resolution, the Sequester Replacement Reconciliation Act of 2012 ( H.R. 5652 ), as considered by the House, proposes to replace portions of the FY2013 sequestration with spending cuts achieved elsewhere while leaving the FY2014-FY2021 automatic cuts in place. The legislation would cancel the sequester of approximately $98 billion in discretionary defense, discretionary non-defense, and mandatory defense FY2013 funding scheduled to take place on January 2, 2013. The sequestration of FY2013 non-defense mandatory funding of approximately $12 billion would remain in place. In exchange for eliminating the majority of the FY2013 automatic spending reductions, H.R. 5652 would lower the current FY2013 cap on discretionary budget authority set by the BCA of $1,047 billion to $1,028 billion and would cut other mandatory non-defense programs. The change to mandatory programs include alterations of the SNAP benefits and eligibility criteria, modifications to certain housing and financial authorities, alterations to the provisions related to health insurance exchanges established by the Affordable Care Act, adjustments to the required retirement contribution rates paid by federal employees and Members of Congress, and changes to Medicaid and CHIP. If enacted, this measure would reduce the deficit by $262 billion more than what would be achieved by the BCA's FY2013 automatic spending reductions over the FY2012-FY2022 period (see Table 2 ). The deficit in FY2013 itself would be higher as a result of H.R. 5652 than it otherwise would have been had the BCA's automatic spending reductions remained in place. This measure was passed by the House on May 10, 2012, by a vote of 218-199. On December 20, 2012, the House passed the Spending Reduction Act of 2012 ( H.R. 6684 ) by a vote of 215-209. This bill is a modified version of H.R. 5652 , as previously passed by the House. H.R. 6684 was reportedly considered as a companion measure to legislation proposing to extend the current tax rates for those with annual incomes under $1 million as part of the debate over how to resolve various tax and spending issues related to the fiscal cliff. If enacted, this measure would reduce the deficit by $237 billion over the FY2013-FY2022 period. The deficit reduction contained in H.R. 6684 differs from H.R. 5652 primarily due to the assumed enactment date, changes to various effective dates, and the removal of provisions related to flood insurance reauthorization that had already been signed into law. Van Hollen Amendment to H.R. 5652 Representative Chris Van Hollen proposed a substitute amendment to H.R. 5652 . His proposal would have replaced the entire FY2013 sequester with a series of revenue increases and spending reductions. Changes in spending would have been achieved mainly by ending the direct payment program for agricultural producers. Among the revenue measures contained in this amendment were a new minimum tax for taxpayers with adjusted gross income of greater than $1 million, increased retirement contributions paid by Members of Congress, and limits on certain tax deductions used by oil and gas companies. If enacted, this measure would reduce the deficit by $30 billion more than what would be achieved by the BCA's FY2013 automatic spending reductions over the FY2012-FY2022 period (see Table 2 ). The deficit in FY2013 through FY2015 would be higher as a result of this amendment than it otherwise would have been had the BCA's automatic spending reductions remained in place. This measure was not made in order by the House Rules Committee, and therefore was not offered. National Security and Job Protection Act (H.R. 6365) On September 13, the House passed the National Security and Job Protection Act ( H.R. 6365 ), introduced by Representative Allen West, by a vote of 223-196. The act cancels the FY2013 sequester on discretionary defense, discretionary non-defense, and mandatory defense contingent upon enactment of H.R. 5652 , or an alternative measure that would achieve outlay reductions equal to those to be achieved by the FY2013 sequester in those categories. (The sequester of mandatory non-defense spending would still occur.) The legislation also lowers the current FY2013 cap on discretionary spending from $1,047 billion to $1,028 billion and combines the separate discretionary spending caps for defense and nondefense into one universal cap on discretionary spending. Though this legislation has been scored by CBO, it was determined not to have budgetary impact. Legislation Requiring Disclosure of Sequester Impact On August 7, 2012, President Obama signed into law the Sequestration Transparency Act of 2012 (STA; P.L. 112-155 ). The act requires the President, with the assistance of OMB and federal agencies, in consultation with the House and Senate Appropriations Committees, to submit a "detailed" report within 30 days of enactment containing the uniform percentage reduction and dollar amount reductions for each account, and each program, project, and activity (PPA) within those accounts, required under the sequestration scheduled to occur on January 2, 2013. The report also is required to include a list identifying all exempt discretionary and mandatory spending accounts. The STA report was released on September 14, 2012. In addition to providing some details on the level of the reductions themselves, the report made several other important points. First, it mentioned that the estimates contained in the report were preliminary and, as stipulated by the STA, were based generally on the assumption that FY2013 appropriations are funded at the FY2012 level. Therefore, both the percentage reduction and resulting dollar amount of the reductions within specific accounts as listed in the report are likely to change if the sequester were to be implemented on January 2, 2013. Second, the classifications of certain accounts as exempt or non-exempt had not yet been determined; federal administrative expenses being one example. Once final determinations are made, any changes to the size of the sequestrable base would alter the size of the reductions. Third, OMB also stated that it was unable to show the amount of the reductions at the PPA level due to the time constraints imposed by the STA. Therefore, the reductions in the report are shown at the budget account level, which often can contain several PPAs. In addition to the STA, the BCA requires OMB to submit a report containing information regarding the calculations and reductions required under the automatic process, including the FY2013 sequestration, on January 2, 2013, and with the President's budget submission each year thereafter. No other reporting requirements are included in the BCA itself. However, OMB has issued responses to questions raised by Members of Congress regarding certain sequestration implementation issues. In a May 25, 2012, letter to House Budget Committee Chairman Paul Ryan, OMB's Acting Director Jeffrey Zients wrote that the Administration had determined, reiterating from an earlier letter, all programs administered by VA, including Veterans' Medical Care, were exempt from sequestration. In a June 15, 2012, letter to House Committee Chairman Howard P. "Buck" McKeon, Ileana Ros-Lehtinen, and Mike Rogers, Mr. Zients wrote that the Administration has "identified no statutory basis for generally exempting OCO funds from sequestration." Finally, on July 31, 2012, Zients sent a letter to Speaker Boehner notifying him of President Obama's intent to exempt military personnel accounts from the FY2013 sequestration.

The Budget Control Act of 2011 (BCA; P.L. 112-25) provided for an increase in the statutory limit on the public debt in conjunction with a variety of measures to reduce the budget deficit. Included in these measures was the creation of a Joint Select Committee on Deficit Reduction, which was tasked to develop and submit a plan to Congress containing deficit reduction to total at least $1.2 trillion over the FY2012-FY2021 period. However, because the committee did not report out recommendations, the BCA's automatic spending reduction process was triggered. This process is set to begin on January 2, 2013. Both President Obama and some Members of Congress have offered proposals for repealing or modifying the automatic spending reductions. The President's FY2013 Budget Proposal eliminates the automatic spending reductions for all nine years and replaces them with alternative measures to reduce the deficit. The largest of these proposals include allowing the 2001/2003/2010 tax cuts for singles making over $200,000 and households making over $250,000 to expire; savings generated from changes to Medicare, Medicaid, agriculture, and other mandatory programs; and placing caps on spending on Overseas Contingency Operations (OCO). Together, this proposal totals $2,221 billion more in deficit reduction than what would be achieved by the BCA's automatic spending reduction process between FY2012 and FY2022. The Sequester Replacement Reconciliation Act of 2012 (H.R. 5652), agreed to by the House on May 10, 2012, would cancel the sequester of approximately $98 billion in discretionary defense, discretionary non-defense, and mandatory defense FY2013 funding scheduled to take place on January 2, 2013; would lower the current FY2013 cap on discretionary budget authority set by the BCA of $1,047 billion to $1,028 billion; and would cut other mandatory non-defense programs. If enacted, this measure would reduce the deficit by $262 billion more than what would be achieved by the BCA's FY2013 automatic spending reductions over the FY2012 to FY2022 period. A similar proposal, the Spending Reduction Act of 2012 (H.R. 6684), was also passed by the House on December 20, 2012. Representative Chris Van Hollen offered a substitute amendment to H.R. 5652. His proposal would replace the entire FY2013 sequester with a series of revenue increases and spending reductions. If enacted, this measure would reduce the deficit by $30 billion more than what would be achieved by the BCA's FY2013 automatic spending reductions over the FY2012 to FY2022 period. This measure was not made in order by the House Rules Committee. On September 13, the House passed the National Security and Job Protection Act (H.R. 6365), introduced by Representative Allen West, by a vote of 223-196. The act cancels the FY2013 sequester on discretionary defense, discretionary non-defense, and mandatory defense contingent upon enactment of H.R. 5652, or an alternative measure that would achieve outlay reductions equal to those to be achieved by the FY2013 sequester in those categories. This legislation was determined by CBO to not have a budgetary impact. In addition to the measures proposed above to replace the BCA's automatic spending cuts, President Obama signed into law the Sequestration Transparency Act of 2012 (H.R. 5872) on August 7, 2012. This legislation requires OMB, in consultation with the House and Senate Appropriations Committees, to submit a detailed report within 30 days of enactment containing information on how the BCA's FY2013 automatic spending reductions will affect each non-exempt program, project, and activity. The STA report was released on September 14, 2012.

Status of Legislation This report summarizes key provisions applicable to Medicaid and the Children's Health Insurance Program (CHIP) in H.R. 3590 , the Patient Protection and Affordable Care Act (PPACA), as passed by the Senate on December 24, 2009. The bill, a comprehensive health reform proposal, resulted from the merger of two separate Senate health reform bills, , the Affordable Health Choices Act, and S. 1796 , America's Healthy Future Act of 2009. S. 1679 was ordered reported by the Senate Committee on Health, Education, Labor and Pensions (HELP), July 15, 2009, while S. 1796 was ordered reported by the Senate Committee on Finance, October 19, 2009. The Senate voted to take up S.Amdt. 2786 on November 21, 2009, after invoking cloture on the motion to proceed to consider the legislation. The Patient Protection and Affordable Care Act was passed by the Senate on December 24, 2009, as an amendment in the nature of a substitute to H.R. 3590 , a homeowner tax credit bill that passed the House unanimously on October 8, 2009. Congressional Budget Office and Joint Committee on Taxation Analysis On March 11, 2010, the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) updated their estimate of the direct spending and revenue effects of H.R. 3590 , the Patient Protection and Affordable Car Act (PPACA). The updated estimate reflects the bill as it was passed by the Senate on December 24, 2009. The revised projection of PPACA assumes that federal deficits would be reduced by $118 billion over the 10-year period of 2010-2019 and, by 2019, would insure 94% of the non-elderly, legally present U.S. population. According to the CBO, the gross 10-year cost of the exchange subsidies ($449 billion), increased federal Medicaid and CHIP outlays ($386 billion), and tax credits for small employers ($40 billion) would total $875 billion. These costs would be partially offset by $251 billion over the 10-year budget window, from four sources: net revenues from the excise tax on high-premium insurance plans ($149 billion); penalty payments by uninsured individuals ($15 billion); penalty payments by employers whose workers received subsidies via the exchanges ($27 billion); and other budgetary effects, mostly on tax revenues, associated with the expansion of federally subsidized insurance ($60 billion). Taking into account these offsets, the net cost of the coverage provisions, according to the CBO analysis, would be $624 billion over 10 years. Overview of the Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act—herein referred to as the Senate bill—consists of 10 titles that cover the following general topics: Title I–health insurance; Title II–Medicaid, maternal and child health; Title III–Medicare, quality of care; Title IV–prevention and wellness; Title V–health workforce; Title VI–transparency, program integrity; Title VII–drugs and biologics; Title VIII–long-term care insurance; Title IX–revenues; and Title X-strengthening quality, affordable health care for all Americans. This report summarizes key Medicaid and CHIP provisions in the bill. To help highlight the Senate bill's most important Medicaid and CHIP health reforms, applicable provisions were grouped into the following six major issue areas: eligibility, benefits, financing, program integrity, demonstrations and grant funding, and miscellaneous Medicaid and CHIP provisions. The eligibility issue area may include the bill's most dramatic health reforms applicable to Medicaid, namely a coverage expansion for nonelderly, non-pregnant individuals with income up to 133% of the federal poverty level (FPL). This reform not only would expand eligibility to a group of individuals who were previously ineligible for Medicaid (low income childless adults), but also would raise Medicaid's mandatory income eligibility level for certain existing groups from 100% to 133% of the FPL. In addition, federal financial participation (FFP) would be increased for these new eligibility groups. Further, the bill would encourage states to improve outreach, streamline enrollment, and coordinate with the American Health Benefit Exchanges (Exchange). Other eligibility reforms would require states to maintain current Medicaid and CHIP coverage levels—through 2013 for adults and 2019 for children. The bill also would require states to maintain the current CHIP structure through FY2019, but would not provide federal CHIP appropriations beyond FY2013. The benefit reforms proposed in the bill for Medicaid and CHIP, would add new mandatory and optional benefits. Mandatory benefit additions would include premium assistance for employer-sponsored health insurance, coverage of free standing birth clinics, and tobacco cessation services for pregnant woman. The bill also would authorize states to offer new optional benefits such as preventive services for adults, health homes, and a program to permit Medicaid beneficiaries first choice to remain in their community, rather than institutional care. Under financing reforms, the bill would introduce measures to reduce the growth of Medicaid expenditures and would increase federal matching payments for eligibility expansion. Cost control reforms include proposed reductions in Medicaid disproportionate share hospital (DSH) payments, reduced expenditures for prescription drugs and payment reforms to reduce inappropriate hospital expenditures for health-care acquired conditions. The bill would give states and other stakeholders new program integrity enforcement and monitoring tools as well as impose new data reporting and oversight requirements on states and providers. Additional Medicaid and CHIP program integrity provisions would include requirements for states to implement initiatives used by the Medicare program, such as a national correct coding initiative and a recovery audit contract program. The bill also proposes a broad nursing home accountability initiative that would add a number of requirements to improve the transparency of information on facilities and chains as well as provide LTC consumers with information on the quality and performance of nursing homes. The bill includes a number of demonstrations, pilot programs, and grants. These proposals would provide the Secretary of the Department of Health and Human Services (the Secretary) and state Medicaid and CHIP programs with opportunities to test models for improving the delivery, quality, and payment for services. Finally, the Senate bill would include a number of miscellaneous Medicaid and CHIP reforms. These proposals would add several offices within the Centers for Medicare and Medicaid Services (CMS) to work to better coordinate care across the Medicare and Medicaid/CHIP programs. One of these offices would be dedicated to improve coordination for beneficiaries eligible for both Medicare and Medicaid (dual eligibles) and another would add a Medicare and Medicaid innovation center, which may permit states to have more control over both Medicare and Medicaid expenditures for dual eligibles. Unless otherwise indicated, the Secretary of the Department of Health and Human Services is referred to as "the Secretary" throughout this report. Eligibility Medicaid is a means-tested entitlement program operated by states within broad federal guidelines. To qualify, an individual must meet both categorical (i.e., must be a member of a covered group such as children, pregnant women, families with dependent children, the elderly, or the disabled), and financial eligibility requirements. Medicaid's financial requirements place limits on the maximum amount of assets and income individuals may possess to participate in Medicaid. Additional guidelines specify how states should calculate these amounts. The specific asset and income limitations that apply to each eligibility group are set through a combination of federal parameters and state definitions. Consequently, these standards vary across states, and different standards apply to different population groups within states. State application of income counting rules result in expanding eligibility to higher-income individuals. Of the approximately 50 different eligibility "pathways" into Medicaid, some are mandatory while others may be covered at state option. Examples of groups that states must provide Medicaid to include pregnant women and children under age six with family income below 133% of the federal poverty level (FPL), and poor individuals with disabilities or poor individuals over age 64 who qualify for cash assistance under the Supplemental Security Income (SSI) program. Three examples of groups that states may choose to cover under Medicaid include pregnant women and infants with family income between 133% FPL and 185% FPL, and "medically needy" individuals who meet categorical requirements with income up to 133% of the maximum payment amount applicable under states' former Aid to Families with Dependent Children (AFDC) programs based on family size. "Childless adults" (nonelderly adults who are not disabled, not pregnant and not parents of dependent children), for example, are generally not eligible for Medicaid, regardless of their income. The measure would make several changes to Medicaid eligibility. Among the provisions that would impact eligibility, the bill would add two new mandatory eligibility groups, and several new optional eligibility groups. In addition, it would make several modifications to existing eligibility groups, and add provisions to facilitate outreach and enrollment in Medicaid, CHIP, and the Health Insurance Exchange. Medicaid and Health Insurance Reform Medicaid Coverage for the Lowest Income Populations (§2001, §10201) The measure would create a new mandatory Medicaid eligibility category for all non-elderly, non-pregnant individuals (e.g., childless adults, and certain parents) who are not entitled to or enrolled in Medicare Part A or enrolled in Medicare Part B, and are otherwise ineligible for Medicaid. For such individuals (hereafter referred to as "newly eligible" individuals), the proposal would establish 133% of FPL based on modified gross income (or MGI as described below), as the new mandatory minimum Medicaid income eligibility level. As a conforming measure, the bill also would change the mandatory Medicaid income eligibility level for children ages 6 to 19 from 100% FPL to 133% FPL (as applies to children under age 6). Thus, in 2014, most non-elderly citizens up to 133% FPL would be eligible for Medicaid. During the transitional period between April 1, 2011 and January 1, 2014, states would have the option to expand Medicaid to "newly eligible" individuals as long as the state does not extend coverage to (1) individuals with higher income before those with lower income, or (2) parents unless their child(ren) are enrolled in the state plan, a waiver, or in other health coverage. However, during the optional phase-in period, no additional federal financial assistance would be available for covering such individuals. Beginning in 2014, states would be required to extend Medicaid to the "newly eligible" group, and additional federal financial assistance would be provided to all states to share in the cost of covering such individuals. These financing arrangements are described in more detail under the Financing section of this report. The bill would also allow states to make a "presumptive eligibility" determination (subject to guidance established by the Secretary) for "newly eligible" individuals or for individuals eligible for family coverage under Section 1931 of the Social Security Act (SSA), if the state already allows for presumptive eligibility determinations for children, and pregnant women. That is, states may enroll such individuals for a limited period of time before completed Medicaid applications are filed and processed, based on a preliminary determination by Medicaid providers of likely Medicaid eligibility. "Newly eligible" individuals must then formally apply for coverage within a certain timeframe to continue receiving this benefit. Under current law, such presumptive eligibility determinations can be made for children, pregnant women, and certain women with breast or cervical cancer. Financial Eligibility Requirements for "Newly Eligible" Populations Determined Using Modified Gross Income (MGI) (§2001, §10201) Certain income disregards (i.e., type of expenses such as child care costs or block of income disregards where a specified portion of family income is not counted), and assets or resource tests would no longer apply when assessing an individual's income to determine financial eligibility for Medicaid. Instead, income eligibility for an individual would be based on MGI, or in the case of an individual in a family greater than one, the household income of such family. MGI and household income would also be used to determine applicable premium and cost sharing amounts under the state plan or waiver. Financial Eligibility Requirements for Certain Populations Eligible Under Current Law (§2001, §2002, §10201) Existing Medicaid income counting rules (rather than MGI) would continue to apply for determining eligibility for certain groups, including (1) individuals that are eligible for Medicaid through another federal or state assistance program (e.g., foster care children and individuals receiving SSI); (2) the elderly; (3) certain disabled individuals who qualify for Medicaid on the basis of being blind or disabled (or being treated as such) without regard to whether the individual is eligible for SSI; (4) the medically needy; and (5) enrollees in a Medicare Savings Program (e.g., Qualified Medicare Beneficiaries for which Medicaid pays the Medicare premiums, coinsurance and deductibles). In addition, MGI would not affect eligibility determinations through Express Lane (to determine whether a child has met Medicaid or CHIP eligibility requirements), for Medicare prescription drug low-income subsidies, or for determinations of eligibility for Medicaid long term care services (e.g., nursing facility services, a level of care in any institution equivalent to nursing facility services, home or community-based services furnished under the state plan or a waiver, and other related Medicare long-term care services). Any individual enrolled in Medicaid (under the state plan or a waiver) on January 1, 2014, who would be determined ineligible for medical assistance solely because of the application of the new MGI or household income counting rule would remain Medicaid eligible (and subject to the same premiums and cost-sharing as applied to the individual on that date) until the later of March 31, 2014, or his/her next Medicaid eligibility redetermination date. Finally, state use of MGI and household income to determine income eligibility for Medicaid (and for any other purposes applicable under the state plan) would not affect or limit the application of (1) the state plan requirement to determine an individual's income when a Medicaid application is processed, or (2) Medicaid rules regarding sources of countable income. In general, these provisions would be effective as of January 1, 2014. For states who choose to transition to MGI earlier, these provisions would be effective when enacted by their individual state legislatures. Medicaid Benefit Coverage for The New Mandatory Eligibility Group (§2001, §10201) Medicaid standard benefits are identified in federal statute and regulations and include a wide range of medical care and services. Some Medicaid benefits are mandatory, meaning they must be made available by states to the majority of Medicaid populations (i.e., those classified as "categorically needy"), while other benefits may be covered at state option. As an alternative to providing all of the mandatory and selected optional benefits under traditional Medicaid, states have the option to enroll certain state-specified groups in benchmark and benchmark-equivalent benefit plans, as permitted under Section 1937 of the SSA. For more information on benchmark and benchmark-equivalent coverage, including the proposed changes to this coverage under the bill, see the Benefits section of this report. "Newly eligible" individuals would receive either benchmark or benchmark-equivalent coverage consistent with the requirements of Section 1937 of the SSA, (excluding the "newly eligible" who meet the definition of currently exempted populations under Section 1937, such as blind or disabled persons, hospice patients, etc.). Maintenance of Medicaid Income Eligibility (MOE) (§2001, §10201) The measure includes a Medicaid eligibility maintenance of effort (MOE). States would not be eligible for Medicaid payments from the date of enactment through the date which the Secretary determines that an exchange (established by the state under Section 1311 of this bill) is fully operational if the eligibility standards, methodologies, or procedures under its state Medicaid plan (including any waivers) are more restrictive than the eligibility standards, methodologies, or procedures, under such plan (or waiver) that are in effect as of the date of enactment. The requirement to use MGI when determining Medicaid income eligibility (as described below) would not affect compliance with the MOE requirement. MOE would continue through September 30, 2019 for any child who is under age 19 (or such higher age as the state may have elected). States would be permitted to expand Medicaid eligibility or move populations covered under a waiver to state plan coverage at the same (or higher) eligibility level that applied under the waiver without affecting compliance with the Medicaid eligibility MOE requirements. Between January 1, 2011 and December 31, 2013, a state would be exempt from the MOE requirement for optional non-pregnant, non-disabled adult populations whose income is above 133% FPL if the state certifies to the Secretary that the state is currently experiencing a budget deficit or projects to have a budget deficit in the following state fiscal year. The state may make such certification on or after December 31, 2010. For such states, the MOE exemption would apply from the date the state submits the certification to the Secretary through December 31, 2013. States would be required to establish Medicaid income eligibility thresholds for state plan services (or waiver services) using MGI levels that are not less than the effective income eligibility levels applicable as of the date of enactment of H.R. 3590 . To meet the MOE requirements during the transition to MGI and household income (described above), among other requirements, states would be required to work with the Secretary to establish an equivalent income test that ensures that individuals eligible for Medicaid services as of the date of enactment do not lose coverage. The Secretary would be permitted to waive provisions of Medicaid or CHIP to ensure that states establish income and eligibility determination systems that protect beneficiaries. Medicaid Coverage for Former Foster Care Children (§2004, §10201) Except for children under age 19 and adults age 64 and older, age is generally not a factor in determining eligibility under Medicaid. Instead, youth age 19 or 20 may qualify for Medicaid coverage under several of the existing mandatory and optional eligibility pathways, three of which target individuals who were recently discharged from the child welfare system (i.e., Chafee Foster Care Independence Program (CFCIP)/Title IV-E, "Ribicoff" children, and youth participating in State Adoption Assistance Agreements). The measure would add a new mandatory Medicaid eligibility group to include individuals who are (1) under 26 years of age; (2) not eligible or enrolled under existing Medicaid mandatory eligibility groups, or who are described in any of the existing Medicaid mandatory eligibility groups but have income that exceeds the upper income eligibility limit established under any such group; (3) were in foster care under the responsibility of the state on the date of attaining 18 years of age (or such higher age as the state has elected); and (4) were enrolled in the Medicaid state plan or under a waiver while in such foster care. The bill would also allow states to make "presumptive eligibility" determinations for these individuals. That is, states may enroll such individuals for a limited period of time before completed Medicaid applications are filed and processed, based on a preliminary determination by Medicaid providers of likely Medicaid eligibility. (Such individuals must then formally apply for coverage within a certain timeframe to continue receiving Medicaid.) The measure would also add this new group of foster care youth to those exempt from enrollment in Medicaid benchmark plans (even if such individuals also meet the definition of the "newly eligible" mandatory expansion population (described above)). Benchmark and benchmark equivalent plans are permitted as an alternative to regular Medicaid benefits under Section 1937 of the Social Security Act, and are nearly identical to those offered through CHIP. This provision would be effective as of January 1, 2014. Protection for Recipients of Home- and Community-Based Services Against Spousal Impoverishment (§2404) Generally, when a married individual applies to Medicaid, the combined income and assets of the couple are considered together to determine program eligibility. Medicaid law contains special rules; however, for situations in which one spouse applies for nursing home benefits under Medicaid and the other spouse does not apply for Medicaid coverage. Under these rules, referred to as spousal impoverishment protections, spouses remaining in the community do not have to meet the same stringent income and asset tests as their counterparts. By allowing them to retain higher amounts of income and assets, these protections are intended to better enable community spouses to continue residing in their homes or other community-based settings. These protections are also intended to prevent the impoverishment of those spouses who do not apply to Medicaid. Under Medicaid law, states are required to apply spousal impoverishment protections to applicants for Medicaid nursing home care, yet are given the option to apply these protections to applicants for certain home and community-based services (e.g., waivers under Sections 1915(c) and (d), and Section 1115 of SSA). In addition, Medicaid law prohibits states from applying spousal impoverishment protections to people who qualify for certain Medicaid-covered home and community-based services through an eligibility group known as the medically needy. The medically needy group allows for the enrollment in Medicaid of certain persons with exceptionally high medical expenses. As spousal impoverishment rules apply only for the purposes of income and resource counting for eligibility (and for post-eligibility determination of income, not discussed here), they are not used when deciding which Medicaid-covered benefits would be offered to a particular beneficiary. Since the passage of the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ), some confusion has arisen about whether the new state home and community-based services (HCBS) state plan benefit (authorized under Section 1915(i) of SSA), is also an eligibility pathway into Medicaid. It is not. This HCBS plan benefit can only be made available to individuals who are already enrolled in Medicaid. As such, spousal impoverishment rules are not applied in determining whether a person may access this HCBS plan benefit. The bill would make three major changes to current Medicaid law. First, states would be required to apply spousal impoverishment rules to applicants who apply to Medicaid to receive certain home and community-based services (i.e., authorized under Sections 1915(c), (d), and (i) and under Section 1115 of SSA). Second, states would be required to apply spousal impoverishment protections when determining eligibility for medically needy individuals applying for certain home and community-based services. These two changes would sunset after a five-year period beginning on January 1, 2014. Third, another provision in the bill would convert the HCBS state plan benefit option (Section 1915 (i)) into both a benefit and an eligibility pathway. Spousal impoverishment rules would apply to this new eligibility pathway. See the description of these provisions entitled "Removal of Barriers to Providing HCBS" in the Eligibility section of this report. Optional Eligibility Expansions Non-elderly, Non-pregnant Individuals with Family Income Above 133% of the FPL (§2001, §10201) Beginning on January 1, 2014 the bill would create a new optional Medicaid eligibility category for all non-elderly, non-pregnant individuals (e.g., childless adults, and certain parents) who are otherwise ineligible for Medicaid, or enrolled in an existing Medicaid eligibility group. For such individuals, income would exceed 133% FPL (based on modified gross income), but would not exceed the maximum level established under the state plan or waiver. States would be permitted to phase in Medicaid coverage through a state plan amendment to these new optional eligible individuals based on income, as long as the state does not extend coverage to (1) individuals with higher income before those with lower income, or (2) parents unless their child is enrolled in the state plan, a waiver, or in other health coverage. Among other purposes, to support the transition to MGI, states may rely on this state plan option to meet the MOE requirements, as described above. State Eligibility Option for Family Planning Services (§2303) "Family planning services and supplies" is a mandatory Medicaid benefit for the majority of beneficiaries of childbearing age (including minors considered to be sexually active) who desire such services and supplies. States are permitted to provide family planning services under Medicaid for populations who are not otherwise eligible for traditional Medicaid (e.g., non-pregnant, non-disabled childless adults) through special waivers. The bill would add a new optional categorically-needy eligibility group to Medicaid. This new group would be comprised of (1) non-pregnant individuals with income up to the highest level applicable to pregnant women covered under the Medicaid or CHIP state plan, and (2) at state option, individuals eligible under existing special waivers that provide family planning services and supplies. Benefits would be limited to family planning services and supplies and would also include related medical diagnosis and treatment services. The bill would also allow states to make a "presumptive eligibility" determination for individuals eligible for such services through the new optional eligibility group. In addition, states would not be allowed to provide Medicaid coverage through benchmark or benchmark-equivalent plans, which are permissible alternatives to traditional Medicaid benefits, unless such coverage includes family planning services and supplies. This provision would be effective upon enactment. Removal of Barriers to Providing Home and Community-Based Services (§2402) Under the DRA, Congress gave states the option to extend HCBS to Medicaid beneficiaries under the HCBS state plan option (Section 1915(i) of the Social Security Act) without requiring a Secretary-approved waiver for this purpose (under Sections 1915(c) or 1115 of the Social Security Act). Eligibility Although Medicaid law does not confer program eligibility through the home and community-based services state plan benefit option, federal law does impose certain limitations on the characteristics of beneficiaries who may obtain these services in a state. Specifically, this state plan option may only be extended to those Medicaid beneficiaries whose income does not exceed 150% of poverty and who meet a state's needs-based criteria. In addition, the needs-based criteria defined by states must be less stringent than the criteria the state uses to determine eligibility for institutional care in a nursing facility, intermediate care facility for the mentally retarded (ICF/MR), or hospital. The bill would expand access to this benefit to persons with income below 300% of the SSI benefit rate and to persons who qualify for Medicaid HCBS waiver services (Sections 1915 (c), (d) or (e) of the SSA, or under Section 1115 Research and Demonstration waivers), because they require an institutional level-of-care. In addition, the bill would establish a new eligibility pathway into the program. States could allow people, beyond existing Medicaid beneficiaries, who meet these criteria to qualify for full benefit Medicaid as well as this HCBS state plan benefit. Targeting Under current law, states may cap enrollment numbers, select a broad or limited benefit package, define benefit eligibility expansively or narrowly, and extend coverage in geographic areas that are less than statewide. If actual enrollment exceeds states' projected enrollment, states may modify their needs-based criteria without having to obtain prior approval from the Secretary if the state: (1) provides at least 60 days notice to the Secretary and to the public of the proposed modification; (2) deems an individual receiving HCBS (on the basis of the most recent criteria in effect prior to the effective date of the change), to be eligible for such services for at least 12 months beginning on the date the individual first received medical assistance for such services; and (3) at a minimum, after the effective date of the change does not make the criteria more stringent than the criteria used to determine whether an individual requires the level-of-care provided in a hospital, nursing facility, or an intermediate care facility for the mentally retarded. States may use waiting lists to track those persons who would obtain services but for the cap. The bill would no longer allow states to cap the number of persons eligible for this benefit. Rather, states could make adjustments to their needs-based criteria if their actual enrollment would exceed their projected enrollment. The provision would also remove states' existing ability to limit access to the benefit to 12 months for those persons who would become ineligible based on the new needs-based criteria. Under this bill, such individuals would continue to be eligible until such time as the individuals would no longer meet the state's pre-modified needs-based criteria. In addition, states could elect to target the provision of HCBS to specific populations and to differ the type, amount, duration or scope of the benefits for each of these populations. Such elections would be for five-year periods (including an initial five-year period and five-year renewal periods). Enrollment and/or the provision of services could be phased-in, (as long as the phase-in is accomplished prior to the end of the initial five-year period). Further explanation of this provision can be found in the Benefits section of this report. Outreach and Enrollment Facilitation Streamlining Procedures for Enrollment Through a Health Insurance Exchange and Medicaid, CHIP, and Other Health Subsidy Programs (§1413) Under the bill, the Secretary would be required to: (1) establish a system to ensure that individuals who apply for Exchange coverage and are found to be eligible for Medicaid or CHIP are enrolled in Medicaid or CHIP; and (2) develop and distribute a standard application form for all state health subsidy programs. States would be permitted to develop and use their own application forms as long as they are consistent with those issued by the Secretary, and/or to use supplemental or alternative enrollment forms when household income is not used by the state in determining eligibility. Applicants would be permitted to submit their forms online, by telephone, in person, or by mail to a state exchange, Medicaid, or the CHIP program. However, states would be required to develop a secure, electronic interface for health subsidy program eligibility determinations based on the standard application form. States would also be required to verify eligibility data supplied by an applicant when determining eligibility for a health subsidy program in a manner consistent with specified standards (e.g., privacy, security, accuracy, and administrative efficiency). Finally, the Secretary would be required to ensure that applicants receive notice of eligibility for state health subsidy programs, or notice when they are determined ineligible because information on their application is inconsistent with electronic verification data, or is otherwise insufficient to determine eligibility. This provision would be effective January 1, 2014. Enrollment Simplification and Coordination with State Health Insurance Exchanges (§2202) As a condition of the Medicaid state plan and receipt of any federal financial assistance after January 1, 2014, the bill would require states to meet the following requirements: (1) States would be required to establish procedures for: enabling individuals to apply for, or renew enrollment in, Medicaid or CHIP through an internet website allowing electronic signatures; enrolling individuals who are identified by an Exchange as being eligible for Medicaid or CHIP, without any further determination by the state; ensuring that individuals who apply for Medicaid and/or CHIP but are determined ineligible for either program are screened for enrollment eligibility in qualified plans offered through the Exchange, and if applicable, obtain premium assistance for such coverage without having to submit an additional or separate application; ensuring that the state Medicaid agency, CHIP agency, and the Exchange utilize a secure electronic interface that allows for eligibility determinations and enrollment in Medicaid, CHIP or premium assistance for a qualified plan as appropriate; ensuring that Medicaid and/or CHIP enrollees who are also enrolled in qualified health benefits plan through the Exchange are provided Medicaid medical assistance and/or CHIP child health assistance that is coordinated with the Exchange coverage, including services related to Early and Periodic Screening, Diagnostic and Treatment (EPSDT); and conduct outreach and enrollment of vulnerable populations such as unaccompanied homeless youth, racial and ethnic minorities, and individuals with HIV/AIDS; (2) The state Medicaid and CHIP agencies may enter into an agreement with the Exchange under which each agency may determine whether a state resident is eligible for premium assistance for the purchase of a qualified health benefits plan under the Exchange, so long as the agreement meets specified requirements to reduce administrative costs, eligibility errors, and disruptions in coverage; (3) The Medicaid and CHIP agency would be required to comply with the requirements for the system established under Section 1413 (relating to streamlined procedures for enrollment through an Exchange, Medicaid and CHIP); and (4) The bill would require states to establish a website (not later than January 1, 2014) that links Medicaid to the state Exchange. The website would allow individuals who are Medicaid-eligible and eligible to receive premium assistance for the purchase of a qualified health benefits plan under the Exchange to compare benefits, premiums, and cost-sharing. In the case of a child, the website must allow individuals to compare benefits they would receive under Medicaid to the coverage available through an Exchange plan (including any supplemental Medicaid benefits that would be required so the Exchange coverage meets basic minimum standards established by the bill). The bill would not limit or modify the states' ability to assess an individual's eligibility for home and community-based services under the state plan or under a waiver. Permitting Hospitals to Make Presumptive Eligibility Determinations for All Medicaid Eligible Populations (§2202) Under current law, states may enroll certain groups (i.e., children, pregnant women, and certain women with breast and cervical cancer) for a limited period of time before completed Medicaid applications are filed and processed, based on a preliminary determination by a Medicaid provider of likely Medicaid eligibility. Such individuals must then formally apply for coverage within a certain timeframe to continue receiving Medicaid benefits. Presumptive eligibility begins on the date a qualified Medicaid provider determines that the applicant appears to meet eligibility criteria and ends on the earlier of (1) the date on which a formal determination is made regarding the individual's application for Medicaid, or (2) in the case of an individual who fails to apply for Medicaid following the presumptive eligibility determination, the last day of the month following the month in which presumptive eligibility begins. The bill would allow states to permit all hospitals that participate in Medicaid to make presumptive eligibility determinations, based on a preliminary determination of likely Medicaid eligibility, for all Medicaid eligible populations. Such preliminary eligibility determinations would be subject to guidance established by the Secretary and would need to follow the same requirements as currently apply to presumptive eligibility (i.e., for children, pregnant women, and certain women with breast or cervical cancer) regardless of whether the state has opted to extend presumptive eligibility to any of these groups. States would be permitted to enroll such individuals for a limited period of time before completed Medicaid applications are filed and processed. Beneficiary claims submitted during the period of presumptive eligibility would not be included among those reviewed to determine if improper payments were made based on errors in the state agency's eligibility determinations. The provision would be effective on January 1, 2014. Standards and Best Practices to Improve Enrollment of Vulnerable and Underserved Populations (§2201) CHIPRA included provisions to facilitate outreach and enrollment in Medicaid and CHIP. CHIPRA appropriated $100 million in outreach and enrollment grants above and beyond the regular CHIP allotments for fiscal years 2009 through 2013. Ten percent of the outreach and enrollment grants will be directed to a national enrollment campaign, and 10% will be targeted to outreach for American Indian and Alaska Native children. The remaining 80% will be distributed among state and local governments and to community-based organizations for purposes of conducting outreach campaigns with a particular focus on rural areas and underserved populations. Grant funds will also be targeted at proposals that address cultural and linguistic barriers to enrollment. CHIPRA also requires state plans to describe the procedures used to reduce the administrative barriers to enrollment of children and pregnant women in Medicaid and CHIP and to ensure that such procedures are revised as often as the state determines is appropriate to reduce newly identified barriers to enrollment. The bill would require the Secretary to work with stakeholders to develop and issue guidance (that meets specified requirements) to states regarding standards and best practices to help improve enrollment of vulnerable populations in Medicaid and CHIP. Vulnerable populations include children, unaccompanied homeless youth, children and youth with special health care needs, pregnant women, racial and ethnic minorities, rural populations, victims of abuse or trauma, individuals with mental health or substance-related disorders, and individuals with HIV/AIDS. Such guidance would be required to be published no later than April 1, 2011. Not later than two years after enactment and annually thereafter, the Secretary would be required to review and report to Congress on state progress in implementing the standards and best practices identified in the guidance, and in increasing the enrollment of vulnerable populations under Medicaid and CHIP. New Reporting Requirements (§2001, §10201) The bill would require states to report on changes in Medicaid enrollment beginning January 2015, and every year thereafter. As a part of these reporting requirements, states must submit enrollment estimates of the total number of "newly enrolled" individuals by fiscal year disaggregated by: (1) children, (2) parents, (3) non-pregnant childless adults, (4) disabled individuals, (5) elderly individuals, and (6) such other categories or sub-categories of individuals eligible for Medicaid as the Secretary may require. States would also be required to report on their outreach and enrollment processes, and any other data reporting specified by the Secretary to monitor enrollment and retention in Medicaid. The Secretary would be required to submit a report to the appropriate Committees of Congress (beginning in April 2015 and every year thereafter) on total new enrollment in Medicaid by state, as well as recommendations for improving Medicaid enrollment. Benefits Medicaid standard benefits are identified in federal statute and regulations and include a wide range of acute and long-term care services and supplies. Additional benefits include premium payments for coverage provided through Medicaid managed care arrangements or for employer-sponsored insurance, and Medicare premium and cost-sharing support for persons dually eligible for both Medicare and Medicaid. Modifications to DRA Benchmark and Benchmark-Equivalent Coverage (§2001(c)) As an alternative to traditional benefits, the Deficit Reduction Act (DRA) gave states the option to provide Medicaid to state-specified groups through enrollment in benchmark and benchmark-equivalent coverage similar to plans available under the Children's Health Insurance Program (CHIP). Benchmark plans include (1) the standard Blue Cross/Blue Shield preferred provider option under the Federal Employees Health Benefits Program (FEHBP), (2) the coverage generally available to state employees, and (3) the coverage offered by the largest commercial HMO in the state. Benchmark-equivalent plans must cover basic benefits (i.e., inpatient and outpatient hospital services, physician services, lab/x-ray, well-child care including immunizations, and other appropriate preventive services designated by the Secretary), and must include at least 75% of the actuarial value of coverage under the selected benchmark plan for specific additional benefits (i.e., prescription drugs, mental health services, vision care and hearing services). Benchmark and benchmark-equivalent coverage must include Early and Periodic Screening, Diagnostic and Treatment (EPSDT) services (whether provided by the issuer of such coverage or otherwise) as well as access to services provided by rural health clinics and federally qualified health centers. The bill would modify benchmark and benchmark-equivalent benefit packages available under Medicaid. Such packages would be required to provide at least essential benefits as of January 1, 2014. Essential health benefits would include at least: (1) ambulatory patient services, (2) emergency services, (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services, including behavioral health treatment, (6) prescription drugs, (7) rehabilitative and habilitative services and devices, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care. For Medicaid benchmark-equivalent plans, prescription drugs and mental health services would be added to the list of basic services that must be covered under the plan. Also, for benchmark-equivalent coverage, states would be required to demonstrate that the coverage has an actuarial value of at least 75% for vision and hearing services only. In the case of any benchmark benefit package or benchmark-equivalent coverage offered by an entity that is not a Medicaid managed care plan and that provides both medical and surgical benefits and mental health or substance use disorder benefits, such plan would be required to ensure that the financial requirements and treatment limitations applicable to such benefits comply with the mental health services parity requirements of Section 2705(a) of the Public Health Services Act in the same manner as such requirements apply to a group health plan. Coverage that provides EPSDT services would be deemed as meeting the mental health services parity requirement. Premium Assistance (§2003, §10203(b)) The bill would also require states to offer premium assistance and wrap-around benefits (i.e., Medicaid covered services not included in employer plans) to Medicaid beneficiaries when it is cost-effective to do so (i.e., when beneficiary cost-sharing obligations in employer plans are less than the state's expected cost of providing Medicaid services directly). However, beneficiaries would not be required to apply for enrollment in employer plans, and individuals would be permitted to disenroll from such plans at any time. In addition, states would be required to pay premiums and cost sharing in excess of amounts permitted under current Medicaid program rules (i.e., nominal amounts specified in regulations and inflation adjusted over time, or higher amounts authorized in P.L. 109-171 , the DRA). These provisions would be effective as if included in P.L. 111-3 (CHIPRA). Birthing Centers (§2301) The bill would also require Medicaid coverage of care provided in free-standing birthing centers. In addition, states would be required to separately pay providers administering prenatal, labor and delivery or postpartum care in freestanding birthing centers, such as nurse midwives and birth attendants, as deemed appropriate by the Secretary. This provision would be effective on the date of enactment (except if state legislation is required, in which case additional time for compliance is permitted). Smoking Cessation Services for Pregnant Women (§4107) The bill would add counseling and pharmacotherapy to promote cessation of tobacco use by pregnant women as a mandatory benefit under Medicaid. Such coverage would include prescription and non-prescription tobacco cessation agents approved by the Food and Drug Administration (FDA). Services would be limited to those recommended for pregnant women in "Treating Tobacco Use and Dependence: 2008 Update: A Clinical Practice Guideline" (and if applicable, as subsequently modified), as well as other related tobacco cessation services designated by the Secretary. States would be allowed to continue to exclude coverage of agents to promote smoking cessation for other Medicaid beneficiaries, as permitted in current law. Cost-sharing for such counseling and pharmacotherapy for pregnant women would be prohibited. This provision would be effective on October 1, 2010. Adult Preventive Care (§4106) In current law, most Medicaid beneficiaries under age 21 are entitled to EPSDT services, which include well-child visits, immunizations, laboratory tests, as well as vision, dental, and hearing services at regular intervals. Under the bill, the current Medicaid option to provide "other diagnostic, screening, preventive, and rehabilitation services" would be expanded to include (1) any clinical preventive services recommended (i.e., assigned a grade of A or B) by the United States Preventive Services Task Force (USPSTF), and (2) adult immunizations recommended by the Advisory Committee on Immunization Practices (ACIP) and their administration. States that elect to cover these services and vaccines, and also prohibit related cost-sharing, would receive the increased FMAP applicable to services provided to newly eligible mandatory individuals (established under this bill excluding the 95% cap on such FMAP), and an additional one percentage point increase in that FMAP would apply for these new adult preventive services, and for counseling and pharmacotherapy for cessation of tobacco use by pregnant women (also added by this bill and described above). The effective date of this provision would be January 1, 2013. Scope of Coverage for Children Receiving Hospice Care (§2302) States have the option to offer hospice services under Medicaid and nearly all states do so. Medicaid beneficiaries who elect to receive such services must waive the right to all other services related to the individual's diagnosis of a terminal illness or condition, including treatment. The bill would allow payment for services, as defined by the state, provided to Medicaid children, as defined by the state, who have voluntarily elected to receive hospice services, without foregoing coverage of and payment for other services that are related to the treatment of the children's condition for which a diagnosis of terminal illness has been made. This provision would also apply to CHIP, and would be effective upon enactment. Community First Choice Option (§2401) Personal care attendants provide assistance with activities of daily living (ADL) and/or instrumental activities of daily living (IADL) to individuals with a significant disability. ADLs generally refer to eating, bathing and showering, using the toilet, dressing, walking across a small room, and transferring (getting in or out of a bed or chair). IADLs include preparing meals, managing money, shopping for groceries or personal items, performing housework, using a telephone, among others. Under current law, states are permitted to cover personal care services, including personal care attendant services, under a variety of optional statutory authorities such as (1) the personal care state plan benefit; (2) self-directed personal care state plan benefit; (3) home and community-based services state plan benefit (Section 1915(i)); (4) HCBS Waiver (Sections 1915(c)(d)(e)); or (5) Research and Demonstration Waivers (Section 1115). Although states have significant flexibility to determine the amount and scope of these benefits, each statutory authority includes a unique set of rules limiting the way in which a state may extend this benefit to Medicaid beneficiaries. The bill would allow states to offer HCBS under another statuary authority, and provide an increased match rate for five years. Beginning October 1, 2010, states could offer home and community-based attendant services as an optional benefit to Medicaid beneficiaries whose income does not exceed 150% of poverty level, or if greater, the income level applicable for an individual who has been determined to require the level of care offered in a hospital, nursing facility, or Intermediate Care Facility for the Mentally Retarded (ICF/MR), or an institution for mental disease. These services would include, among others, home and community-based attendant services and supports to assist eligible individuals in accomplishing ADLs, IADLs, and health-related tasks. Services would be delivered by qualified staff, including family members (as defined by the Secretary), and services would be managed, to the maximum extent possible, by the individual (or his or her representative). To obtain approval from the Secretary to offer this benefit, states would be required to: (1) collaborate with a state-established Development and Implementation Council; (2) provide these services on a state-wide basis and in the most integrated setting as is deemed appropriate to meet the needs of the individual; (3) maintain or exceed the preceding fiscal year's level of state Medicaid expenditures for individuals with disabilities or elderly individuals; and (4) establish and maintain a comprehensive, continuous quality assurance system; among other requirements. States that choose this option would be eligible for an enhanced federal match rate of an additional six percentage points for reimbursable expenses in the program. The option would sunset after five years. No later than December 31, 2015, the Secretary would be required to submit to Congress a final report on the findings of an evaluation of the community-based attendant services and supports. This provision would be effective on October 1, 2010. State Option to Provide Health Homes for Enrollees with Chronic Conditions (§2703) A health home, also referred to as medical home, provides patients with access to a primary care medical provider, and is thought to ultimately improve patient health outcomes. In theory, a medical home would provide participants with access to a personal primary care physician, or specialist, with an office care team, who would coordinate and facilitate care. Physician-guided, patient-centered care is expected to enhance patient adherence to recommended treatment and avoid (1) hospitalizations, unnecessary office visits, tests, and procedures; (2) use of expensive technology or biologicals when less expensive tests or treatments are equally effective; and (3) patient safety risks inherent in inconsistent treatment decisions. In practice, medical homes are physicians offices that, in exchange for a fee, provide care coordination and management to patients. This section of the bill would establish a new Medicaid state plan option, beginning January 1, 2011, under which certain Medicaid enrollees with chronic conditions could designate a health home, as defined by the Secretary. Individuals with chronic conditions would be eligible for this option. Chronic conditions would include a mental health condition, a substance abuse disorder, asthma, diabetes, heart disease, and a Body Mass Index over 25 (overweight). To be eligible, the patient would have, at a minimum, (1) at least two chronic conditions; (2) one chronic condition and be at risk of having a second chronic condition; or (3) one serious and persistent mental health condition. Higher eligibility requirements, however, could be established by the Secretary. To assemble their health home, patients would designate providers, teams of health care professionals operating with providers, or health teams. A designated provider could be a physician, clinical practice or clinical group practice, rural clinic, community health center, community mental health center, home health agency, pediatrician, gynecologist, obstetrician or other qualified entity, as determined by the state and approved by the Secretary. To be qualified, the provider must offer services including comprehensive care management, care coordination, health promotion, transitional care, patient and family support, referral to community and social support services, and use of health information technology. In all cases, the Secretary would establish the standards for qualification. The health home state option would be funded though a federal/state matching program. The states would receive assistance according to the Federal Medical Assistance Percentage (FMAP) after the first eight fiscal year quarters. States would be reimbursed for payments by the federal government at a 90% FMAP for the first eight fiscal quarters. States could use a variety of payment schedules to reimburse providers. In addition, the state plan must provide referrals from hospitals to providers; coordination across substance abuse, mental health, and other services; various monitoring arrangements; and reports on the quality of the health home option. Beginning January 1, 2011, the Secretary may award planning grants to the states for developing their health home programs. Each state must match the federal contribution using its normal matching rate. The total payments made to the states would not exceed $25 million. The Secretary would be required to evaluate this program by an independent entity. The evaluation would focus on whether the program reduced hospital admissions, emergency room visits, and admissions to skilled nursing facilities. The evaluation would first be presented to the Secretary and then to Congress by January 1, 2017. By January 1, 2014, however, the Secretary must survey the states that have participated in this program, and report to Congress on a variety of topics including the program's effects on hospital admission rates, chronic disease management, coordination of care for individuals with chronic conditions, assessment of quality improvements, estimates of cost savings, and other topics. Changes to Existing Medicaid Benefits Removal of Barriers to Providing Home and Community-Based Services (§2402) Under the DRA, Congress gave states the option to extend HCBS to Medicaid beneficiaries under the HCBS state plan option (Section 1915(i) of the SSA) without requiring a Secretary-approved waiver for this purpose (under Sections 1915(c) or 1115 of the SSA). Under current law, the HCBS state plan option allows states to offer home and community-based services from a list of services contained in statute. The bill would expand that list of services to include state-selected services, other than room and board, that are approved by the Secretary. Current law also allows states to use this benefit option to offer a single benefit package to a single target population. The bill would allow states to offer different packages of services to different target groups of beneficiaries—those who would qualify because they meet the state's needs-based criteria and those who would qualify because they would otherwise be eligible for waiver services. A further explanation of this provision can be found in the Eligibility section of this report. Clarification of The Definition of Medical Assistance (§2304) The term "medical assistance" means payment of part or all of the cost of care and services identified in federal statute. This term is repeated throughout Title XIX, Grants to States for Medical Assistance Programs, of the SSA. The bill would clarify that "medical assistance" encompasses both payment for services provided and the services themselves. This provision would be effective upon enactment. Financing Medicaid financing is shared by the federal government and the states. The federal share for most Medicaid expenses for benefits is determined by the Federal Medical Assistance Percentage (FMAP). FMAP rates are based on a formula that provides higher reimbursement to states with lower per capita income relative to the national average (and vice versa). FMAPs have a statutory minimum of 50% and a maximum of 83%, although some Medicaid services receive a higher federal match rate. FY2009 FMAPs ranged from a high of 75.8% in Mississippi to a low of 50.0% in 13 other states. In February 2009, with passage of the American Recovery and Reinvestment Act of 2009 (ARRA), states received temporary enhanced FMAP rates for nine quarters beginning with the first quarter of FY2009 and running through the first quarter of FY2011 (December 31, 2010). State expenditures to administer Medicaid programs are generally matched by federal funding at 50%. Federal matching rates for administrative expenditures are the same for all states, although some activities are matched at higher rates. Payments to States Additional Federal Financial Assistance Under the bill (§2001, §10201) Federal Funding for Existing Eligibility Groups Under the measure, states would continue to receive federal financial assistance as determined by FMAP. For existing eligibility groups, from January 1, 2014 through December 13, 2016, states that meet certain requirements would receive an increase in their regular FMAP rate in the amount of .5 percentage points. States eligible for the .5 percentage point FMAP increase would include (1) "expansion states" (as defined below); (2) states that the Secretary determines would not receive additional federal matching funds for "newly eligible" individuals based on the criteria described below; and (3) the state that is determined to be the state with the highest percentage of its population insured during 2008, based on the Current Population Survey, i.e. Massachusetts. From January 1, 2014 through September 30, 2019, states that meet certain requirements would receive an increase in their regular FMAP rate of 2.2 percentage points with respect to amounts expended for medical assistance for individuals who are not "newly eligible" (as defined below). States eligible for the 2.2 percentage point FMAP would include: (1) "expansion states" (as defined below); (2) states that the Secretary determines would not receive additional federal matching funds for "newly eligible" individuals based on the criteria described below; and (3) states that have not been granted Secretary approval to divert a portion of such state's Disproportionate Share Hospitals (DSH) allotment for the purpose of providing medical assistance or other health benefits coverage under a waiver in effect on July 2009. The FMAP increase described in this provision would not apply to: (1) Disproportionate Share Hospital payments; (2) payments under CHIP; and (3) payments under Medicaid that are based on the CHIP enhanced FMAP rate. In the case of the territories (e.g., Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) the FMAP would be increased by 0.075 percentage point. This increase in the FMAP rate would not be permitted to apply to: (1) Disproportionate Share Hospital payments; (2) payments under Title IV (foster care); (3) payments under CHIP; and (4) payments under Medicaid that are based on the CHIP enhanced FMAP rate. Federal Funding for Timeline for "Newly Eligible" Populations The cost of providing benchmark or benchmark-equivalent coverage to the "newly eligible" individuals (defined for the purposes of this subsection below) would be matched by the federal government at higher rates as specified below. However, in the case of a state that requires a political subdivision within the state to contribute the non-federal share of expenditures, such state would not be eligible for an increase in its FMAP (under this provision or under the FMAP increases provided under the American Recovery and Reinvestment Act of 2009) if it requires that political subdivisions pay a greater percentage of the non-federal share of expenditures, or a greater percentage of the non-federal share of payments under their DSH payment program than amounts that would have been required as of December 31, 2009. Voluntary contributions would not be considered as "required" contributions. Table 1 summarizes the additional federal financial assistance that would be available under the bill and a timeline associated with the implementation of the mandatory eligibility expansion. For the purposes of this financing provision: "Newly eligible" individuals would be defined as non-elderly, non-pregnant individuals with family income below 133% FPL who (1) are not under the age of 19 (or such higher age as the state may have elected), and (2) are not eligible under the state plan (or a waiver) for full Medicaid state plan benefits or for Medicaid benchmark or benchmark-equivalent coverage, or are eligible but not enrolled (or are on a waiting list) in such coverage as of December 1, 2009. Full Medicaid state plan benefits would be defined as medical assistance that includes all services of the same amount, duration, and scope, or is determined by the Secretary to be substantially equivalent to the Medicaid state plan services available to categorically eligible mandatory coverage groups. "Expansion states" would be defined as a state with health benefits coverage (that includes inpatient hospital services) for parents and non-pregnant childless adults whose income is at least 100% FPL. Such health benefits coverage may not be based on employer coverage or employment. While health benefits coverage may be less comprehensive than Medicaid, the bill would require such coverage to be more than (1) premium assistance, (2) hospital-only benefits, (3) a high deductible health plan, or (4) alternative benefits under a demonstration program authorized under Section 1938 (health opportunity accounts); and "Non-expansion states" would be defined as states that, as of the date of enactment of H.R. 3590 , offer minimal or no coverage of the "newly-eligible" population, or that offer health benefits coverage to only parents or only non-pregnant childless adults. The Children's Health Insurance Program (CHIP) CHIP provides health care coverage to low-income, uninsured children in families with income above Medicaid income standards. States may also extend CHIP to pregnant women when certain conditions are met. In designing their CHIP programs, states may choose to expand Medicaid, create a stand-alone program, or use a combined approach. As with Medicaid, states have the flexibility under CHIP to disregard amounts or types of income and expenses, effectively expanding eligibility to higher-income individuals. Federal CHIP appropriations are currently provided through FY2013. Like Medicaid, CHIP is a joint federal-state program. For each dollar of state spending, the federal government makes a matching payment drawn from CHIP allotments. A state's share of program spending for Medicaid is equal to 100% minus FMAP. But for CHIP, the federal share is higher. That is, the enhanced FMAP (E-FMAP) for CHIP lowers the state's share of CHIP expenditures by 30% compared to the regular Medicaid FMAP. Although uncommon, certain types of CHIP expenditures are reimbursed at a rate different than the E-FMAP, and certain types of Medicaid expenditures are reimbursed at the E-FMAP rate. For FY2009, prior to increases in FMAP as a result of American Recovery and Reinvestment Act of 2009 (ARRA), the E-FMAP for CHIP ranged from 65% to 83.09%. Beneficiary cost-sharing varies depending upon how a state designs its CHIP program. For CHIP Medicaid expansions, nominal amounts may apply as specified under the Medicaid program. For CHIP stand-alone programs, higher amounts may apply based on income level. In both cases, preventive services are exempt from all cost-sharing, and aggregate cost-sharing for all individuals is capped at 5% of family income. The bill would make a number of changes to CHIP for future years. These changes are described below. Additional Federal Financing Participation for CHIP (§2101, §10203(c)) This bill would maintain the current CHIP structure, and provide CHIP appropriations through FY2015. In the event that future federal allotments would be insufficient to provide coverage to all eligible CHIP children, states would be required to establish procedures to ensure that such children receive coverage through state-established Exchanges, and would be ineligible for coverage under CHIP. Under the bill, states would receive a 23 percentage point increase in the CHIP match rate (E-FMAP), subject to a cap of 100% for FY2014 through FY2019 (although no CHIP appropriations would be provided for FY2016 through FY2019). The 23 percentage point increase would not apply to certain expenditures (i.e., translation services, CHIP-enrolled children above 300% FPL outside New Jersey and New York, expenditures for administration of citizenship documentation/verification, expenditures for administration of payment error rate measurement or PERM, and Medicaid coverage of certain breast or cervical cancer patients). Upon enactment, states would be required to maintain income eligibility levels for CHIP through September 30, 2019 as a condition of receiving payments under Medicaid (notwithstanding the lack of corresponding federal appropriations for FY2016 through FY2019). Specifically, with the exception of waiting lists for enrolling children in CHIP or enrolling CHIP-eligible children in certified exchange plans (see below), states could not implement eligibility standards, methodologies, or procedures that are more restrictive than those in place on the date of enactment. However, states could expand their current income eligibility levels—that is, states could enact less restrictive standards, methodologies or procedures. After September 30, 2015, states may also enroll children eligible for CHIP in a qualified health plan that has been certified by the Secretary. With respect to such certification, not later than April 1, 2015, for each state, the Secretary would be required to review the benefits offered for children and the associated cost-sharing for qualified health plans offered through the Exchange, and must certify that such plans have been determined to be at least comparable to the benefits and cost-sharing protections provided under the state CHIP plan. In the event that CHIP allotments are insufficient to provide coverage of all children eligible for CHIP, states would be required to establish procedures to ensure that such children are screened for eligibility for Medicaid (under the state plan or a state waiver), and if found eligible, enrolled in Medicaid. In the case of children who, as a result of such screening, are determined to not be eligible for Medicaid, the state would be required to establish procedures to ensure that those children are enrolled in a qualified health plan that has been certified by the Secretary (as described above) and is offered through an Exchange established by the state. The Medicaid and CHIP enrollment bonuses included in CHIPRA ( P.L. 111-3 ) would not apply beyond the current authorization period; bonus payments would not be available after FY2013. Beginning January 1, 2014, states would be required to use modified gross income (MGI) and household income (as defined for premium credits eligibility in an exchange) to determine Medicaid and CHIP eligibility, premiums and cost-sharing. States would be required to treat as CHIP children those children determined to be ineligible for Medicaid due to the new provision eliminating income disregards based on expense or type of income. In addition, the CHIP benefit package and cost-sharing rules would continue as under current law. Finally, a new Medicaid section added by this bill regarding Medicaid programs' coordination with state health insurance exchanges would also apply to CHIP programs. Distribution of CHIP Allotments Among States (§2101, §10203(d)) Currently, the allotment of the annual federal CHIP appropriation among the states is determined by a formula set in law. For FY2009, federal CHIP allotments for states was to be the largest of three state-specific amounts: (1) the state's FY2008 federal CHIP spending, multiplied by a growth factor; (2) the state's FY2008 federal CHIP allotment, multiplied by a growth factor; and (3) the state's own projections of federal CHIP spending for FY2009, submitted by states to the Secretary of Health and Human Services (HHS) as of February 2009. The largest of these three amounts was to be increased by 10% and serve as the state's FY2009 federal CHIP allotment, as long as the national appropriation was adequate to cover all the states' and territories' FY2009 allotments. If not, allotments were to be reduced proportionally. For the FY2009 allotment formula, the growth factor, called the "allotment increase factor," was the product of (a) 1 plus the percentage increase (if any) in the projected per capita spending in the National Health Expenditures for 2009 over 2008, and (b) 1.01 plus the percentage change in the child population in each state (except for the territories, for which the national amount is used) from July 1, 2008, to July 1, 2009, based on the most recent published estimates of the Census Bureau. For future fiscal years, the growth factor is calculated in the same way, but uses updated projected per capita spending in the National Health Expenditures for each such fiscal year, and the percentage change in the child population in each state (except for the territories, for which the national amount is used) from July 1 of the previous calendar year, to July 1 of the applicable calendar year, based on the most recent published estimates of the Census Bureau. For FY2010, the allotment for a state (or territory) will be calculated as the sum of the following four amounts, if applicable, multiplied by the applicable growth factor (described below) for the year: (1) the FY2009 CHIP allotment; (2) FY2006 unspent allotments redistributed to and spent by shortfall states in FY2009; (3) spending of funds provided to shortfall states in the first half of FY2009; and (4) spending of Contingency Fund payments (described below) in FY2009, although there may be none. For FY2011 and FY2013, the allotment for a state (or territory) will be "rebased," based on prior year spending. This will be done by multiplying the state's growth factor for the year by the new base, which will be the prior year's federal CHIP spending. For FY2012, the allotment for a state (or territory) will be calculated as the FY2011 allotment and any FY2011 Contingency Fund spending, multiplied by the state's growth factor for the year. The proposal would carry the current law CHIP allotment formula forward through FY2015. For FY2013, federal CHIP allotments for a state (or territory) would be "rebased," based on prior year spending, and subject to the new appropriation amounts made available under this bill. Rebasing would be done by multiplying the state's growth factor for the year (as updated based on the formula described in current law) by the new base, which would be the prior year's federal CHIP spending. For FY2014, the allotment for a state (or territory) would be calculated as the FY2013 allotment and any FY2013 Contingency Fund spending, multiplied by the state's growth factor for the year subject to the new appropriation amounts made available under this bill. For FY2015, federal CHIP allotments for a state (or territory) would be "rebased," based on prior year spending, and subject to the new appropriation amounts made available under this bill. Rebasing would be done by multiplying the state's growth factor for the year (as updated based on the formula described in current law) by the new base, which would be the prior year's federal CHIP spending. As per current law, the Child Enrollment Contingency Fund (created under CHIPRA) was established to prevent states from experiencing shortfalls of federal CHIP funds. This fund receives an appropriation separate from the national CHIP allotment amounts. For FY2009, its appropriation would be 20% of the CHIP available national allotment. For FY2010 through FY2013, the appropriation would be such sums as are necessary for making payments to eligible states for the fiscal year, as long as the annual payments did not exceed 20% of that fiscal year's CHIP available national allotment. Direct payments from the Contingency Fund can be made to shortfall states for the federal share of expenditures for CHIP children above a target enrollment level. The proposal would extend the authority for the Child Enrollment Contingency Fund through FY2015. For FY2013 through FY2015, the appropriation for the Fund would be such sums as are necessary for making payments to eligible states for the fiscal year, as long as the annual payments did not exceed 20% of that fiscal year's CHIP available national allotment. Direct payments from the Contingency Fund can be made to shortfall states for each of fiscal year 2013 through fiscal year 2015 for the federal share of expenditures for CHIP children above a target enrollment level. Finally, the current CHIP statute permits 11 early expansion "qualifying states" to draw some CHIP funds for Medicaid children above 150% of poverty level, although with an additional limit in the amount besides just their available federal CHIP funds (that is, no more than 20% from each original allotment could be spent on these Medicaid children). CHIPRA continued this spending for Medicaid children above 133% of poverty level, and without the 20% limitation through FY2013. The provision would extend the authority for qualifying states to use CHIP allotments for spending on Medicaid children above 133% of poverty, and without the 20% limitation through FY2015. Extension of Funding for CHIP Through FY2015 and Other Related Provisions (§10203(a), §10203(b), and §10203(d)) Revisions to the Child Health Quality Measurement Initiative Section 1139A of the Social Security Act established a child health quality measurement initiative for both Medicaid and CHIP. Among several requirements, this initiative includes the establishment of a pediatric quality measurement program that will engage in a number of activities. In general, the purpose of this program is to improve and strengthen core child health quality measures, expand on existing pediatric quality measures used by public and private health care purchasers and advance the development of new and emerging quality measures, and increase the portfolio of evidence-based, consensus pediatric quality measures available to public and private purchasers of children's health services, providers and consumers. Under the bill, the Secretary is required to establish by regulation the criteria for certifying health plans as qualified health plans. A number of criteria for such certification are outlined, including, for example, plans must at a minimum utilize a uniform enrollment form for both qualified individuals and employers for enrolling in qualified health plans offered through the Exchange, and utilize a standard format for presenting health plan benefit options. The provision would add another criteria for plans seeking certification to report to the Secretary at least annually (and in a manner specified by the Secretary) the pediatric quality reporting measures established under Section 1139A of the Social Security Act. Participation in, and Premium Assistance for, Employer-Sponsored Health Plans Under current law, when certain conditions are met, states can require Medicaid beneficiaries to enroll in employer-sponsored health plans. One of those conditions is that such coverage is "cost-effective" meaning that the reduction in expenditures under Medicaid for an individual enrolled in a group health plan is likely to be greater than the additional expenditures for premiums and cost-sharing required. In CHIP, states may receive federal matching payments for the purchase of family coverage under a group health plan or health insurance that includes CHIP children, if such coverage is cost-effective relative to (1) the amount of expenditures under the state CHIP plan (including administrative costs) that the state would have made to provide comparable coverage of the children or families involved (as applicable), or (2) the amount of expenditures that the state would have made under CHIP (including administrative expenses) for providing coverage under the plan for all such children or families. In addition, the coverage must not otherwise substitute for health insurance coverage that would be provided to such children but for the purchase of family coverage. When certain conditions are met under Medicaid, states may offer premium assistance subsidies for qualified employer-sponsored coverage for Medicaid beneficiaries under age 19 (and to the parents of such individuals) who have access to such coverage. Under the Senate bill, several provisions would be effective as if included in CHIPRA ( P.L. 111-3 ). First, the provision would apply the cost-effectiveness definition used in CHIP to the coverage of Medicaid beneficiaries in employer-sponsored group health plans, and for the current premium assistance option for children under Medicaid. Another provision in the bill would have required states to offer a premium assistance subsidy for qualified employer-sponsored coverage to all Medicaid beneficiaries under age 19 (along with their parents) who have access to such coverage that otherwise meets specified requirements. A separate provision (subsequently added by the Title X of the bill) would make that requirement null, void and of no effect. That is, premium assistance subsidies for qualified employer-sponsored coverage to Medicaid beneficiaries under 19 (and their parents) would remain a state option, not a requirement. Also under current law, states may offer a premium assistance subsidy for qualified employer-sponsored coverage to all targeted low-income children in CHIP who have access to such coverage that meets certain requirements. No subsidy shall be provided to a CHIP child unless that child (or the child's parent) voluntarily elects to receive such a subsidy. States may not require such an election as a condition of receiving CHIP benefits. In addition, premium assistance subsidies for qualified employer-sponsored coverage must be deemed to meet the cost-effectiveness requirement described above. The provision would require that the premium assistance subsidy for qualified employer-sponsored coverage for CHIP children can occur if the offering is cost-effective [i.e., the coverage is cost-effective relative to (1) the amount of expenditures under the state CHIP plan (including administrative costs) that the state would have made to provide comparable coverage of the children or families involved (as applicable), or to (2) the amount of expenditures that the state would have made under CHIP (including administrative expenses) for providing coverage under the plan for all such children or families]. The bill would also strike the current law provision that deems compliance with the cost-effectiveness test for premium assistance subsidies for qualified employer-sponsored coverage. Definition of CHIP Eligible Children Section 2110(b) of the Social Security Act defines "targeted low-income child" for CHIP purposes. Generally, such children are not otherwise insured, and live in families with income above Medicaid applicable levels, up to 50 percentage points above that level. (Some states have set higher income standards via waiver authority or by disregarding "blocks of income" in determining financial eligibility, for example). The law also defines two groups of children as being ineligible for CHIP: (1) children who are inmates of public institutions or are patients in an institution for mental disease, and (2) children in families for whom a member is eligible for health benefits coverage under a state health benefits plan through the family member's employment with a public agency in the state. The provision would make two exceptions to the CHIP exclusion of children of employees of a state public agency. First, children of state employees may be enrolled in CHIP if the amount of annual agency expenditures made on behalf of an employee enrolled in a state health plan that includes dependent coverage (for the most recent state fiscal year) is not less than the amount of such expenditures made by the agency for state fiscal year 1997, increased by the percentage increase in the medical care component of the Consumer Price Index for such preceding year. Second, children of state employees may be enrolled in CHIP if the state determines, on a case-by-case basis, that the annual aggregate amount of premiums and cost-sharing applicable to the family of the child would exceed 5% of the family's income for the year involved. CHIP Annual Allotments Federal statute provides yearly total allotments for CHIP. Specific annual amounts are appropriated for fiscal years starting with FY1998 ($4.295 billion) through FY2012 ($14.982 billion). For FY2013 only, two semi-annual allotments will be available. For the period October 1, 2012 through March 31, 2013, $2.85 billion is available, and for the period April 1, 2013 through September 30, 2013, another $2.85 billion is available. In addition, a "one-time appropriation" of $11.706 billion was added to the half-year amounts provided for FY2013. These provisions for FY2013 were intended to annually reduce by the "one-time appropriation" the amount of allotments assumed by the Congressional Budget Office (CBO) for fiscal years after FY2013. The provision would strike the current law language that provides semi-annual allotments for FY2013, and would replace that language with an appropriation of $17.406 billion for FY2013. The provision would also provide an appropriation of $19.147 billion for FY2014, and would establish two semi-annual allotments for FY2015. For the period October 1, 2014 through March 31, 2015, $2.85 billion would be made available, and for the period April 1, 2015 through September 30, 2015, another $2.85 billion would be made available. The bill would also modify this section of the CHIP statute to provide a one-time appropriation of $15.361 billion to be added to the half year amounts provided for FY2015. CHIPRA authorized $100 million in outreach and enrollment grants above and beyond the regular CHIP allotments for FY2009 through FY2013. Ten percent of the allocation will be directed to a national enrollment campaign, and 10% will be targeted to outreach for Native American children. The remaining 80% will be distributed among state and local governments and to community-based organizations for purposes of conducting outreach campaigns with a particular focus on rural areas and underserved populations. Grant funds will also be targeted at proposals that address cultural and linguistic barriers to enrollment. The provision would expand the time period for the outreach and enrollment grants through FY2015. This provision would also change the appropriation level to $140 million for FY2009 through FY2015. Technical Corrections to the CHIP Statute (§2102) CHIPRA was signed into law on February 4, 2009, to extend and improve CHIP (e.g., to provide federal CHIP allotments to states from FY2009 through FY2013), and for other purposes. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) was signed into law on February 17, 2009, making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal stabilization, for fiscal year ending September 30, 2009, and for other purposes. The proposal would make corrections to selected provisions in CHIPRA and ARRA, including, for example (1) makes an adjustment to the FY2010 CHIP allotments for certain previously approved Medicaid expansion programs; (2) clarifies a reference to certain lawfully residing immigrants in CHIP statute; (3) deletes a reference to CHIP funds set aside for coverage of certain Medicaid non-pregnant childless adult waivers when those funds are not expended by September 30, 2011 (this block grant was not included in the final version of P.L. 111-3 ); (4) makes adjustments to the Current Population Survey (CPS) to improve estimates used to identify high performing states (those with the lowest percentage of uninsured, low-income children) for CHIP purposes; and (5) stipulates that the alternative premiums and cost-sharing provision in Medicaid would not supersede or prevent the application of premium and cost-sharing protections for American Indians under Medicaid and CHIP as established in P.L. 111-5 . All of these changes would be effective as if they were included in the enactment of P.L. 111-3 and P.L. 111-5 . Incentives for States to Offer Home and Community-Based Services as a Long-Term Care Alternative to Nursing Homes (§10202) Under Medicaid, states make available a broad range of institutional and home and community-based services to certain Medicaid enrollees. States are required to offer some of these services, while states are not required to offer others. For those services that are offered, states define them differently, using criteria that places limits on the amount, duration, and scope of the benefits. States may also restrict benefits to persons who demonstrate medical necessity for the benefit. Under Medicaid, institutional services are generally defined as care provided in nursing facilities, Intermediate Care Facilities for People with Mental Retardation (ICFs/MR), inpatient hospital services and nursing facility services for persons aged 65 and older in institutions for mental diseases. Home and community-based services are generally defined as long-term care services offered under Medicaid's home health state plan benefit, personal care state plan benefit, case management or targeted case management benefit, respiratory care benefit for persons who are ventilator-dependent, Program of All-inclusive Care for the Elderly (PACE), transportation benefit, home and community-based services state plan option, and Medicaid home and community-based 1915(c) and (d) waivers. This bill would establish a state balancing incentive payment program that would allow states that spend less than 50% of their long-term care services on non-institutional care to receive additional federal matching funds for these benefits for fiscal years 2012 through 2015. To receive incentive payments, a state would be required to submit an application that includes a proposed budget detailing the state's plan to expand and diversify medical assistance for non-institutionally-based long-term services and supports during the balancing incentive period and to achieve the target spending percentage applicable to the state through required structural changes in furnishing the services. For states proposing to expand the Section 1915(i) benefit, the application would also include a description of the state's election to increase the eligibility level above 150% of the FPL to a percentage that would not exceed 300% of the SSI benefit rate. Regarding a state's structural changes, the application would also include a description of the new or expanded offerings of such services that the state would provide and the projected costs of such services. States would be required to meet certain target-spending percentages. If the state's spending on home and community based services in FY2009 is less than 25%, its target spending percentage for October 1, 2015 would be 25%. For any other state the target spending percentage would be 50%. The bill would increase a state's FMAP by 5 percentage points on eligible medical assistance payments for states meeting the 25% target; all other participating states' FMAP would be increased by 2 percentage points for eligible payments. The balancing incentive period would begin October 1, 2011 and end on September 30, 2015. Disproportionate Share Hospital Payments (§2551, §10201(e)) Medicaid statute requires states to pay disproportionate share (DSH) adjustments to hospitals serving large numbers of uninsured individuals and Medicaid beneficiaries. The law also specifies a formula for determining DSH allotments for each state (however, unique arrangements apply to certain states that largely operate their Medicaid programs under special waivers). States must define, in their state Medicaid plans, hospitals qualifying as DSH hospitals and DSH payment formulas, taking into account certain federal criteria. A number of changes to state DSH allotments have occurred over time. Special rules apply to "low DSH states," comprised of states in which total DSH payments for FY2000 were less than 3% of the state's total Medicaid spending on benefits. DSH allotments for such states were raised for FY2004 through FY2008 to an amount that was 16% above the prior year's amount. For each year beginning with FY2009, the allotment for low DSH states, as well as all other states, will be equal to the prior year amount increased by the change in the consumer price index for all urban consumers (CPI-U). States cannot obtain federal matching payments for DSH that exceed the state's DSH allotment. Under the bill, state DSH allotments would remain intact as under current law until a state level is reached. The level would be initially reached the first fiscal year after FY2012 for which a state's uninsured rate, as measured by the Census Bureau's American Community Survey, decreases by at least 45%, compared to an initial uninsured rate for FY2009. Once the level is reached, reductions in DSH allotments would depend on a state's status as a low DSH state and spending patterns over a base 5-year period (FY2004 through FY2008). First, for low DSH states that have not spent more than 99.90% of their DSH allotments on average for the base 5-year period (as of September 30, 2009), DSH allotments would be decreased by 25%. Second, for low DSH states that have spent more than 99.90% of their DSH allotments on average for the base 5-year period, DSH allotments would be decreased by 17.5%. Third, for all other states that have not spent more than 99.90% of their DSH allotments on average for the base 5-year period, DSH allotments would be decreased by 50%. Fourth, for all other states that have spent more than 99.90% of their DSH allotments on average for the base 5-year period, DSH allotments would be decreased by 35%. For subsequent fiscal years, if a state's uninsurance rate decreases further, the state's DSH allotment would be further reduced again depending on a state's status as a low DSH state and its spending patterns over the base 5-year period. First, for low DSH states that have not spent more than 99.90% of DSH allotments on average for the base 5-year period (as of September 30, 2009), DSH allotments would be decreased by a percentage equal to the product of the percentage reduction in the uncovered individuals in the preceding year and 27.5%. Second, for low DSH states that have spent more than 99.90% of DSH allotments on average for the base 5-year period, DSH allotments would be decreased by a percentage equal to the product of the percentage reduction in the uncovered individuals in the preceding year and 20%. Third, for all other states that have not spent more than 99.90% of DSH allotment on average for the base 5-year period, DSH allotments would be decreased by a percentage equal to the product of the percentage reduction in the uncovered individuals in the preceding year and 55%. Fourth, for all other states that have spent more than 99.90% of DSH allotments on average for the base 5-year period, DSH allotments would be decreased by a percentage equal to the product of the percentage reduction in the uncovered individuals in the preceding year and 40%. For FY2013 forward, in no case would a state's DSH allotment be less than 50% of the state's FY2012 allotment, increased by the percentage change in the CPI-U for each previous year occurring before the fiscal year. In addition, these provisions would not apply to Hawaii. These percentage reductions would not apply to certain state waivers using DSH funds to provide Medicaid or other health benefits coverage in effect in July 2009. Under current law, some states that operate their Medicaid programs through waivers (i.e., Tennessee and Hawaii) have special statutory arrangements relating to their specific DSH allotments. Tennessee's allotment amount was set at $30 million for each of fiscal years 2009 through 2011, and one-quarter of that amount for the first quarter of FY2012. Hawaii's DSH allotment is set at $10 million for each of fiscal years 2009 through 2011, with an additional $2.5 million for the first quarter of FY2012. Under the bill, for the last three quarters of FY2012, Hawaii's DSH allotment would be $7.5 million. For FY2013 forward, Hawaii's annual DSH allotment would be increased in the same manner applicable to low DSH states (i.e., adjusted by the percentage change in the CPI-U from year to year). The provision also prohibits the Secretary from imposing a limit on payments made to hospitals under Hawaii's QUEST Section 1115 demonstration project, except to the extent necessary to ensure that a hospital does not receive payments in excess of its hospital specific cap, or that payments do not exceed the amount that the Secretary determines is equal to the federal share of DSH within the budget neutrality provision of the QUEST demonstration project. Special FMAP Adjustment for States Recovering From a Major Disaster (§2006) In recent years, the fiscal situation of the states has focused attention on the size of the state's share of Medicaid expenditures, as well as changes in the federal share of those expenditures. For instance, under the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ), all states and the District of Columbia received a temporary increase in Medicaid FMAPs for the last two quarters of FY2003 and the first three quarters of FY2004 as part of a fiscal relief package. Medicaid FMAPs for the last two quarters of FY2003 and the first three quarters of FY2004 were held harmless from annual declines and were increased by an additional 2.95 percentage points, as long as states met certain other requirements. During the most recent recession, Congress provided states additional economic stimulus funding, including enhanced FMAP rates, when it passed ARRA in February 2009. ARRA provided enhanced FMAP rates for states, the District of Columbia, and the Territories for the recession period which began with the first quarter of FY2009 and will continue through the first quarter of FY2011 (December 31, 2010). Under ARRA, all states are held harmless from declines in their normal FMAP rates beginning with FY2008 and continuing through the recession period. States and the District of Columbia receive an across-the-board FMAP increase of 6.2 percentage points, and qualifying states receive an additional unemployment-related increase. ARRA allowed each territory a one time choice between an FMAP increase of 6.2 percentage points along with a 15% increase in its spending cap, or its regular FMAP along with a 30% increase in its spending cap. All of the territories chose the 30% increase in spending caps. In addition, DRA included provisions to exclude certain Hurricane Katrina evacuees and their incomes from FMAP calculations, prevent Alaska's FY2006-FY2007 FMAPs from falling below the state's FY2005 level, and provide $2 billion to help pay for (among other things) the state share of certain Katrina-related Medicaid and CHIP costs. Other provisions, that would have temporarily increased FMAPs for states affected by Hurricane Katrina, limited FY2006 FMAP reductions for all states, and disregarded certain employer contributions toward pensions from the calculation of Medicaid FMAPs, were debated but not included in the final bill. Under the bill, states recovering from a major disaster, which occurred within the last seven years (beginning with the effective date of January 1, 2011), could receive a special FMAP adjustment percentage. To qualify for the special disaster recovery adjustment, states would need to meet the following two criteria: (1) the President would have had to have declared a state a major disaster under Sec. 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( P.L. 100-77 ) and every county or parish would have had to have been determined to warrant individual public assistance from the federal government ; and (2) there was at least a three percentage point difference between the state's normal fiscal year FMAP rate and the previous fiscal year's FMAP rate where the previous fiscal year's rate was adjusted in the first year only for the hold harmless component of ARRA's temporary enhanced FMAP adjustment. In the second and succeeding years, there also would need to be at least a three percentage point difference between the state's normal fiscal year FMAP and the previous fiscal year's FMAP, but the previous year's FMAP rate would not receive an adjustment for ARRA's hold harmless provision. The special disaster recovery FMAP adjustment for the first qualifying fiscal year would be 50% of the difference between the state's normal FMAP rate and the rate for the previous fiscal year where the previous year's FMAP would be adjusted for ARRA's hold harmless provision. For the second or any succeeding fiscal years, where states have met the criteria to qualify for the special disaster recovery FMAP rate, a state's FMAP rate would be 25% of the difference between the state's normal FMAP rate and the rate for the previous fiscal year including the disaster recovery enhancement, but excluding the ARRA hold harmless adjustment. For FY2011, seven states would meet the criteria for the President to have declared the state a major disaster under Sec. 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and every county or parish was determined to warrant individual public assistance from the federal government. However, only Louisiana also had at least a three percentage point difference between the state's normal fiscal year FMAP rate and the previous fiscal year's FMAP rate (including ARRA's hold harmless adjustment). In the future, other states may qualify for the special disaster relief FMAP increase if they meet both requirements. This provision would be effective January 1, 2011. Payments to The Territories (§2005, §10201) Five territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands) operate Medicaid programs under rules that differ from those applicable to the states and the District of Columbia (hereafter referred to as the states for the purposes of this provision). The territories are not required to cover the same eligibility groups, and they use different financial standards (income and asset tests) in determining eligibility compared to the states. For example, states must cover certain mandatory groups such as pregnant women, children, and qualified Medicare beneficiaries, but for the territories, these groups are optional. In addition, Medicaid programs in the territories are subject to annual federal spending caps. All five territories typically exhaust their caps prior to the end of the fiscal year. Once the cap is reached, the territories assume the full costs of Medicaid services or, in some instances, may suspend services or cease payments to providers until the next fiscal year. Finally, the FMAP for all the territories is set at 50%. The bill would increase spending caps for the territories by 30% for the second, third and fourth quarters of FY2011, and for each full fiscal year thereafter. The measure also would increase the applicable FMAP by five percentage points—to 55%—beginning January 1, 2011 and for each full fiscal year thereafter. Beginning in fiscal year 2014, payments made to the territories for medical assistance for "newly eligible" individuals would not count towards territories' applicable Medicaid spending caps. In the case of the territories, the provision defines "newly eligible" individuals as non-pregnant childless adults who are eligible under the new Medicaid mandatory eligibility group and whose modified gross income or household income does not exceed the income eligibility level in effect for parents under each such commonwealth or territory's state plan or waiver as of the date of enactment of the bill. Payments to Providers for Health-Care Acquired Conditions (§2702, §10303) Medicare uses a prospective payment system (PPS) to reimburse hospitals for inpatient care. Medicare's PPS classifies each hospital admission into severity adjusted diagnosis-related groups (MS-DRG) based on the patient's diagnosis and procedures performed. To appropriately align Medicare's hospital payment policies with quality of care, the DRA required the Secretary to initiate a hospital-acquired condition (HAC) program. Beginning October 1, 2008, when Medicare patients were admitted with certain HACs identified by the Secretary, then the presence of these conditions at admission would allow the hospital to receive an additional MS-DRG payment if these conditions affected the patient's treatment. However, if a patient did not have one of the HACs at admission, but acquired one during their stay, then the hospital could not receive an additional MS-DRG payment. In addition to the HAC policy, CMS issued three national coverage determinations in January 2009 that prohibited Medicare from reimbursing hospitals for certain serious preventable medical care errors. For Medicaid in July 2008, CMS issued guidance to help states appropriately align Medicaid inpatient hospital payment policies with Medicare's HAC payment policies. CMS instructed state Medicaid agencies to implement policies to avoid payment liability when dual eligible beneficiaries had HACs. CMS also encouraged Medicaid agencies to implement policies to deny payment when other Medicaid beneficiaries developed complications during hospitalizations. CMS directed states to several Medicaid authorities to appropriately deny payment for HACs. However, DRA did not specifically apply the Medicare HAC initiative to Medicaid. The bill would require the Secretary to identify current state practices that prohibit payment for health care-acquired conditions and to incorporate into regulations these practices or elements of the practices that are applicable to Medicaid. The Secretary would be required to issue regulations to prohibit federal Medicaid matching payments for health care-acquired conditions by July 1, 2011. The new regulations would be required to ensure that the prohibition on payments for health care-acquired conditions would not result in Medicaid beneficiaries losing access to services. The Secretary would define health care-acquired conditions consistent with Medicare's HAC definition, but they would not be limited solely to conditions acquired in hospitals. In implementing regulations governing Medicaid payment for health care acquired conditions, the Secretary would be required to apply Medicare's regulations prohibiting hospital payments for HACs to the Medicaid program. In addition, the Secretary would be required to the extent practicable to publicly report on measures for hospital-acquired conditions utilized by CMS for adjustment of hospital payment amounts based on hospital-acquired infections. Prescription Drugs Outpatient prescription drugs are an optional Medicaid benefit, but all states cover prescription drugs for most beneficiary groups. Medicaid law requires prescription drug manufacturers who wish to sell their products to Medicaid agencies to enter into rebate agreements with the Secretary on behalf of states. Under these agreements, drug manufacturers pay a rebate to state Medicaid agencies for drugs purchased for Medicaid beneficiaries, although purchases by Medicaid managed care organizations (MMCO) are exempted from the rebates. In exchange for entering into rebate agreements, state Medicaid programs must cover all drugs (except certain statutorily excluded drug classes) marketed by those manufacturers. In 2004 CMS estimated that 550 pharmaceutical manufacturers participated in Medicaid's drug rebate program. For each prescription drug purchased by Medicaid, participating drug manufacturers must report two market prices to CMS—the average manufacturer price (AMP), which is the average price drug makers receive for sales to retail pharmacies and mail-order establishments, and the lowest transaction price, or best price, that manufacturers receive from sales to certain private buyers of each drug. Those prices, which serve as reference points for determining manufacturers' rebate obligations, must be reported for each formulation, dosage, and strength of prescription drugs purchased on behalf of Medicaid beneficiaries. Prescription Drug Rebates (§2501) For the purpose of determining rebates, Medicaid distinguishes between two types of drugs: (1) single source drugs (generally, those still under patent) and innovator multiple source drugs (drugs originally marketed under a patent or original new drug application but for which there now are generic equivalents); and (2) all other, non-innovator, multiple source drugs. Rebates for the first category of drugs—drugs still under patent or those once covered by patents—have two components: a basic rebate and an additional rebate. Medicaid's basic rebate is determined by the larger of either a comparison of a drug's quarterly AMP to the best price for the same period, or a flat percentage (15.1%) of the drug's quarterly AMP. Drug manufacturers owe an additional rebate when their unit prices for individual products increased faster than inflation. Currently, modifications to existing drugs—new dosages or formulations—generally are considered new products for purposes of reporting AMPs to CMS. As a result, drug makers sometimes can avoid incurring additional rebate obligations by making slight alterations to existing products, sometimes called line-extensions, and releasing these as new products. For example, manufacturers have developed new extended-release formulations of existing products which, because they are considered new products under existing Medicaid drug rebate rules, are given new base period AMPs. The new base period AMPs for line-extension products will be higher than the original product's AMP. For the line-extension product, the manufacturer is unlikely to owe an additional rebate since the product's AMP will not have risen faster than the rate of inflation. Public Health Service Act (PHSA) Sec. 340B requires pharmaceutical drug manufacturers that enter into Medicaid drug rebate agreements to discount outpatient drugs purchased by certain public health facilities (covered entities). In addition to other requirements, 340B hospitals and other covered entities are prohibited from obtaining multiple discounts for individual drugs and from diverting 340B drug purchases to other buyers. Beginning January 1, 2010, the bill would, with certain exceptions, increase the flat rebate percentage used to calculate Medicaid's basic rebate for single source and innovator multiple source outpatient prescription drugs from 15.1% to 23.1% of AMP. The basic rebate percentage for multi-source, non-innovator and all other drugs would increase from 11% to 13% of AMP. Under the bill, the Secretary would be required to recover the additional funds states received from drug manufacturers that were attributable to increases in the minimum Medicaid rebate percentage. The Secretary would be authorized to reduce Medicaid payments to states by the state share (100% - the federal FMAP rate) of the additional prescription drug rebates that resulted from increases in the minimum rebate percentages. The Secretary would estimate the additional rebate amounts to recover from states based on utilization and other data. In addition, when it was determined that the recovered amount from a state for a previous quarter under-estimated the actual rebate amount (state share) the Secretary would make further adjustments in the rebate recoveries. These state payment reductions would be considered overpayments to the state and disallowed against states' regular Medicaid quarterly draw similar to other overpayments, and these disallowances would not be subject to reconsideration. The bill also would require drug manufacturers to pay rebates to states on drugs dispensed to Medicaid beneficiaries who receive care through Medicaid MCOs similar to the way rebates are required under current law for FFS beneficiaries. Medicaid capitation rates paid by states would be adjusted to include these rebates, and Medicaid MCOs would be subject to additional reporting requirements such as submitting data to states on the total number of units of each dose, strength, and package size by National Drug Code for each covered outpatient drug. Medicaid MCOs could utilize formularies as long as there was an exception process so that excluded drugs would be available through prior authorization. Drugs discounted under 340B would be excluded from this provision. With certain exceptions, the bill would require that additional rebates for new formulations of single source or innovator multiple source drugs be the greater of the basic rebate for new product or the AMP of the new drug multiplied by highest additional rebate for any strength of the original product (calculated for each dose and strength of the product). However, total rebate liability for each dosage form and strength of an individual single source or innovator multiple source drug would be limited to no more than 100% of that drug's AMP. Other features of the drug rebate program, such Medicaid's best price provision, would remain unchanged. All changes for this provision would begin January 1, 2010. Elimination of Exclusion of Coverage of Certain Drugs (§2502) Medicaid law excludes coverage of 11 drug classes, including barbiturates, benzodiazepines, and smoking cessation products. States have the option to cover excluded drugs, and most states cover barbiturates, and benzodiazepines, and smoking cessation drugs. States receive FFP when they cover these drugs. Coverage of prescription drugs for full benefit dual eligibles (individuals who are eligible for both Medicare and Medicaid) was transferred from state Medicaid programs to Medicare when Part D was implemented in January 2006. Barbiturates and benzodiazepines, two important drug classes for Medicaid beneficiaries, were excluded from Part D formularies (coverage). However, under the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-271 ), Medicare prescription drug plans and Medicare Advantage plans will be required to include benzodiazepines and barbiturates in their formularies for prescriptions dispensed beginning on January 1, 2013. Barbiturates also will be required to be included in Medicare formularies for the indications of epilepsy, cancer, or chronic mental health disorder. Beginning January 1, 2014, this provision would remove smoking cessation drugs, barbiturates, and benzodiazepines from Medicaid's excluded drug list. States that covered prescription drugs would be required to cover these drugs for most Medicaid beneficiaries. Providing Adequate Pharmacy Reimbursement (§2503) Medicaid law requires the Secretary to establish upper limits on federal share of payments for prescription drugs. These limits are intended to encourage substitution of lower-cost generic equivalents for more costly brand-name drugs. When applied to multiple source drugs, those limits are referred to as federal upper payment limits (FUL). CMS calculates FULs and periodically publishes these prices. The DRA required the Secretary to use a new formula for FULs beginning January 1, 2007. The new FUL formula was to equal 250% of the average manufacturer price (AMP) of the least costly therapeutic equivalent. AMP was defined under DRA to be the average price paid to the manufacturer by wholesalers for drugs distributed to the retail pharmacy class of trade. DRA also reduced the number of multiple source products rated by the FDA as therapeutic and pharmaceutically equivalent from three to two. Manufacturers are required to report AMP to CMS. Current law allows the Secretary to contract for a survey of retail prices that represent a nationwide average consumer drug price, net of all discounts and rebates. National pharmacy associations challenged the legality of the DRA's FUL methodology, published in a proposed rule CMS issued in 2007, because they claimed that for smaller community pharmacies, the new FULs would be below drug acquisition costs. The court issued an injunction on December 19, 2007 which prohibited CMS from setting FULs for Medicaid covered generic drugs based on AMP, and from disclosing AMP data except within HHS or to the Department of Justice. The court's 2007 injunction was for an indefinite period and remains in place. In addition to the court injunction against using AMP to calculate Medicaid FULs, Section 203 of MIPPA imposed a moratorium on the use of AMP to set FULs and prohibited CMS from making AMP data available until October 1, 2009. Under MIPPA Section 203, until September 30, 2009, FULs could be set based on the pre-DRA methodology—150% of the lowest published price (i.e., wholesale acquisition cost, average wholesale price or direct price) for each dosage and strength of generic drug products. In general, these published prices are significantly higher than AMPs. CMS currently lacks authority to use either the pre-DRA formula (expired September 30, 2009) for setting FULs or the DRA authority (prohibited by MIPPA and the court's injunction). In the interim, until the court injunction is resolved or new legislation is offered to address the use of AMP or anther FUL formula, CMS issued a list of multiple source drug FULs on September 25, 2009 to establish the federal maximum that states may pay under Medicaid. However, most states also use Medicaid Acquisition Costs (MACs) to set their own ceiling prices, and these prices often are less than FULs. Under the bill, the Secretary would be required to set FULs at 175% or more of the weighted average (determined on the basis of utilization) of the most recently reported monthly AMPs. The bill also would restore the pre-DRA definition of multiple source drugs as three therapeutic and pharmaceutically equivalent products. The FUL formula would include certain technical specifications such as the use of a smoothing process for average prices and would clarify that the definition of AMP to include sales by (1) wholesalers for drugs distributed to retail community pharmacies, and (2) retail community pharmacies that purchase drugs directly from manufacturers. In addition, under the bill, AMP would exclude customary prompt pay discounts and other service and related fees, such as restocking charges and reimbursement for returned merchandise. Further, this provision would revise the definition of a multiple source drug from one marketed in a state during the rebate period to a product marketed during the period in the United States. Moreover, the bill would expand drug pricing disclosure requirements to include monthly weighted average AMPs and retail survey prices. Manufacturers would be required to report within 30 days of the end of each month of a rebate period the total number of units sold and used by the manufacturer to calculate the AMP for each covered outpatient drug. This provision would be effective as of the first quarter beginning at least six months after enactment, regardless of whether final regulations were issued. 340B Prescription Drug Discount Program Expansion20 (§7101-7103) Under Sec. 340B of the PHSA, pharmaceutical drug manufacturers that participate in the Medicaid drug rebate program are required to enter into pharmaceutical pricing agreements where they agree to discount covered outpatient drugs purchased by public health and related entities (covered entities). Covered entities include hospitals owned or operated by state or local government that serve a higher percentage of Medicaid beneficiaries, as well as federal grantees such as Federally Qualified Health Centers (FQHCs), FQHC look-alikes, family planning clinics, state-operated AIDS drug assistance programs, Ryan White CARE Act grantees, family planning and sexually transmitted disease clinics, and others, as identified in the PHSA. Covered entities do not receive discounts on inpatient drugs under the 340B program. Under the bill, the list of covered entities eligible to receive 340B discounts would be expanded to include (1) certain children's and free-standing cancer hospitals excluded from the Medicare prospective payment system, (2) critical access and sole community hospitals, and (3) rural referral centers. In addition, the bill would expand 340B discounts to inpatient drugs for participating hospital entities. Further, the bill would require the Secretary to develop systems to improve compliance and program integrity activities for manufacturers and covered entities, as well as administrative procedures to resolve disputes. Finally, within 18 months of enactment, the Government Accountability Office (GAO) would be required to submit to Congress a report that examines, among other issues, whether individuals receiving services through 340B covered entities are receiving optimal health care services. These provisions, except the GAO report requirement, would be effective and would apply to drug purchases beginning January 1, 2010. Program Integrity Program integrity (PI) initiatives are designed to combat fraud, waste, and abuse. This includes processes directed at reducing improper payments, as well as activities to prevent, detect, investigate, and ultimately prosecute health care fraud and abuse. More specifically, PI ensures that correct payments are made to legitimate providers for appropriate and reasonable services for eligible beneficiaries. The federal government provides the majority of Medicaid spending to combat fraud and abuse, as part of an enhanced FMAP contribution. The federal match for administrative expenditures does not vary by state and is generally 50%; however certain administrative functions have a higher federal match, including two program integrity expenditures. Operation of required Medicaid Management Information Systems (MMIS), and operation of state Medicaid Fraud Control Units (MFCU) activities are matched at 75%, although the federal match is 90% for certain startup expenses. In DRA, Congress provided new dedicated PI funding when it established a Medicaid Integrity Program (MIP) with an appropriation reaching $75 million annually to cover the cost of audits, overpayments identification, payment integrity and quality of care education, and other purposes. Congress provided an additional $25 million annually for five years beginning in FY2006 for Medicaid activities of the Health and Human Services Office of Inspector General (OIG), and an annual appropriation reaching $60 million to expand the Medicare-Medicaid data match project (referred to as Medi-Medi) that analyzes claims from both programs together in order to detect aberrant billing patterns. Medicare and Medicaid PI activities traditionally have been mostly independent of each other with separate, though often similar, requirements for each program. In addition, there have been limited requirements for coordination of Medicare and Medicaid PI activities. As PI monitoring and prevention have advanced, there has been increased recognition of the need for closer coordination among entities involved in PI, as well as the need for more comparable rules and requirements applicable to Medicare, Medicaid, and CHIP. The bill creates additional individual requirements to increase uniformity, and bolster Medicare, Medicaid and CHIP PI activities. For instance, the bill has a new provision that would introduce additional provider screening requirements and screening fees that, with certain exceptions, are comparable for Medicare and Medicaid. The bill also would create an integrated Medicare and Medicaid data repository to enhance program integrity data sharing that would be available to federal and state program integrity agencies. Moreover, a recovery audit contractor (RAC) requirement, similar to Medicare's RAC program, would be established for Medicaid (described below). Expansion of the Recovery Audit Contractor (RAC) Program (§6411) RACs are private organizations that contract with CMS to identify and collect improper payments made in Medicare's FFS program. In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ), Congress required the Secretary to conduct a three-year demonstration of RACs. However, in December 2006, Congress passed the Tax Relief and Health Care Act of 2006 (TRHCA, P.L. 109-432 ) which made the RAC program permanent and mandated its expansion nationwide by January 1, 2010. The TRHCA RAC expansion still applied only to Medicare Parts A and B, excluding managed care under Medicare Part C and prescription drug coverage under Part D. CMS began the national rollout of the permanent RAC program in 19 states in March 2009. By December 31, 2010, states would be required to have established contracts, consistent with state law, and similar to the contracts the Secretary has established for the Medicare RAC program, with one or more RACs. These state RACs would identify underpayments, overpayments, and recoup overpayments made for services provided under state Medicaid plans as well as waivers. The state Medicaid RAC program would be subject to exceptions and requirements the Secretary may establish for the state RAC program. In addition, states would be required to make certain assurances for their RAC programs, including operation on a contingency basis, there would be an adverse determination appeal process, recoveries would be subject to quarterly expenditure estimates, and states would coordinate with other program integrity activities such as federal and state law enforcement. Termination of Provider Participation Under Medicaid if Terminated Under Medicare or Other State Plan (§6501) Subject to certain exceptions, the Secretary is required to exclude providers or individuals from Medicare or Medicaid that: (1) have been convicted of a criminal offense related to the delivery of an item or service under Medicare or under any state health care program; (2) have been convicted, under federal or state law, of a criminal offense relating to neglect or abuse of patients in connection with the delivery of a health care item or service; (3) have been convicted of a felony conviction related to health care fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; or (4) have been convicted of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. The Secretary also may exclude providers or individuals from Medicare or Medicaid participation who are involved in prohibited activities, such as program-related convictions, license revocation, failure to supply information, and default on loan or scholarship obligations. CMS must promptly notify the Inspector General if it receives Medicare or Medicaid program participation applications that identify providers that have engaged in prohibited activities. This provision would require states to terminate individuals or entities (or individuals or entities who owned, controlled, or managed entities) from their Medicaid programs if the entities had unpaid Medicaid overpayments (as defined by the Secretary), were suspended, excluded or terminated from Medicaid or Medicare participation, or were affiliated with individuals or entities who had been terminated from Medicaid. This provision would be effective January 1, 2011. Medicaid Exclusion from Participation Relating to Certain Ownership, Control, and Management Affiliations (§6502) Medicaid law requires states to exclude individuals or entities from Medicaid participation when a state is directed to do so by the Secretary, and to deny payment for any item or service furnished by the individual or entity. States are required to exclude these individuals and deny payment for a period specified by the Secretary. The measure would require Medicaid agencies to exclude individuals or entities from Medicaid participation if the entity or individual owns, controls, or manages an entity that: (A) has unpaid or unreturned overpayments during the period as determined by the Secretary or the state; (B) is suspended, excluded, or terminated from participation in any Medicaid program; or (C) is affiliated with an individual or entity that has been suspended, excluded, or terminated from Medicaid participation during the period. This provision would be effective January 1, 2011. Billing Agents, Clearinghouses, or Other Alternate Payees Required to Register Under Medicaid (§6503) As a condition of participation, certification, or recertification in Medicaid, the Secretary requires disclosing entities to supply upon request, either to the Secretary or the state Medicaid agency, information on the identity of each person with ownership or control interests in the entity or subcontractor that is equal to 5% or more of such entity. Disclosing entities include providers of service, independent clinical laboratories, renal disease facilities, managed care organizations or health maintenance organizations, entities (other than individual practitioners or groups of practitioners) that furnish or arrange for services, carriers or other agencies, or organizations that act as fiscal intermediaries or agents for service providers. Federal rules applicable to Medicaid state plans also require states to exclude individuals or entities from Medicaid participation when a state is directed to do so by the Secretary and to deny payment for any item or service furnished by the individual or entity. The provision would require any agents, clearinghouses, or other alternate payees that submit claims on behalf of Medicaid health care providers to register with the state and the Secretary in a form and manner specified by the Secretary. This provision also would be effective January 1, 2011. Requirement to Report Expanded Set of Data Elements Under MMIS to Detect Fraud and Abuse (§6504) To administer their state Medicaid plans, states are required to operate an automated claims processing system and data base known as a Medicaid Management Information System (MMIS). The Secretary must approve states' MMISs and determine that they have met requirements including compatibility with Medicare claims processing and information systems, and consistency with uniform coding systems for claims processing and data interchange. MMISs also must be capable of providing timely and accurate data, meet other specifications as required by the Secretary, and provide for electronic transmission of claims data as well as be consistent with Medicaid Statistical Information Systems (MSIS) data formats. MSIS is an analytical database derived from MMIS claims level data. MMIS data primarily captures claims data when Medicaid beneficiaries receive their care on a FFS basis. For most states, managed care encounter data or managed care claims level data generally are not reported or otherwise captured by state MMIS systems. Under managed care, MCOs are paid a capitated (fixed fee) regardless of the amount of care required by beneficiaries. Encounter data reporting requirements under state contracts with MMCOs vary. Medicaid agencies also do not report claims level managed care data to CMS through their MMISs. This provision would require states, beginning in January 1, 2011, to collect and submit through their MMISs managed care data as identified by the Secretary for program integrity, program oversight, and administration. The Secretary would determine the data needed and how frequently these data would need to be submitted. In addition, beginning with contract years beginning after January 1, 2010, MMCO entities would be required to submit data elements as determined necessary by the Secretary for program integrity, program oversight, and administration. Prohibition on Payments to Institutions or Entities Located Outside of the United States (§6505) Under current Medicaid law, there are no specific prohibitions or limitations which would prevent Medicaid payments to institutions or entities located outside the United States. The measure would prohibit states from making any payments for items or services supplied to beneficiaries under a Medicaid state plan or waiver to any financial institution or entity located outside of the United States. This provision would be effective January 1, 2011. Overpayments (§6506) Medicaid law requires states to repay promptly the federal share of Medicaid overpayments when the state discovers overpayments occurred. States have 60 days after discovery of an overpayment to recover, or attempt to recover, the overpayment before an adjustment is made to their federal matching payment. Adjustments in federal payments are made at the end of the 60 days, whether or not recovery is made. When states are unable to recover overpayments because the debts were discharged in bankruptcy or were otherwise uncollectable, federal matching payments would not be adjusted. Once the 60 day recovery deadline has lapsed, payments would be readjusted. Beginning with enactment, the bill would extend the time period for states to repay overpayments due to fraud to one year when the uncollectible debt (or any part) was an overpayment within one year of discovery because a determination of the amount of the overpayment was not made due to an ongoing judicial or administrative process, including the appeal of a judgment. When these overpayments due to fraud are pending, state repayments of the federal portion would not be due until 30 days after the date of the final judgment (including a final appeal determination). The Secretary would be required to issue regulations for states to use in adapting MMIS edits, conducting audits, or other appropriate actions to identify and correct recurring or ongoing overpayments. This provision would be effective upon enactment. Mandatory State Use of National Correct Coding Initiative (§6507) Working through health insurance contractors, CMS processes Part B Medicare claims which include payments for physician, laboratory, and radiology services. In 1996, to help ensure correct payment for these claims, CMS initiated a national correct coding initiative (NCCI). Under NCCI, CMS' contractors screen Medicare Part B claims with automated pre-payment edits. The software edits used by Medicare contractors are designed to detect anomalies that indicate a claim has incorrect information. For example, NCCI edits can detect claims with duplicate services delivered to the same beneficiary on the same date of service. Medicaid law does not require the use of NCCI prepayment edits, but individual states conduct medical review and other pre- and post-payment reviews designed to detect fraud, waste, and abuse. Under the bill, for Medicaid claims submitted beginning October 1, 2010, states would be required to add to their Medicaid Management Information Systems (MMISs) pre-payment edits to correct and control improper coding similar to the edits used by Medicare contractors under the NCCI. By September 1, 2010, the Secretary would be required to (1) identify NCCI methodologies that are compatible to Medicaid payment claims, and (2) identify methodologies that would be applicable to Medicaid, but for which no Medicare NCCI methodologies have been established. Further, the Secretary would be required to notify states of the NCCI methodologies (or successor initiatives) that were identified and how states should incorporate those methodologies into their Medicaid claims processing systems. Moreover, the Secretary would be required to submit a report to Congress by March 1, 2011 that includes the notice to states about the NCCI methodologies, and an analysis that supports the identification of NCCI methodologies to be applied to Medicaid claims. General Effective Date for Medicaid and CHIP Program Integrity Activities (§6508) States would be required to have implemented waste, fraud, and abuse programs specified under the bill before January 1, 2011, regardless of whether the Secretary had issued final regulations to implement these provisions. In situations where the Secretary determined that state legislation would be required (other than appropriation legislation) to amend the state plan or child health plan, then states would have additional time to comply with these requirements. Other Program Integrity and Related Provisions Applicable to Medicaid Provider Screening and Other Enrollment Requirements under Medicare, Medicaid, and CHIP (§6401, §10603) The enrollment process for participation in Medicare, Medicaid, and CHIP differs for providers although Medicaid and CHIP have very similar requirements. This bill would require the Secretary, in consultation with the Office of the Inspector General (OIG), to establish similar procedures for screening providers and suppliers enrolling in the Medicare, Medicaid, and CHIP programs. Procedures would be required to include a process for screening, enhanced oversight measures, disclosure requirements, moratoriums on enrollment, and requirements for developing compliance programs. The Secretary would have six months from enactment to develop the procedures, which would apply to both new and current providers. The Secretary would be required to implement these requirements within three years. The Secretary would determine the level of screening for providers depending on the provider's fraud risk category. At a minimum, all providers and suppliers would be subject to licensure checks, including checks across states. The Secretary would have the authority to impose additional screening measures such as criminal background checks, fingerprinting, unannounced site visits, database checks, and periods of enhanced oversight if necessary. To cover the costs of the screening, institutional providers and suppliers would be subject to fees, with some hardship exceptions and waivers for certain Medicaid providers when states can demonstrate that imposition of the fees might jeopardize beneficiaries' access to services. Fees would start at $500 for institutional providers and would be adjusted for inflation thereafter. The Secretary also would have authority to impose a temporary moratorium on enrolling new providers if necessary. The bill also would require Medicare, Medicaid, and CHIP providers and suppliers, within a particular industry or category, to establish a compliance program, adhering to standards established by the Secretary and the OIG. Enhanced Medicare and Medicaid Program Integrity Provisions (§6402) The Secretary would be required under the bill to enhance existing Medicare, Medicaid, and CHIP program integrity initiatives. As part of these enhancements, the Secretary would be required to use the same requirements for Medicare, Medicaid, and CHIP. Data Matching . Currently, claims and payment data for Medicare and Medicaid are housed in multiple databases. CMS is in the process of consolidating information stored in these databases into an Integrated Data Repository (IDR). This provision would require CMS to include in the IDR claims and payment data from the following programs: Medicare (Parts A, B, C, and D), Medicaid, CHIP, health-related programs administered by the Departments of Veterans Affairs (VA) and Defense (DOD), Social Security Administration, and the IHS. The priority would be the integration of Medicare claims and payment data. Data for the remaining programs would be integrated as time and funds permit. Access to Data. Inspectors General have substantial independence and power to carry out their mandate to combat waste, fraud, and abuse, including relatively unlimited authority to access all records and information of an agency. This provision would grant the OIG and the DOJ explicit access to Medicare, Medicaid, and CHIP payment and claims data (including Medicare Part D data) for the purposes of conducting law enforcement and oversight activities. The provision also would grant the OIG the authority to obtain information (i.e. supporting documentation, medical records, etc.) from any individual that directly or indirectly provides medical services payable by a federal health care program. Beneficiary Participation in Health Care Fraud Scheme. The provision would require the Secretary to impose penalties against beneficiaries entitled to or enrolled in Medicare, Medicaid, or CHIP that knowingly participate in a health care fraud offense. National Provider Identifier (NPI). Health care providers often have many different provider numbers, one for billing each private insurance plan or public health care program. The administrative simplification provisions of HIPAA required the adoption and use of a standard unique identifier for health care providers or NPI. All health care providers who are considered covered entities under HIPAA were required to obtain and submit claims using an NPI as of May 2007. This provision would require the Secretary to issue regulations before January 1, 2011 mandating that all Medicare and Medicaid providers include their NPI on all claims and enrollment applications. Withholding of Federal Matching Payments for States that Fail to Report Enrollee Encounter Data in MSIS . The Secretary would be permitted to withhold federal matching payments for services provided to Medicaid beneficiaries when states did not submit encounter data (as determined by the Secretary) for those beneficiaries in timely manner. Permissive Exclusions. HHS OIG has the authority to exclude health care providers from participation in federal health care programs. Exclusions are mandatory under certain circumstances, and permissive in others (i.e., HHS OIG has discretion in whether to exclude an entity or individual). This provision would subject any individual or entity that makes a false statement or misrepresentation on an application to enroll or participate in a federal health care program to the OIG's permissive exclusion authority. The provision would explicitly apply to Medicare Advantage plans, Prescription Drug Plans, and Medicaid managed care plans as well as their participating providers and suppliers. Civil Monetary Penalties (CMPs). Section 1128A of the SSA authorizes the imposition of CMPs on a person, organization, agency, or other entity that engages in various types of improper conduct with respect to federal health care programs. The bill generally provides for CMPs of up to $10,000 for each false claim submitted, $15,000 or $50,000 under other circumstances, and an assessment of up to three times the amount claimed. The bill would add additional actions that would be subject to CMPs. Among other changes, the following individuals would be subject to CMPs: individuals who have been excluded from a federal health care program, but who order or prescribe an item or service; individuals who make false statements on enrollment applications, bids, or contracts; or individuals who know of an overpayment and do not return the overpayment. Testimonial Subpoena Authority. The testimonial subpoena authority grants the authority to issue subpoenas and require the attendance and testimony of witnesses and the production of any other evidence that relates to matters under investigation or in question. Under this provision, the Secretary would be able to issue subpoenas and require the attendance and testimony of witnesses and the production of any other evidence that relates to matters under investigation or in question by the Secretary. The Secretary also would have the ability to delegate this authority to the OIG and the CMS administrator for the purposes of a program exclusion investigation. Medicare and Medicaid Integrity Programs. Under the Medicare Integrity Program (MIP), CMS contracts with private entities to conduct a variety of activities designed to protect Medicare from fraud, waste, and abuse. Activities include auditing providers, identifying and recovering improper payments, educating providers about fraudulent providers, and instituting a Medicare-Medicaid data matching program. Established by DRA, the Medicaid Integrity Program (MIP) is modeled after Medicare's MIP program. Medicaid MIP provides HHS with dedicated resources to contract with entities to reduce fraud, waste, and abuse, and to add 100 full-time equivalent MIP staff. This provision would require both Medicare and Medicaid Integrity Program contractors to provide the Secretary and the OIG with performance statistics, including the number and amount of overpayments recovered, the number of fraud referrals, and the return on investment for such activities. The Secretary also would be required to conduct evaluations of eligible entities at least every three years. Within six months of the fiscal year end, the Secretary would be required to submit a report to Congress describing the use and effectiveness of MIP funds. Improving Nursing Home Transparency, Enforcement, and Staff Training (§6101-§6107, §6111-§6114, and §6121) Medicare and Medicaid laws require skilled nursing facilities (SNF) and nursing facilities (NF) to be administered in a manner that will ensure residents' well-being. The Secretary establishes requirements for SNF and nursing homes that will protect the safety, health, welfare, and rights of residents. Facilities undergo regular survey and certification inspections to ensure their compliance with these standards. SNF and nursing home inspections identify deficiencies where facilities fail to meet federal standards. Deficiencies can range from minor problems to major safety and life-threatening conditions. State and federal officials may impose civil monetary penalties on facilities that fail to meet standards or fail to correct deficiencies. In extreme cases, federal and state officials can install new facility management, assume control of facilities, or even close SNF or nursing homes that jeopardize residents' well-being. The measure would enhance certain accountability requirements for Medicare certified SNF and Medicaid certified NF. The changes in these sections would require SNFs and NFs to maintain and make available additional information on facility ownership and organizational structure, as well as to establish new staff compliance and ethics training programs. The changes in these sections also would require the Secretary to establish additional requirements for SNFs and NFs to develop and implement compliance and ethics programs. The Secretary would further be required to enhance the SNF and NF information available on the Medicare Nursing Home Compare website, and to ensure that information is prominent, easily accessible, searchable, and readily understandable to long-term care consumers. SNFs would be required to report wage and benefit expenditures for direct care staff. In addition, the Secretary, in consultation with private sector experts, would be required to redesign Medicare and Medicaid cost reports to capture wage and benefit reporting by SNFs and NFs. The Secretary would be required to develop a new standardized complaint form that facilities and states would be required to make available to all stakeholders and consumers. The changes in these sections would require SNFs and NFs to electronically report direct staffing information to the Secretary following specifications the Secretary would establish in consultation with stakeholders. GAO would be required to conduct a study of the Centers for Medicare & Medicaid Services Five-Star rating system. Additional civil money penalties would be established that both the Secretary and states could impose on SNFs or NFs found to have quality of care issues and other deficiencies that jeopardized residents' safety. The Secretary would be required to develop, test, and implement a national independent monitoring demonstration for large interstate and intrastate SNF and NF chains. Further, the bill would establish new requirements for SNF and NF administrators to inform residents and their representatives, as well as the Secretary, states, and other stakeholders of planned facility closures. SNF and NF administrators who failed to comply with the closure notice requirements could be subject to penalties up to $100,000 and exclusion from federal health program participation. The Secretary also would be required to conduct demonstration projects on best practices for culture change and use of information technology in SNFs and NFs. The Secretary would also be required to revise initial nurse aide training, competency, and evaluation requirements to include dementia and abuse prevention. Finally, the Secretary also would be authorized to revise dementia management training and patient abuse prevention in ongoing nurse training, competency, and evaluation requirements. Effective dates for the nursing home transparency provisions vary, but mostly are within two years of enactment. Demonstrations and Grant Funding Money Follows the Person (§2403) Under the Money Follows the Person (MFP) Rebalancing Demonstration, the Secretary awarded competitive grants to states to meet the following objectives: (1) increase the use of home and community-based, rather than institutional, long-term care (LTC) services; (2) eliminate barriers that prevent or restrict the flexible use of Medicaid funds to support services for individuals in settings of their choice; (3) increase Medicaid's ability to assure home and community-based LTC services to individuals transitioning from institutions to a community settings; and (4) ensure that procedures are in place to provide quality assurance home and community-based LTC services. To participate, individuals must be (1) residing in, and have been residing in for not less than six months and not more than two years, an inpatient facility; (2) receiving Medicaid benefits for inpatient services furnished by such inpatient facility; and (3) continuing to require the level of care provided in an inpatient facility, among other requirements. The bill would extend the MFP Rebalancing Demonstration through September 30, 2016 and would extend the deadline for the submission of the final evaluation report to September 30, 2016. The provision would also change the demonstration eligibility rules by requiring that individuals reside in an inpatient facility for not less than 90 consecutive days, and by removing the maximum length of stay for eligibility purposes. The provision would also exclude Medicare-covered short-term rehabilitative services from counting toward the 90-day period. This provision would be effective 30 days after enactment. Demonstration Project to Evaluate Integrated Care Around Hospitalization (§2704) There is no related provision in current law. The bill would establish a Medicaid demonstration that would evaluate whether quality could be improved and Medicare payments reduced by making bundled payments to hospitals and physicians for the delivery of integrated care. Such payments would be made for episodes of care that include beneficiaries' hospital stays and concurrent physician services. Under the demonstration, bundled payments would be based on the beneficiary's severity of illness, among others requirements. States could target selected categories of beneficiaries, such as those with particular diagnoses, or those in particular geographic regions. Finally, participating hospitals would be required to have, or to establish, robust discharge planning programs that would appropriately place beneficiaries in, or ensure that they have access to, post-acute care settings. This demonstration project would be limited to eight states, and required to begin on January 1, 2012 and end on December 31, 2016. Medicaid Global Payment System Demonstration Project (§2705) Under Medicaid FFS, the state directly (or through a fiscal intermediary) pays for each covered service received by a Medicaid beneficiary. All states pay Medicaid-certified hospitals using a prospectively determined payment system for each case or day of hospitalization. Aggregate Medicaid payments vary based on the number of cases. Under the bill, the Secretary, in coordination with the proposed Center for Medicare and Medicaid Innovation would be required to establish the Medicaid Global Payment System Demonstration Project in no more than five states. The demonstration would be required to be operational from FY2010 through FY2012. Under the project, payments to an eligible safety net hospital system or network would be adjusted from a FFS payment structure to a global, capitated payment model (a fixed-dollar payment for patient care, which does not vary by the amount of services delivered). The Secretary would have the authority to modify or terminate the project during an initial testing period, and would be required to submit an evaluation by the Innovation Center, as well as recommendations for legislative and administrative action, no later than 12 months after the demonstration's completion. The bill would authorize to be appropriated such sums as necessary to finance this demonstration project. Pediatric Accountable Care Organization Demonstration Project (§2706) Accountable care organizations (ACOs) are defined by experts as groups of providers (e.g. combinations of one or more hospitals, physician groups, and/or other health care providers) that are jointly responsible, through shared bonuses or penalties, for the quality and cost of health care services for a given population of beneficiaries. Under the proposed Medicare Shared Savings Program in the bill, groups of providers who voluntarily meet certain statutory criteria, including quality measurements, could be recognized as ACOs and be eligible to share in the cost-savings they achieve for the Medicare program. An eligible ACO would be defined as a group of providers and suppliers who have an established mechanism for joint decision making, and would be required to participate in the shared savings program for a minimum of three years, among other requirements. An ACO would include practitioners (physicians, regardless of specialty; nurse practitioners; physician assistants; and clinical nurse specialists) in group practice arrangements; networks of practices; and partnerships or joint-venture arrangements between hospitals and practitioners; among others. The bill would establish the Pediatric Care Organization demonstration project, where participating states would be authorized to allow pediatric medical providers, who voluntarily meet certain statutory criteria, including quality measurement criteria, to be recognized as ACOs and be eligible to share in the cost-savings they achieve for the Medicaid program, in the same manner as an ACO is recognized and provided with incentive payments under the proposed Medicare Shared Savings Program. ACOs could include pediatric physicians in group practice arrangements, or in networks of practices, and those in joint-venture arrangements with hospitals, among others. To receive an incentive payment, qualified ACOs would be required to meet both quality performance guidelines created by the Secretary, in consultation with states and pediatric providers, and a minimum annual savings level, as established by a participating state, for expenditures on items and services covered under Medicaid and CHIP. The Secretary would be responsible for determining the amount of the annual incentive payment, which would be a portion of savings and could establish an annual cap on total incentive payments. The bill would authorize an appropriation of such sums as may be necessary to finance this demonstration project. Medicaid Emergency Psychiatric Demonstration Project (§2707) Medicaid does not reimburse for services provided to residents of institutions for mental disease (IMD), except to those individuals who are under age 21 receiving inpatient psychiatric care and to individuals age 65 and over. IMDs are defined under Medicaid statute as hospitals, nursing facilities, or other institutions with more than 16 beds that are primarily engaged in providing diagnosis and treatment of persons with mental diseases. Federal law requires that hospital-based IMDs which have emergency departments provide a medical screening examination to individuals for whom an examination or treatment for a medical condition is requested. In such cases, the hospital-based IMD must provide for an appropriate medical screening examination to determine whether or not a medical emergency exists. If a medical emergency exists, then the hospital-based IMD must provide, within the staff and facilities available at the hospital, for further medical examination and treatment as may be required to stabilize the medical condition, or to transfer the individual to another medical facility, subject to certain limitations. The bill would establish a three-year Medicaid demonstration project in which eligible states would be required to reimburse certain IMDs that are not publicly owned or operated for services provided to Medicaid eligibles aged 21 through 64 who require medical assistance to stabilize a psychiatric emergency medical condition, as defined by the bill. The state would be required to establish a mechanism for in-stay review (to be applied before the third day of the inpatient stay) to determine whether the patient has been stabilized, as defined by the bill. Eligible states would be selected by the Secretary based on geographic diversity. Out of funds not otherwise appropriated, the provision would provide budget authority in advance of appropriations in an amount equal to $75 million for FY2011. Such funds would remain available for obligation for five years through December 31, 2015. An evaluation would be conducted on whether access to inpatient mental health services under Medicaid increased, among other things. A final report would be submitted to Congress by the Secretary. Grants for School-Based Health Centers (§4101(a)) The bill would establish a grant program to support the establishment of school-based health centers. The proposal would appropriate $50 million for each fiscal year from FY2010 through FY2013, for a total of $200 million, to remain available until expended. The use of such funds for any service that is not authorized or allowed by federal, state, or local law would be prohibited. The Secretary would be required to establish criteria and application procedures for awarding grants under this program. The Secretary would also be directed to give preference in awarding grants to school-based health centers serving a large population of children eligible for Medicaid or CHIP. Eligible entities must use these grant funds only for expenditures for facilities, equipment or similar costs. No grant funds could be used for personnel or health care expenditures. (Another provision, described in a separate CRS report, would provide grants under the PHSA for the operation of school-based health centers.) Grants for Prevention of Chronic Disease in Medicaid (§4108) There is no related provision in current law. The Secretary would be authorized to award grants to states to provide incentives for Medicaid beneficiaries to participate in programs to promote healthy lifestyles. These programs must be comprehensive and uniquely suited to address the needs of Medicaid eligible beneficiaries, and have demonstrated success in helping individuals lower cholesterol and/or blood pressure, lose or control weight, quit smoking and/or manage or prevent diabetes, and may address co-morbidities, such as depression, associated with these conditions. The purpose of this initiative is to test approaches that may encourage behavior modification and determine scalable solutions. The provision would authorize the appropriation of $100 million in funding for these grants during a five-year period. Under this bill, the Secretary would be required to award grants beginning on January 1, 2011, or the date on which the Secretary develops program criteria, whichever is earlier. These criteria will be developed using relevant evidence based research including the Guide to Community Preventive Services, the Guide to Clinical Preventive Services, and the National Registry of Evidence-Based Programs and Practices. The state initiatives would be required to last at least three years of the five-year program spanning January 1, 2011, through January 1, 2016. After the Secretary develops and institutes an outreach and education campaign to make states aware of the grants, states may submit a proposal and apply for funds to provide incentives to Medicaid enrollees who successfully complete healthy lifestyle programs. States are permitted to collaborate with community-based programs, non-profit organizations, providers, and faith-based groups, among others. States awarded such grants would be required to conduct an outreach and education campaign aimed at Medicaid beneficiaries and providers. States receiving grants would be required to establish a system to track beneficiary participation and validate changes in health risk and outcomes; establish standards and health status targets for participating Medicaid beneficiaries; evaluate the effectiveness of the program and provide the Secretary these evaluations; report to the Secretary on processes that have been developed and lessons learned; and report on preventive services as part of reporting on quality measures of Medicaid managed care programs. A state awarded a grant would be required to submit semi-annual reports including information on the specific use of the funds, an assessment of program implementation, and assessment of quality improvements and clinical outcomes, and an estimate of cost savings resulting from such program. This provision would exempt states from requirement 1902(a)(1) of the SSA, which relates to the statewide accessibility for medical assistance programs. The Secretary would be required to enter into a contract with an independent entity or organization to conduct an evaluation of the initiatives. This report should address the effect of the state initiative of the utilization of health care services, the extent to which special populations, such as adults with disabilities, are able to participate in the program, the level of satisfaction experienced by the Medicaid beneficiaries, and the additional administrative costs incurred as a result of providing the incentives. The Secretary would be required to submit an initial report to Congress before January 1, 2014. This initial report would include an interim evaluation based on information provided by states and recommendations on whether funding for expanding or extending the initiatives should continue beyond January 1, 2016. The Secretary would be required to submit a final report before July 1, 2016 that would include the independent contractor assessment together with recommendations for appropriate legislative and administrative actions. Any incentives received by a beneficiary would not be considered for the purpose of determining eligibility for, or benefits under any program funded whole or in part with federal funds, such as Medicaid. Funding of Childhood Obesity Demonstration Project (§4306) CHIPRA included several provisions designed to improve the quality of care under Medicaid and CHIP. Among other quality initiatives, this law directed the Secretary of HHS to initiate a demonstration to develop a comprehensive and systematic model for reducing child obesity. A total of $25 million was authorized to be appropriated over FY2009 through FY2013. The bill would replace the authorization in current law with an appropriation of $25 million for fiscal years 2010 through 2014 to carry out the comprehensive demonstration project for reducing childhood obesity. Miscellaneous Medicaid Improvement Fund Rescission (§2007) In the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ), Congress directed the Secretary to establish a Medicaid Improvement Fund (MIF) to be used by CMS to improve the management of the Medicaid program, including improved oversight of contracts and contractors and evaluation of demonstration projects. MIF funding was to be available in addition to existing CMS budget authority and was to total $100 million in FY2014, and $150 million in FYs 2015-2018. The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173 ) had revised funding for Physician Assistance and Quality Initiative and these funds were to be used for MIF activities. The bill would rescind any unobligated MIF funds (as of the date of enactment) for FYs 2014 through 2018 (which were to total $700 million). Removal of Barriers to Providing Home and Community-Based Services (§2402) Secretary would be required to promulgate regulations to ensure that all states develop service systems that are designed to: (1) allocate resources for services in a manner that is responsive to the changing needs of beneficiaries receiving non-institutionally-based Long-Term Care services and supports and that maximizes their independence; (2) provide the support for such beneficiaries to design an individualized self-directed, community-supported life; (3) improve coordination among providers to achieve more consistent administration of policies and procedures across federally and state-funded programs. among others. Funding to Expand State Aging and Disability Resource Centers (§2405) Established under the Older Americans Act (OAA), Aging and Disability Resource Centers (ADRCs) provide information and assistance to elderly persons and individuals with physical disabilities, serious mental illness, and/or developmental/intellectual disabilities. ADRCs also serve as a single point of entry for enrollment in publicly-administered LTC services, including those funded by Medicaid and OAA. Out of any funds in the Treasury not otherwise appropriated, the bill would appropriate to the Secretary, acting through the Assistant Secretary of Aging, $10 million for each of FY2010 through FY2014 to carry out ADRC initiatives. Sense of the Senate Regarding Long-Term Care (§2406) The bill would express the sense of the Senate that the 111 th Congress should comprehensively address long-term services and supports in a way that guarantees elderly and disabled individuals the care they need, and that would make long term services and supports available in the community as well as in institutions. Five-Year Period for Dual Eligible Demonstration Projects (§2601) Some elderly and disabled individuals, referred to as dual eligibles, qualify for health insurance under both Medicare and Medicaid. These dual eligible individuals qualify for Medicare Part A and/or Parts B and D and, because they meet Medicare eligibility requirements, and are eligible for Medicaid because they have limited income and assets. Current federal law gives the Secretary authority to waive selected Medicaid and Medicare requirements, as well as approve waivers to reach previously ineligible populations. Some projects have been approved that waive both Medicare and Medicaid rules to implement statewide initiatives to coordinate service delivery, benefit packages, and reimbursement for dual eligibles. Initially, waivers can be approved for periods ranging from two- to five-year periods and renewed for additional periods of up to five years. The bill would authorize the Secretary to initially approve Medicaid waivers for up to five years. This authority would apply to demonstrations as well as home- and community-based waivers for coordinating care of dual eligibles (and for non dual eligible beneficiaries if they were included under the waiver). In addition, the provision would give the Secretary authority to approve Medicaid waiver extensions for additional five-year periods when requested by states, unless the waivers did not met the conditions for the previous period, or it was no longer cost effective, efficient, or consistent with Medicaid policy. Federal Coverage and Payment Coordination for Dual Eligible Beneficiaries (§2602) There are no specific requirements under Medicare and Medicaid rules for the programs to coordinate care for dual eligible individuals. Under the bill, the Secretary would be required to establish a federal coordinated health care office (CHCO) within CMS by March 1, 2010. The CHCO director would be appointed by, and in the direct line of management to, the CMS Administrator. The purpose of the CHCO would be to bring together officers and employees of the Medicare and Medicaid programs at CMS to (1) integrate benefits and (2) improve care coordination. The CHCO would have the following goals: 1. to provide dual eligible individuals full access to the benefits to which they are entitled under the Medicare and Medicaid programs; 2. to simplify the processes for dual eligible individuals to access the items and services they are entitled to under the Medicare and Medicaid programs; 3. to improve the quality of health care and long-term services for dual eligible individuals; 4. to increase beneficiaries' understanding of, and satisfaction with, coverage under the Medicare and Medicaid programs; 5. to eliminate regulatory conflicts between rules under the Medicare, and Medicaid programs; 6. to improve care continuity and ensure safe and effective care transitions; 7. to eliminate cost-shifting between the Medicare and Medicaid programs and among related health care providers; and 8. to improve the quality of performance of providers of services and suppliers under the Medicare and Medicaid programs. Under the bill, the CHCO would have the following specific responsibilities: (1) to provide states, specialized Medicare Advantage plans for special needs individuals—special needs plans, and other entities or individuals qualified to develop programs that align Medicare and Medicaid benefits for dual eligible individuals; (2) to support state efforts with education and tools to coordinate and align acute care and LTC services for dual eligible individuals with other items and services furnished under the Medicare program; (3) to support state and CMS efforts to coordinate contracting and oversight for integrating Medicare and Medicaid programs; (4) to consult with the MedPAC and MACPAC on enrollment and benefit policies for dual eligible individuals; and (5) to study the provision of drug coverage for new full-benefit dual eligibles and to monitor and report on total annual expenditures, health outcomes, and access to benefits for all dual eligibles. The bill's CHCO provision would require the Secretary to submit a report to Congress under the annual budget transmittal. The report would be required to contain recommendations for legislation that could improve care coordination and benefits for dual eligible individuals. Adult Health Quality Measures (§2701) The bill would add a federal initiative to collect and report quality of care data for adults enrolled in Medicaid. Among several activities, the Secretary would publish a recommended core set of adult health quality measures, including such measures in use under public and privately sponsored health care coverage arrangements, or that are part of reporting systems that measure both the presence and duration of health insurance coverage over time. The Secretary would be required to publish an initial core set of measures by January 1, 2012. Also, no later than January 1, 2013, the Secretary, in consultation with the states, would be required to develop a standardized format for reporting information based on this initial core measurement set. States would be encouraged to use these measures to voluntarily report such data. As with existing law regarding quality of care reporting for Medicaid children, before January 1, 2014, and every three years thereafter, the Secretary would be required to submit a report to Congress that describes the Secretary's efforts to improve, for example, the duration and stability of coverage for adults under Medicaid, the quality of care of different services for such individuals, the status of voluntary state reporting of such data, and any recommendations for legislative changes needed to improve quality of care provided to Medicaid adults. Within one year after the release of the recommended core set of adult health quality measures, the Secretary would also be required to establish a Medicaid Quality Measurement Program (MQMP). To this end, the Secretary would be required to award grants and contracts for developing, testing, and validating emerging and innovative evidence-based measures applicable to Medicaid adults. Not later than two years after the establishment of the MQMP, the Secretary would be required to publish recommended changes to the initial core set of adult health quality measures based on the results of testing, validation, and the consensus process for development of these measures. This bill would not restrict coverage under Medicaid or CHIP to only those services that are evidence-based. The bill also includes annual state reporting requirements to include, for example, state-specific adult health quality measures, including information collected as part of external quality reviews of managed care organizations and through benchmark plans (if applicable). The Secretary would be required to collect, analyze and make publicly available the information reported by states, before September 30, 2014, and annually thereafter. Finally, to carry out these activities, the bill would appropriate $60 million for each of fiscal years 2010 through 2014. These funds would remain available until expended. MACPAC Assessment of Policies Affecting All Medicaid Beneficiaries (§2801, §399V-4) CHIPRA established a new federal commission called the Medicaid and CHIP Payment and Access Commission, or MACPAC. This commission will review program policies under both Medicaid and CHIP affecting children's access to benefits, including: (1) payment policies, such as the process for updating fees for different types of providers, payment methodologies, and the impact of these factors on access and quality of care; (2) the interaction of Medicaid and CHIP payment policies with health care delivery generally; and (3) other policies, including those relating to transportation and language barriers. The commission will make recommendations to Congress concerning such payment and access policies. MACPAC is similar to MedPAC which reviews Medicare program policies. Beginning in 2010, the commission will submit an annual report to Congress containing the results of these reviews and MACPAC's recommendations regarding these policies. The commission will also submit annual reports to Congress containing an examination of issues affecting Medicaid and CHIP, including the implications of changes in health care delivery in the U.S. and in the market for health care services. MACPAC must also create an early warning system to identify provider shortage areas or other problems that threaten access to care or the health care status of Medicaid and CHIP beneficiaries. The bill would make a number of changes to the federal statute that established MACPAC. For example, MACPAC's review and assessment of payment policies under Medicaid and CHIP would be expanded to include how factors affecting expenditures and payment methodologies enable beneficiaries to obtain services, affect provider supply, and affect providers that serve a disproportionate share of low-income and other vulnerable populations. Additional topics that MACPAC would be required to review and assess would include policies related to eligibility, enrollment and retention, benefits and coverage, quality of care, and interactions between Medicaid and Medicare and how those interactions affect access to services, payments and dual eligibles. MACPAC would also be required to report to Congress on any Medicaid and CHIP regulations that affect access, quality and efficiency of health care. In carrying out its duties, MACPAC would be authorized to obtain necessary data from any state agency responsible for administering Medicaid or CHIP, as a condition for receiving federal matching funds under either program. The bill would require MACPAC to seek state input and review state data, and to consider state information in its recommendations and reports. Both MACPAC and MedPAC would be required to coordinate and consult with the Federal Coordinated Health Care Office (established under Section 2081 of this bill ) before making recommendations regarding Medicare beneficiaries who are dually eligible. Changes to Medicaid policy affecting dual eligibles are the responsibility of the MACPAC. For FY2010, the bill would appropriate $11 million for MACPAC. Of this total, $9 million would come from the Treasury out of any funds not otherwise appropriated, and $2 million would come from FY2010 CHIP funds, and would remain available until expended. Funding in subsequent years is not addressed in this provision. This provision would be effective upon enactment. Protections for American Indians and Alaska Natives (§2901) The Indian Health Service (IHS), an agency in HHS, provides health care for eligible American Indians/Alaska Natives through a system of programs and facilities located on or near Indian reservations and in certain urban areas. These programs, which may be operated by Indian Tribes (ITs) or Tribal Organization (TOs), are eligible to receive reimbursements from Medicare, Medicaid, CHIP, state programs and third parties such as private insurance. American Indians and Alaska Natives receiving services through IHS programs or at IHS facilities may not be charged premiums, cost-sharing or similar charges in Medicaid. By regulation IHS is the payer of last resort for contract health services (i.e., services that IHS, ITs, or TOs may purchase, through contract, with providers in instances where the facility or program cannot provide the needed care). Under a newly permitted option enacted under the Children's Health Insurance Reauthorization Act (CHIPRA, P.L. 111-3 ), states may facilitate Medicaid enrollment—including under certain conditions, automatically enrolling those eligible—by relying on a finding of eligibility from specified "Express Lane" agencies (e.g., those that administer programs such as Temporary Assistance for Needy Families, Medicaid, CHIP, and food stamps). IHS, ITs, TOs, and urban Indian Organizations (UIOs) are not among the specified "Express Lane" agencies. The bill would make a number of modifications related to IHS-eligible American Indians and Alaska Natives eligible for, or enrolled in, Medicaid and CHIP. It would designate programs operated by IHS, an IT, TO or a UIO as the payer of last resort for services provided to eligible American Indians and Alaska Natives, including services covered by Medicaid and CHIP. It would add IHS, ITs, TOs and UIOs to the list of agencies that could serve as "Express Lane" agencies. In addition, the bill would prohibit cost-sharing for American Indians and Alaska Natives enrolled in a qualified health plan offered through the exchange. Establishment of Center for Medicare and Medicaid Innovation within CMS (§3021, §10306) There is no requirement under current law for a Medicare and Medicaid Innovation Center within CMS. The SSA gives the Secretary broad authority to develop research and demonstration projects to test new approaches to paying providers, delivering health care services, or providing benefits to Medicare and Medicaid beneficiaries. This provision of the bill would require the Secretary to establish by January 1, 2011, a Medicare and Medicaid Innovation Center within CMS. The Innovation Center would test innovative payment and service delivery models to reduce Medicare, Medicaid, and CHIP program expenditures, while preserving or enhancing the quality of care furnished to beneficiaries. The Secretary would be required to identify and select payment and service delivery models that also improve the coordination, quality, and efficiency of health care services. In addition, the Secretary would be required to select models that address a defined population for which there are deficits in care leading to poor clinical outcomes, and may include models which allow states to test and evaluate fully integrating care for beneficiaries eligible for both Medicare and Medicaid (dual eligibles), including the management and oversight of all funds, as well as to test and evaluate all-payer payment systems that would include dual eligibles. The Secretary would have authority to limit testing of models to certain geographic areas. Further, the Secretary would be required to conduct an evaluation of each model tested, and make the results of these evaluations publicly available. The bill would authorize an appropriation of $5 million for the design, implementation, and evaluation of models for FY2010; $10 billion for FY2011 through FY2019; and $10 billion for each subsequent 10 fiscal year period beginning with 2020. Beginning in 2012, and at least every other year thereafter, the Secretary would be required to submit to Congress a report on the Medicare and Medicaid Innovation Center. GAO Study and Report on Causes of Action (§3512) There are no requirements in current law for the Comptroller General and the Government Accountability Office (GAO) to conduct a study and issue a report on causes of action. Under this provision, GAO would be required to conduct a study to determine if the development, recognition, or implementation of guidelines or other standards under selected provisions in the bill would result in new causes of action or claims. The GAO study would include three Medicaid-related and 11 other non-Medicaid related provisions in the bill as shown in Table 2 . GAO would be required to submit the study on causes of action to appropriate congressional committees within two years after enactment of the bill. Public Awareness of Preventive and Obesity-Related Services (§4004(i)) There is no related provision in current law. The bill would require the Secretary to provide guidance and relevant information to states and health care providers regarding preventive and obesity-related services that are available to Medicaid enrollees, including obesity screening and counseling for children and adults. Each state would be required to design a public awareness campaign to educate Medicaid enrollees regarding availability and coverage of such services. The Secretary would be required to report to Congress on these efforts, beginning no later than January 1, 2011, and every three years thereafter, through January 1, 2017. The provision would authorize to be appropriated such sums as necessary to carry out these activities. Section 1115 Waiver Transparency (§10201) Section 1115 of the Social Security Act authorizes the Secretary to waive certain statutory requirements for conducting research and demonstration projects that further the goals of Titles XIX (Medicaid) and XXI (CHIP). States submit proposals outlining the terms and conditions of the demonstration program to the Centers for Medicare & Medicaid Services (CMS) for approval prior to implementation. In 1994, CMS issued program guidance that impacts the waiver approval process and includes the procedures states are expected to follow for public involvement in the development of a demonstration project. States were required to provide CMS a written description of their process for public involvement at the time their proposal was submitted. Public involvement requirements for the waiver approval process continued through the early 2000s. In a letter to state Medicaid directors issued May 3, 2002, CMS listed examples of ways a state may meet requirements for public involvement (e.g., public forums, legislative hearings, a website with information and a link for public comment). The bill would impose statutory requirements regarding transparency in the application and renewal of Medicaid and CHIP Section 1115 demonstration programs that impact eligibility, enrollment, benefits, cost-sharing, or financing. Not later than 180 days after the date of enactment of this subsection, the Secretary would be required to promulgate regulations that provide for (1) a process for public notice and comment at the state level, including public hearings, sufficient to ensure a meaningful level of public input; (2) requirements relating to (a) the goals of the program to be implemented or renewed under the demonstration project; (b) the expected state and federal costs and coverage projections of the demonstration project; and (c) the specific plans of the state to ensure that the demonstration project will be in compliance with title XIX or XXI; (3) a process for providing public notice and comment after the application is received by the Secretary, that is sufficient to ensure a meaningful level of public input; (4) a process for the submission to the Secretary of periodic reports by the state concerning the implementation of the demonstration project; and (5) a process for the periodic evaluation by the Secretary of the demonstration project. The Secretary would be required to generate annual report to Congress concerning actions taken by the Secretary with respect to applications for demonstration projects under this section. Appendix A. Effective Dates for Referenced Medicaid and CHIP Provisions in the bill Appendix B. Glossary of Terms

This report summarizes key provisions applicable to Medicaid and the Children's Health Insurance Program (CHIP) in H.R. 3590, the Patient Protection and Affordable Care Act, as passed by the Senate on December 24, 2009. In general, the bill would expand health insurance coverage to many Americans who currently are uninsured, while attempting to reduce expenditures and offering mechanisms to increase care coordination, encourage more use of health prevention, and improve quality of care. The bill would reform the private health insurance market, impose a mandate for most legal U.S. residents to obtain health insurance, establish health insurance "Exchanges" that would subsidize health insurance coverage for eligible individuals; expand Medicaid eligibility; create programs to improve quality of care and encourage more use of preventive services; address healthcare workforce issues; and propose a number of other Medicaid and Medicare program and federal tax code changes. Among the proposed Medicaid reforms, the bill would modify eligibility standards and methodologies, add several new mandatory and optional Medicaid benefits, expand Medicaid benefits, and increase CHIP funding. Beginning in 2014, or sooner at state option, nonelderly, non-pregnant individuals with income below 133% of the federal poverty level (FPL) would become eligible for Medicaid. New optional eligibility groups also would be added, such as non-elderly, non-pregnant individuals (childless adults) with income above 133% of poverty. The bill also would require states to maintain current coverage levels for individuals under Medicaid and CHIP. In addition, the bill would add several new mandatory Medicaid benefits including coverage of services in free standing birth clinics, and coverage of tobacco cessation services for pregnant women. The bill would make a number of Medicaid and CHIP financing changes, such as reducing Medicaid disproportionate share hospital (DSH) payments, increasing prescription drug rebates and increasing certain pharmacy reimbursement, increasing federal spending for the Territories, providing special enhanced disaster recovery Medicaid funding, and requiring payment system reforms. The bill includes provisions that would give states and other stakeholders new program integrity (PI)—waste, fraud and abuse—enforcement and monitoring tools as well as impose some new data reporting and oversight requirements on states and providers. Additional PI provisions affecting Medicaid and CHIP include requirements for states to implement a national correct coding initiative similar to the Medicare program, a broad new nursing home accountability initiative, and other new requirements to enhance PI that increase the uniformity of Medicare, Medicaid, and CHIP requirements. The bill also offers opportunities for states and other stakeholders to use new demonstrations and grants to modify payment systems, introduce care delivery models, and improve care quality, which include a medical global payment system demonstration and school-based health center grants.

Introduction Many governments acknowledge that environmental degradation and climate change pose international and trans-boundary risks to human populations, economies, and ecosystems that could result in a worsening of poverty, social tensions, and political stability. To confront these global challenges, countries have negotiated various international agreements to protect the environment, reduce pollution, conserve natural resources, and promote sustainable growth. While some observers have called upon developed countries to take the lead in addressing these issues, efforts are unlikely to be sufficient without similar measures being implemented in developing countries. Developing countries, however, focused on poverty reduction and economic growth, may not have the financial resources, technological know-how, or institutional capacity to deploy such measures. Therefore, international support for these areas has remained the principal method for governments to assist developing country action on global environmental problems. The United States and other industrialized countries have committed to financial assistance for environmental initiatives through several multilateral agreements (e.g., the Montreal Protocol (1987), the United Nations Framework Convention on Climate Change (1992), United Nations Convention to Combat Desertification (1994), and the Copenhagen Accord (2009)). International financial assistance takes many forms, from fiscal transfers to market transactions, and includes foreign direct investment (FDI), bilateral overseas development assistance (ODA), and contributions to multilateral development banks (MDB) and other international financial institutions (IFI), as well as the offering of export credits, loan guarantees, and insurance products. Table 1 outlines recent U.S. financial support for multilateral environmental initiatives. Congress is responsible for several activities in this regard, including (1) authorizing periodic appropriations for U.S. financial contributions to the institutions, and (2) overseeing U.S. involvement in the programs. Issues of congressional interest include the overall development assistance strategy of the United States, U.S. leadership in global environmental and economic affairs, and U.S. commercial interests in trade and investment. As Congress considers potential authorizations and/or appropriations for initiatives administered through the Department of State, the Department of the Treasury, and other agencies with international programs, it may have questions concerning the direction, efficiency, and effectiveness of current bilateral and multilateral programs. This report provides an overview of two of the larger and more recently instituted multilateral mechanisms—the Climate Investment Funds (CIFs)—and analyzes their structure, funding, and objectives in light of the many challenges within the contemporary landscape of global environmental finance. The Climate Investment Funds Background Projected climate change is considered a potential threat to economic development, with anticipated effects on the environment, human health, food security, and economic activity. Further, climate change disproportionately affects the urban and rural poor of developing countries, thus making it a central concern to those interested in poverty reduction and sustainable development. Under this context, and at the request of the G8/G20, the multilateral development banks (MDBs) have recently sought to expand their support to low-carbon and climate-resilient investments in several ways, including (1) creating new and additional environmental funding resources, (2) repackaging their "core" financial products with specialized climate provisions, and (3) leveraging their suite of financial instruments for greater private sector environmental investment. In keeping with these aims, in February 2008, Japan, the United Kingdom, and the United States announced their intention to create a set of funds at the MDBs to help developing countries "bridge the gap between dirty and clean energy" and "boost the World Bank's ability to help developing countries tackle climate change." The World Bank held the first design meeting for the proposed Climate Investment Funds (CIFs) in March 2008 in Paris, France. Two subsequent meetings were held in Washington, DC, and Potsdam, Germany, and on May 23, 2008, representatives from 40 developing and industrialized countries reached agreement on the funds' design and duration (the CIFs were programmed to sunset upon the commencement of a new climate fund in the United Nations Framework Convention on Climate Change (UNFCCC)). Formally approved by the World Bank's Board of Directors on July 1, 2008, the CIFs have become an attempt to bridge the gap in climate financing between present obligations and a future global climate change agreement. The CIFs are composed of two separate trust funds—the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF)—each with a specific scope, objective, and governance structure. Overall, 14 donor countries have pledged $7.6 billion (in historical value) to the funds since September 2008, which supports programming in 49 developing countries. The U.S. pledge in 2008 was for a total of $2 billion. All U.S. funding is subject to annual congressional approval. Authorizing legislation is managed by the House Financial Services Committee and Senate Foreign Relations Committee. The House and Senate Appropriations Subcommittees on State, Foreign Operations, and Related Programs have jurisdiction over appropriations. U.S. contributions include the following: FY2010, Congress approved $300 million for the CTF and $75 million for the SCF (the Consolidated Appropriations Act, 2010, H.R. 3288 ; P.L. 111-117 ). FY2011, Congress approved $184.6 million for the CTF and $49.9 million for the SCF (the Department of Defense and Full-Year Continuing Appropriations Act, 2011, H.R. 1473 ; P.L. 112-10 ). FY2012, Congress approved $184.6 million for the CTF and $49.9 million for the SCF; however, provisions for funding transfers were included. Using these provisions, the Department of State transferred $45 million from its Economic Support Fund to the CTF, and $25 million to the SCF during FY2012 (the Consolidated Appropriations Act, 2012, H.R. 2055 ; P.L. 112-74 ). FY2013, Congress approved $184.6 million for the CTF and $49.9 million for the SCF through a continuing resolution (the Consolidated and Further Continuing Appropriations Act, 2013, H.R. 933 ; P.L. 113-6 ). FY2013-enacted account level estimates are subject to the budget sequestration process as established by the Budget Control Act of 2011 ( P.L. 112-25 ) and the American Taxpayer Relief Act ( P.L. 112-240 ). The total budget impact of sequestration has yet to be determined. For FY2014, the Administration has requested $215.7 million for the CTF and $68 million for the SCF. The Clean Technology Fund (CTF) Overview Faced with energy and environmental challenges, among others, many developing countries see value in clean technology to meet their energy security, poverty alleviation, and sustainable development goals while also reducing their growth in emissions. However, the costs to developing countries of switching to cleaner technologies without financial assistance may be prohibitive. The CTF seeks to provide financing—principally to larger emerging economies and to regional groups—for demonstrating, deploying, and diffusing low-carbon technologies with the potential for long-term avoidance of greenhouse gas emissions. The fund promotes renewable energy and energy efficient technologies in the power sector as well as energy efficiency strategies in the transportation, building, industry, and agricultural sectors. Currently, the CTF is designed to support 15-20 country and regional investment plans and/or co-financed projects. As of March 2013, the CTF has endorsed 16 investment plans for $5.58 billion in direct funding (with a projected $40 billion in leveraged co-financing), including plans from Chile, Colombia, Egypt, India, Indonesia, Kazakhstan, Mexico, Morocco, Nigeria, Philippines, South Africa, Thailand, Turkey, Ukraine, and Vietnam, and one regional investment plan in the Middle East and North Africa (MENA) covering Algeria, Egypt, Jordan, Morocco, and Tunisia. Projects include support for wind energy, urban public transportation systems, solar water heaters, smart-grid development, and concentrating solar thermal power programs, among others (see Table 3 for more detailed descriptions of the national investment plans). Governance The CTF is implemented through a partnership of the multilateral development banks (MDBs) and governed by representatives from the donor and recipient countries. The role of governance for the CTF is to approve investment plans, programming, and the allocation of financial resources; and to provide guidance, performance evaluation, and reporting. It is further tasked with ensuring that the strategic orientation of the CTF is guided by the principles of the UNFCCC. The organizational structure of the CTF is equally balanced between donor and developing countries. All decisions are made by consensus. Other international organizations, the private sector, and civil society representatives are included as observers. All observer roles are "active," allowing them to take the floor to make interventions, propose agenda items, and recommend experts. Observers do not vote during consensus decisions. The governance structure includes the following: The CTF Trust Fund Committee, which oversees and decides on the operations and activities of the CTF and includes (1) eight representatives from contributor countries; (2) eight representatives from eligible recipient countries; (3) a representative from the project recipient country (during deliberations on the investment plan, program, or project); (4) a representative of the World Bank; and (5) a representative for the other MDBs. The MDBs Committee, which facilitates collaboration, coordination, and the exchange of information, knowledge, and experience among MDBs partners. The Partnership Forum, which supports civil society engagement and includes representatives of donor and eligible recipient countries, MDBs, U.N. and U.N. agencies, Global Environment Facility (GEF), UNFCCC, Adaptation Fund, bilateral development agencies, NGOs, indigenous peoples, private sector entities, and technical experts. The Administrative Unit, which supports the work of the CIFs, is housed in the World Bank's Washington, DC, offices. A Trustee (the World Bank), which holds in trust, as the legal owner and administrator, the funds, assets, and receipts that constitute the Trust Fund, pursuant to the terms entered into with the contributors. Funding Since September 2008, 14 donor countries have pledged over US$7.6 billion (in historical value) to finance the two CIF trust funds. The total amount pledged by the nine contributing countries to the CTF has been US$5.154 billion (in historical value) as of March 31, 2013 (see Table 2 for pledges and contributions; Table 1 for U.S. Budget Authority). The funds are to be disbursed as grants, concessional loans, loan guarantees, and other risk management instruments. Endorsed funding by the CIFs also serves to leverage co-financing from additional sources , including the private sector, multilateral financial institutions, recipient governments, state-owned enterprises, and carbon finance. Program Areas The CTF is based on country and regional investment plans that aim to support climate-friendly technologies. Investment plans are undertaken jointly by the recipients, the MDBs, other development partners, private industry, and civil society to build upon existing national strategies and demonstrate how the CTF can be complementary to the country's overall developmental activities. The CTF supports investment plans that are cost-effective and implementation-ready, can be scaled up quickly to impact development, and have the potential for significant greenhouse gas emission reductions. To receive CTF funding, a country must be eligible for official development assistance (ODA) and have an active MDB program. The majority of CTF funding supports programs that help shape demand side markets for technology diffusion. The fund's criteria for lending allow for all renewable and energy efficiency initiatives, as well as large-scale hydroelectric power plants, natural gas plants, some forms of biofuels, power plant refits, and ultra-supercritical coal plants. Funds are commonly targeted to support a variety of investment activities, including (1) direct purchase of technological goods and services; (2) direct investment into government infrastructure for transport or transmission modernization; (3) seed funds for financial intermediaries to incentivize clean technology lending; and (4) investment support and risk mitigation strategies for private sector entry into the market. In short, the CTF attempts to address the additional costs contained in lower-carbon energy investment such that it becomes a viable option to conventional fossil-fuel power generation. Table 3 outlines the endorsed investment plans as of March 31, 2013. The Strategic Climate Fund (SCF) Overview Some governments and civil society organizations are concerned that climate change may exacerbate poverty situations and reverse economic gains in the developing world through the possibility of temperature increases, rising sea levels, droughts, changes in rainfall patterns, heightened disease patterns, and the lack of drinkable water. They believe that resources may be necessary to help low-income countries manage a response. Responses to climate change are likely to entail both mitigation efforts (i.e., slowing, then reducing greenhouse gas emissions) and adaptation efforts (i.e., managing the effects of short- and long-term climate outcomes). The SCF aims to help developing countries prepare for climate change by promoting low-carbon, climate-resilient development. Three targeted programs provide grants and concessional loans to pilot new approaches aimed at specific challenges: The Pilot Program for Climate Resilience (PPCR) supports ways to integrate climate risk and resilience into the development strategies of low-income countries. Funds can be used to provide technical assistance to help with capacity building, policy reform, and sector investment. The Forest Investment Program (FIP) provides financing to countries to help them prepare for and participate in programs that aim to reduce deforestation. Funds can be used for managing forests and for educating indigenous and local communities about forest policies. The Scaling Up Renewable Energy Program in Low Income Countries (SREP) helps low-income countries adopt renewable energy solutions to aid in the development of their power generation sector. Funds can be used to provide policy support, technical assistance, financial management, and sector investment. Governance The SCF is implemented through a partnership of the multilateral development banks (MDBs) and governed by representatives from the donor and recipient countries. The governance and decision-making structure is similar to the CTF, but specifically includes the following: The SCF Trust Fund Committee, which oversees and decides on the operations and activities of SCF and includes (1) eight representatives from contributor countries; (2) eight representatives from eligible recipient countries; (3) a representative of the World Bank; and (4) a representative for the other MDBs. An SCF subcommittee for each of the targeted programs, which includes up to six representatives from contributor countries to the SCF Program, a matching number of representatives from eligible recipient countries, and such other representatives designated by the SCF Trust Fund. The MDBs Committee, which facilitates collaboration, coordination, and the exchange of information, knowledge, and experience among the MDBs partners. The Partnership Forum, which supports civil society engagement and includes representatives of donor and eligible recipient countries, MDBs, U.N. and U.N. agencies, GEF, UNFCCC, Adaptation Fund, bilateral development agencies, NGOs, indigenous peoples, private sector entities, and technical experts. The Administrative Unit, which supports the work of the CIFs, is housed in the World Bank's Washington, DC, offices. A Trustee (the World Bank), which holds in trust, as the legal owner and administrator, the funds, assets, and receipts that constitute the Trust Fund, pursuant to the terms entered into with the contributors. Funding Since September 2008, 14 donor countries have pledged over US$7.6 billion (in historical value) to finance the two CIF trust funds. The total amount pledged by 13 countries to the SCF has been US$2.413 billion (in historical value) as of March 31, 2013 (see Table 4 for pledges and contributions; Table 1 for U.S. Budget Authority). The funds are to be disbursed as grants, concessional loans, loan guarantees, and other risk management instruments. Program Areas The programming of the SCF is newer than that of the CTF, having launched no earlier than January 2009. However, each of the funds has begun endorsing investment plans. As of the April 30, 2013 meeting of the Joint CTF and SCF Trust Fund Committees, the status of each fund was reported as follows: The Pilot Program for Climate Resilience . The PPCR became operational in January 2009. The program provides funding to the countries in two phases: (1) a technical assistance phase, which includes looking at how countries' development plans can be made more climate-resilient and deciding upon the types of investments countries could make; and (2) an implementation phase, which includes the dispersal of grants of up to $1.5 million with the option of additional loans to implement programs. The PPCR Sub-Committee has endorsed 20 investment plans for $1,034.4 million in PPCR funding. This includes plans for 18 countries (Bangladesh, Bolivia, Cambodia, Dominica, Grenada, Haiti, Jamaica, Mozambique, Nepal, Niger, Papua New Guinea, Samoa, St. Lucia, St. Vincent and the Grenadines, Tajikistan, Tonga, Yemen, and Zambia) and two regional programs (Caribbean Regional Program and the Pacific Regional Program). The plans are expected to leverage an additional $1.47 billion in co-financing. Table 5 outlines the endorsed investment plans as of March 31, 2013. The Forest Investment Program . The FIP became operational in February 2010. The FIP Sub-Committee has endorsed seven investment plans (Brazil, Burkina Faso, DR Congo, Ghana, Indonesia, Lao PDR, and Mexico) for $370 million in FIP funding. These plans are projected to leverage an additional $993 million in co-financing. An investment plan for Peru is expected to be endorsed in November 2013. The Scaling Up Renewable Energy Program in Low Income Countries . The SREP become operational in December 2009. The SREP Sub-Committee has endorsed six investment plans (Ethiopia, Honduras, Kenya, Maldives, Mali, and Nepal) for $240 million in SREP funding. The plans are expected to leverage an additional $1.74 billion in co-financing. Investment plans for Liberia and Tanzania are expected for endorsement by November 2013. Current Issues Each year, billions of dollars in environmental aid flow from developed country governments—including the United States—to developing ones. While the efficiency and the effectiveness of these programs are of concern to donor country governments, a full analysis of the purposes, intents, results, and consequences behind these financial flows has yet to be conducted. International relations, comparative politics, and developmental economics can often collide with global environmental agendas. Critics contend that the existing system has had limited impact in addressing major environmental concerns—specifically climate change and tropical deforestation—and has been unsuccessful in delivering global transformational change. A desire to achieve more immediate impacts has led to a restructuring of the MDBs' role in environmental finance and the introduction of many new bilateral and multilateral funding initiatives. The CIFs grew out of these concerns. The effectiveness of the CIFs depends on how the trust funds address their programmatic issues, build upon their national investment plans, react to recent developments in the financial landscape, and respond to emerging opportunities. The following section investigates some of the current challenges facing the CIFs and summarizes some of the responses initiated by the funds. Innovations by the CIFs Since their inception, the CIFs have attempted to provide innovative approaches to global environmental issues and have introduced several processes to address the limitations of previous environmental finance. These innovations include, but are not limited to, the following: Programmatic Design . While the CIFs still aim to scale up existing practices and fund activities at the project level, they also were created to serve as laboratories for new financing schemes and vehicles for developing sustainable strategies. Funding strives to target the potential for large-scale transformation and to attain global environmental benefits. Stakeholders seek to share knowledge gained and inspire the use of best practice. As such, multinational or regional investment plans that support global development goals, energy security, industrial growth, diversification, and regional integration (e.g., the M.E.N.A. plan) best exemplify the CIFs' programmatic approach. Country-led Process . Beyond a simple project-by-project approach, the purpose of the CIFs is to bolster the efforts of countries' official adaptation plans and their actions toward low-carbon, climate-resilient development. The country-led approach aims to integrate funding into the country-owned development strategies consistent with the Paris Declaration. Innovative Governance and Stakeholder Engagement . In an effort to attain transparency and accountability, the governing structure of the CIFs is equally balanced between donor and developing countries. All decisions are taken by consensus, with no provision for voting. If a consensus is not possible, the proposal is postponed or withdrawn. Representatives from other international organizations, the private sector, and civil society are included as observers. All observer roles are "active," allowing them to take the floor to make interventions, propose agenda items, and recommend experts. Issues in Support of the Multilateral Development Banks (MDBs) and Multilateral Assistance The choice of financial mechanism and its administration is an important element to environmental finance. The differences among multilateral or bilateral assistance, grant or lending institutions, regional or global organizations, etc., all play a role in the structure of assistance. The decision to employ the MDBs as trustees for the CIFs has both advantages and disadvantages. Historically, the MDBs have provided financial assistance to developing countries, typically in the form of loans and grants, for investment projects and organizational capacity. Donor country support for the MDBs—including U.S. support—has assisted efforts to promote institutions, strengthen financial systems, undertake large infrastructure and social welfare projects, and develop property rights and rules of law. Through increased global integration, the aim of the MDBs has been to bolster economic growth, poverty alleviation, and resource allocation (including greater access to electricity) in developing countries while simultaneously building new markets for developed countries' exports and jobs. In 2008, at the urging of some donor countries, a strategy to address climate change was added to the MDBs' development agenda. The "Strategic Framework on Development and Climate Change" analyzed the risks of climate change to economic development and served as a basis for integrating mitigation and adaptation planning into national development plans. Donor countries see several advantages to financing climate programs through the institutional structure of the MDBs. These advantages include, but are not limited to, the following: Commitment to Private Sector Development . Many donor countries—including the United States—believe that climate-friendly economic growth can be led by the private sector through such efforts as improving access to financial markets, building the capacity of entrepreneurs, and providing training to civilian society. One aim of the MDBs is to help foster private sector development by leveraging donor funds into highly effective co-financing arrangements. Historically, the U.S. Administration has supported these efforts. In a March 25, 2010, hearing before the House Appropriations Subcommittee on State, Foreign Operations, and Related Programs, the Treasury Department went on record as stating that the United States invests in the MDBs because "they help generate new engines of growth that benefit the U.S. economy and the global economy as a whole." Economies of Scale, Coordination, and Co-f inancing . Proponents of the MDBs argue that multilateral assistance can solve problems of scale and efficiency by providing specialized expertise while lowering administration and coordination costs. Similarly, more competitive procurement rules, attractive cost-sharing opportunities, and the ability to leverage co-financing from other public and private organizations allow the MDBs to play a catalytic role in mobilizing financial aid. At the March 25, 2010, hearing noted above, the Treasury Department stated that the MDBs "provide strong, effective and highly leveraged means to advance global prosperity.... For every dollar the United States contributes to paid-in capital for the World Bank, six dollars of additional capital is generated by other donors. And, for every dollar we invest in the World Bank, $26 worth of aid is delivered." Responsiveness to Donors . The Treasury Department has similarly stated that the United States invests in the MDBs because they "promot[e] core American interests and values." This arrangement is due primarily to the structure and organization of the banks. MDBs' governance is weighted on the basis of the cumulative financial contributions and commitments by the donor countries, and thus, while a single trust fund, like the CIFs, may be designed to balance equally the roles of developed and developing countries, the MDBs are designed to give greater weight to the major donors. The United States retains the most influence on World Bank matters, with a 14.97% voting share and the ability to veto major policy decisions. It is followed by Japan in second place, Germany in third, and France and the United Kingdom tied for fourth. The only developing or emerging country with as much voting interest is China, at fifth, with 3.21%. With a governing structure that requires one representative from the World Bank, as trustee, and one representative from the group of remaining MDBs, as well as eight representatives from participating donor countries, the overall governance structure of the CIFs has remained responsive to donor interests. Possession of Fiduciary Standards. Both current and past U.S. Administrations have argued that the World Bank has the proper internal safeguards to oversee large amounts of financing. As reported by the Department of Treasury, "the World Bank is an attractive trustee [for environmental funds] precisely because of its strong fiduciary standards and its extensive capacity to uphold them." Possession of Institutional Expertise, Information, and Credibility Provisions . Proponents of the MDBs claim that multilateral agencies offer larger and better trained staffs with greater technical expertise. They state that large infrastructure investment, particularly in innovative technologies and methods, requires professionals who are experienced in identifying and facilitating access to technology, sharing risks associated with commercialization, and improving institutional capacity. Beyond institutional knowledge, multilaterals also collect, interpret, and disseminate costly information on a global scale and provide credibility controls for both recipient and donor governments. Issues of Concern for Developing Countries and NGOs While advantages exist to financing climate programs through the institutional structure of the MDBs, concerns also persist. A variety of recipient countries and nongovernmental organizations (NGOs) have highlighted a number of issues, including, but not limited to, the following: Coordination with Other Funds. Proponents argue that the fundamental principle of the CIFs is coordination at the country-level among interested stakeholders, including other developmental partners. However, some observers believe that the CIFs have created a parallel structure for financing climate change efforts outside both bilateral and the ongoing multilateral framework for climate change negotiations. They are concerned that without harmonization between the CIFs and the other sources of environmental finance (e.g., funds managed by the U.N., the Global Environment Facility, and bilateral sources), overlaps, redundancies, competing views, and lack of synergy may affect climate priorities, funding processes, and qualifying criteria. Potential to Prejudice U.N. Climate Provisions . Some commentators and several governments have expressed concerns that the establishment of the CIFs as trust funds in the MDBs may prejudice the outcomes of the international negotiations on climate finance within the framework of the United Nations. Many developing countries have expressly stated that they do not consider funds contributed to the CIFs as meeting U.N. Annex I obligations. Furthermore, the design of the CIFs includes a "sunset clause" stating that the CIFs "will take necessary steps to conclude its operations once a new [UNFCCC] financial architecture is effective." The nature of these steps has yet to be determined. Further, additional contributions to the CIFs beyond the initial 2008 pledges (e.g., by Canada ($193 million), United Kingdom (£375 million), Denmark ($8 million), Germany ($12 million), Norway ($19 million), Sweden ($25 million), and Switzerland ($6 million)) may complicate these negotiations. Potential for Additionality . The UNFCCC provides that developed country signatories to the Convention "provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties" in their efforts at mitigation and adaptation. Some observers fear that the design of the CIFs establishes a parallel process for climate financing that does not result in new and additional resources. They are concerned that significant portions of the aid budgets of donors may be diverted into the CIFs and counted as part of their annual ODA commitments. Lack of Polluter Responsibility . Some commentators claim that the provision of loans as a financial instrument to eligible developing countries contradicts the internationally agreed principle of "polluter pays" as stated in the Rio Declaration. Some argue that the repayment of a loan, notwithstanding the degree of concessionality, burdens a developing country with self-paying for a problem (climate change) that was caused by others (i.e., developed countries). They believe this burden may affect the country's ability to generate resources for growth. Commercial Influence . While advantages exist in prioritizing market-based solutions to dealing with the problems of climate, some groups express concern that the private sector may be unduly driven by commercial interests at the expense of social or environmental safeguards. Concern also exists that a dependence on market mechanisms as a source of climate financing may be inadequate and inconsistent for meeting the financial needs of developing countries charged with the responsibility of both implementing climate change commitments and mediating the social, economic, and environmental dislocations brought on by climate change. Energy and En vironmental Policy at the Banks . Many observers claim that the history of the World Bank's energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of climate change. Environmental NGOs have often highlighted the inconsistencies between the Bank's rhetoric on climate change and its operational policies and practices. They emphasize that while the Bank has increased financing for renewable energy and energy efficiency in recent years, its fossil fuel lending still accounts for 56% of the energy sector share for fiscal years 2008 to 2010 (compared to 15% for renewable energy, 20% for energy efficiency, and 9% for large hydropower). The controversy is compounded by the Bank's inability to reach a consensus on the definition of "clean energy technology," retaining provisions for ultra-supercritical coal-fired power generation in its environmental strategies. Recent guidance from the U.S. Administration regarding the World Bank's engagement with coal-fired power generation in developing countries similarly leaves the definition open, stating that projects "could include more carbon efficient fossil fuel generation" in their portfolio. While observers generally agree that funding from the CIFs is unlikely to be used in coal-fired power generation projects, most agree that continued investment by the World Bank in fossil fuel energy and infrastructure may have several unintended effects, including (1) counteracting any gains made with the Bank's renewable portfolio, (2) directing resources toward large-scale power generation for industrial use rather than energy access and poverty reduction in poor urban and rural communities, and (3) drawing the Bank's professional and technical staff away from a concentration on energy efficiency and renewable energy activities to remain involved with fossil fuels.

The United States contributes funding to various international financial institutions to assist developing countries to address global climate change and other environmental concerns. Congress is responsible for several activities in this regard, including (1) authorizing periodic appropriations for U.S. financial contributions to the institutions, and (2) overseeing U.S. involvement in the programs. Issues of congressional interest include the overall development assistance strategy of the United States, U.S. leadership in global environmental and economic affairs, and U.S. commercial interests in trade and investment. This report provides an overview of two of the larger and more recently instituted international financial institutions for the environment—the Climate Investment Funds (CIFs)—and analyzes their structure, funding, and objectives in light of the many challenges within global environmental finance. The CIFs are investment programs administered by the multilateral development banks (MDBs) that aim to help finance developing countries' transitions toward low-carbon and climate-resilient development. Formally approved by the World Bank's Board of Directors on July 1, 2008, the CIFs are composed of two trust funds—the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF)—each with a specific scope, objective, and governance structure. The CTF provides financing for demonstrating, deploying, and diffusing low-carbon technologies that have the potential for long-term avoidance of greenhouse gas emissions. The SCF—a suite of three separate funds, including the Pilot Program for Climate Resilience (PPCR), the Forest Investment Program (FIP), and the Scaling Up Renewable Energy Program in Low Income Countries (SREP)—supports the least developed countries in their efforts to achieve low-carbon, climate-resilient development. Overall, donor countries have pledged $7.6 billion to the funds since September 2008 in support of programs in 49 developing countries. The U.S. pledge in 2008 was for a total of $2 billion. For FY2010, Congress approved $375 million for the CIFs (the Consolidated Appropriations Act, 2010, H.R. 3288; P.L. 111-117); for FY2011, Congress approved $234.5 million (the Department of Defense and Full-Year Continuing Appropriations Act, 2011, H.R. 1473; P.L. 112-10); for FY2012, Congress approved $234.5 million (the Consolidated Appropriations Act, 2012, H.R. 2055; P.L. 112-74); and for FY2013, Congress approved $234.5 million (the Consolidated and Further Continuing Appropriations Act, 2013, H.R. 933; P.L. 113-6). For FY2014, the Administration requested $283.7 million for the funds. The CIFs are just one set of financial mechanisms in a larger network of international programs designed to address the global environment. Accordingly, their effectiveness depends on how the funds address programmatic issues, build upon national investment plans, react to recent developments in the financial landscape, and respond to emerging opportunities. Proponents of the CIFs point to several factors in support of the funds, including an innovative programmatic design, a country-led investment process, and a balanced governance structure with enhanced stakeholder engagement. Proponents of the MDBs' role in environmental assistance emphasize several advantages to financing climate programs through the MDBs, including its commitment to private sector development, its capacity to leverage large co-financing arrangements, and its possession of fiduciary standards and institutional expertise. However, critics highlight several factors of concern with the CIFs and their Trustee, including a lack of transparency, coordination, and "polluter pay" responsibilities; a potential for increased debt burdens on developing countries; and a prior economic development policy at the development banks that is considered a conflict of interest for environmental protection.

Introduction Life insurance policies taken out by and payable to companies on their employees, directors, officers, owners, and debtors are commonly known as corporate-owned life insurance (COLI) policies. (COLI is also known as company-owned life insurance.) Such policies enjoy the same two basic preferences under the tax laws as other life insurance. First, death benefits paid under life insurance policies are not taxable income to the beneficiaries of the policies. Second, increases in the value of the policies over and above the premiums paid that result from investment earnings on such premiums are not taxable unless the policy is surrendered prior to the death of the insured. This second preference is generally referred to as the "tax-free inside buildup" of life insurance. Therefore, the corporation enjoys either tax-deferred growth or tax-free growth of funds invested in COLI plans. This tax treatment of COLI policies explains a large portion of their usage, because it is certainly possible for a corporation to make a similar investment without the complication of a life insurance policy. Without the life insurance policy, however, such investments would be subject to regular taxation. In addition, under certain circumstances, companies have deducted the interest expense for loans from COLI policies from their taxes. Some companies have then used the loan proceeds to pay for the premiums of the life insurance policies, further enhancing the advantages of COLI-related transactions. Congress has increasingly restricted the instances in which this interest is allowed to be tax deductible. The payment of premiums by the company, on the other hand, is not tax deductible. Although the federal tax preferences for life insurance have been passed by Congress, the ability of firms, as well as individuals, to purchase such insurance in the first place is regulated by the states. Because of this, the state and federal governments effectively have a joint role in the regulation of life insurance policies for tax purposes. The most basic requirement that states have instituted for purchasers of life insurance is that a policyholder must be able to demonstrate "an insurable interest" in the insured. Companies have typically justified an insurable interest in employees, officers, directors, and owners based on the potential financial costs associated with the death of those individuals. Some states require the insurable interest to be established only at the time the insurance is purchased; therefore, companies may continue to hold life insurance policies and enjoy the tax advantages of COLI policies covering insureds no longer employed by the company. Background on COLI COLI can be acquired on an individual or group basis, and the employer generally becomes the applicant, owner, premium payer, and beneficiary of the policy. Because the corporation pays all of the premiums and receives all of the benefits, neither the individuals actually insured nor their heirs receive any of the death benefits. Thus, COLI is not an employee benefit and should not be confused with group life insurance benefits that employers provide to their employees. COLI can take many forms. Traditionally, narrow-based programs known as "key man insurance" have been used by corporations to insure the lives of their top executives and to protect themselves against the death of those key employees who are especially difficult or costly to replace. Other related uses of narrow-based COLI programs have included the financing of individual stock redemption agreements or deferred compensation plans for key employees. According to news reports, some companies have used broad-based COLI programs that covered not only key officials, but all or most of a corporation's employees. This application of the principles of COLI apparently developed to generate a funding source for other corporate purposes (e.g., executive benefits, supplemental pensions, and broader employment-related benefits, such as retiree medical plans). The use of COLI to fund retiree medical benefits is largely attributable to the promulgation of Statement 106 by the Financial Accounting Standards Board (FASB 106). Under FASB 106, post-retirement benefits, including retiree health benefits, are required to be recognized as a cost as they are earned over the working lifetime of the employee, rather than as they are paid after retirement. If these accrued benefits are not funded in some manner, they create a growing balance sheet liability. The COLI benefits accruing to a corporation from the death payouts on employees and the tax-free inside buildup in the value of the policies can be used to create a balance sheet asset that the corporation can use to offset the liability and finance the cost of retiree benefits. Advocates of using COLI to finance such post-retirement benefits assert that without such funding, many companies would discontinue their voluntary retirement health benefits. On the other hand, critics claim that companies should not profit from the deaths of rank-and-file employees, sometimes referring to COLI as "janitor's insurance" or "dead peasant insurance," and note that although companies claim to be using COLI to finance employee benefits, there is no regulation of this use as there is for benefit plans under the Employee Retirement Income Security Act (ERISA), which also provides for tax-preferred investments to fund employee benefits. When banks purchase COLI policies, they are sometimes referred to as bank-owned life insurance (BOLI) policies. In 1996, the Office of the Comptroller of the Currency (OCC) issued general guidelines for national banks to ensure that bank purchases of BOLI are "consistent with safe and sound banking practices." The OCC determined that a purchase of life insurance is incidental to banking and therefore legally permissible, if it is convenient or useful in connection with the conduct of the bank's business. The OCC guidelines specifically state that national banks may use COLI as a financing or cost recovery vehicle for pre- and post-retirement employee benefits, that the value of COLI is a corporate asset even after the employer/employee relationship is terminated, and that employees have no interest in the insurance other than their general claim against corporate assets arising from the corporation's obligation to provide the stated benefits. Although COLI is not particularly well known, it has drawn attention both in the print media and even in film. In April 2002, the Wall Street Journal initiated a three-part series subtitled "Janitor's Insurance—Profiting When Employees Die" on COLI plans. The articles were critical of COLI and named major corporations that reportedly have put millions of dollars into COLI policies insuring thousands of employees. Following the Wall Street Journal series, other major newspapers, including the Washington Post , carried articles critical of COLI/BOLI. The Wall Street Journal focused more recently on COLI, reporting in May 2009 on the most recent filings by banks on their usage of COLI. In 2008, COLI reported by banks totaled $122.8 billion. COLI also drew popular notice as it was criticized in a Michael Moore film, Capitalism: A Love Story . Legislative Proposals in the 112th Congress The Life Insurance Employee Notification Act (H.R. 130) H.R. 130 was introduced by Representative Gene Green on January 5, 2011. This bill would require employee notice of COLI, including the benefit amount and the beneficiary of the policy and their violation would constitute an unfair trade practice. Enforcement of these requirements would fall to the Federal Trade Commission. This proposal is similar to the limitations included in the Pension Protection Act of 2006 (discussed below), but these requirements would be enforced through the Federal Trade Commission Act, rather than the Internal Revenue Code. Past Limitations on COLI Capping legislative activity from the 109 th Congress, the Pension Protection Act of 2006 included language adding requirements to the tax code in order for a COLI policy to enjoy the typical tax advantages of life insurance. These requirements were that these policies must be on directors or highly compensated individuals and that insured employees must be notified and provide written consent at the time the life insurance contract is issued. The term "highly compensated" employee includes any employee receiving a salary in the top 35% of the company. Companies were also required to file a yearly return with the Secretary of the Treasury detailing their usage of COLI policies. Note, however, that the information from these returns are confidential as is most tax information. The interest in COLI over the past few years is only the most recent congressional focus on the issue. Since 1986, the tax benefits of COLI relating to the tax deductibility of interest on COLI-related loans have been limited by legislation. In 1986, Congress capped deductible interest for indebtedness exceeding $50,000 per individual contract. Only interest on loans related to policies purchased after June 20, 1986, was specifically covered. It has been suggested that companies responded to this limitation by expanding the coverage of life insurance from upper management to rank and file employees, thus generating more COLI-related loans, albeit at the capped amount. In 1996, Congress approved legislation that entirely eliminated (with a phase-out rule) the interest deduction for loans on policies covering employees or officers, except for key persons. Further, Congress capped deductible interest rates on key persons and pre-1986 contracts based on an average corporate bond rate. At least one business reacted by proposing to expand life insurance contract coverage and related tax-advantaged loans to policies covering customers, specifically mortgagors. Congress addressed this behavioral response in 1997 by further restricting interest expense deductions for life insurance loans. The 1997 change required that interest deductions be reduced through a pro rata calculation based on the ratio of the cash value of a corporation's life insurance policies to a corporation's total assets. However, policies for employees, directors, officers, and specified owners were explicitly excluded from this calculation, suggesting the change was intended to address specific policies, such as those covering borrowers. This mechanical approach has the effect of disallowing the interest deduction for cases such as lender policies covering mortgagors. In addition to the increased restrictions Congress imposed on COLI interest deductions, the Internal Revenue Service (IRS) successfully litigated several cases of what it considered to be abuse. Also, the IRS offered a settlement initiative to encourage the disclosure of questionable transactions and induce payment of a portion of the presumed tax liability. Given the several restrictions imposed, it is useful to identify the type of interest expense associated with COLI loans that continues to be tax deductible. Interest deductions on debt related to COLI remain for at least two types of policies: contracts purchased on or before June 20, 1986, as a result of the Tax Reform Act's grandfather rule, and policies covering key persons. Furthermore, because debt is fungible, and because the interest expense a company pays to support investment in general is tax deductible, some companies may borrow for other purposes and simultaneously have the finances available to purchase tax-advantaged COLI policies. Under such circumstances, debt that is in fact used to finance COLI is difficult to distinguish from that which is not. President Clinton included an expansion of the pro rata limitation for interest expense deductions as a component of his FY1999, FY2000, and FY2001 budget proposals. These proposals would have expanded the mechanical pro rata approach passed in 1997 by eliminating the exceptions from the calculation, other than for 20% owners. However, the proposals were not adopted. The Joint Committee on Taxation estimated that disallowing interest deductions in relation to the proportion of assets invested in COLI would have generated $200 million in additional revenue in FY2004 and $5.8 billion over the following 10 years (FY2004 through FY2013). State Issues and Activities Unlike many other financial institutions that are regulated primarily at the federal level, insurance companies have been regulated by the states for the past 150 years. State laws in the large majority of states require that to purchase COLI, the employer must have an insurable interest in the life of an insured employee. However, the exact wording of these statutes varies. In general, the state statutes provide that an insurable interest exists if the insured employees would benefit from an employee benefit plan provided by the employer, or that the insurable interest depends on the loss to the corporation if the insured dies. Some states provide for an insurable interest in both situations. If an insurable interest does exist, the next issue under state laws is whether companies must give notice to, or receive the consent of, employees covered under a COLI policy. At least 48 states now have laws requiring some form of notification or consent from an insured employee before a COLI policy can be issued. A number of states require actual consent (opt-in), some in writing, but others assume consent if the employee does not object (opt-out). In 1993, state insurance regulators, through their trade association, the National Association of Insurance Commissioners (NAIC), adopted model COLI guidelines explaining that COLI is generally used to provide employee benefits, such as a retiree health benefit plan. Following the controversy generated on the issue, the NAIC revised these guidelines at the end of 2002. The revised NAIC guidelines recommend that states considering a legislative response to insurable interest concerns should consider the following elements for inclusion in their law (2002 additions in italics): 1. The law should recognize that employers have a lawful and substantial economic interest in the lives of key employees and in other employees who have a reasonable expectation of benefitting from an employee welfare benefit plan. 2. Employers should be required to notify eligible employees of their proposed participation in the plan and the employees should be given an opportunity to refuse to participate. On a prospective basis, employers should obtain written consent of each individual being insured. Consent would include an acknowledgment that the employer may maintain the life insurance coverage even after the insured individual's employment has terminated. 3. An employer shall not retaliate in any manner against an employee or a retired employee for refusing consent to be insured. 4. For non-key or non-managerial employees, the amount of coverage should be reasonably related to the benefits provided to the employees. 5. With respect to employer-provided pension and welfare benefit plans, the life insurance coverage purchased to finance the plans should only be allowed on the lives of those employees and retirees who, at the time their lives are first insured under the plan, would be eligible to participate in the plan. Because the NAIC has no ability to compel the states to act on this or any other issue, these revisions become effective only on a state-by-state basis, as state legislatures enact laws following the guidelines. As of January 2010, the NAIC reports 43 states have adopted these guidelines. Meanwhile, as to BOLI policies held by banks, OCC guidelines applicable to national banks encourage compliance with other applicable legal and regulatory considerations, such as state insurable interest laws, but do not specifically address the issue of employee notification or consent. Tax Issue Analysis Life insurance policies often combine features of insurance and tax-favored savings accounts. The investment income from the money paid into life insurance policies (commonly called inside buildup) is not included in taxable income until it is paid out to the policyholder. If the accumulated income is paid out as a death benefit, it can escape inclusion and taxation entirely. In addition, the tax-favored nature of life insurance also brings to the forefront questions concerning economic efficiency and opportunities for tax arbitrage. Inside Buildup A general benefit granted to life insurance policies is the tax treatment of inside buildup. Inside buildup refers to the increase in the cash value of a life insurance policy. Under current law, inside buildup is not taxed. This tax treatment in conjunction with the tax-free status applied to most death benefits, makes investments in life insurance policies virtually tax-free. The current treatment of inside buildup is commonly justified using market failure arguments. Proponents of the current treatment argue that individuals systematically underestimate the hardship that their death will impose on their families and that in the absence of the current tax treatment, society would purchase a sub-optimal amount of insurance. In the case of corporations, COLI can be seen as a hedge against the future lost productivity of the covered employee. In addition, proponents assert that information asymmetries do not allow for the accurate pricing of insurance contracts leading to what economists call the problem of adverse selection. Adverse selection, in the context of insurance, describes the situation where the demand for insurance (either the propensity to buy insurance, or the quantity purchased, or both) is positively correlated with the risk of loss (e.g., higher risks buy more insurance), and the insurer is unable to allow for this correlation in the price of insurance. This information asymmetry does not allow for the accurate pricing of insurance and leads to market failure. Finally, the current tax treatment of inside buildup could be justified based upon the principle of constructive receipt. The market failure arguments are not, however, compelling in the context of COLI. First, the corporate structure and reporting make it more likely that corporations understand the economic value of each employee, relative to an average family. As a result corporations are unlikely to systematically underestimate the value of a key employee and, as a result, underinsure. Secondly, the likelihood of COLI purchase is not related to the probability of death of the covered employee, but instead to the employee's value to the corporation. Accordingly, the favorable tax treatment of inside buildup cannot be used to offset adverse selection. Finally, even if the above points were justified, there is no compelling evidence that the current tax treatment of inside buildup (or COLI) is successful in reducing underinsurance. Economic Efficiency Some argue that COLI is a means of funding certain types of necessary business expenditures. In particular, it is argued that COLI provides a self-help mechanism for companies to prefund obligations under certain business expenditures that occur after a key employee is no longer employed by the company. The current tax treatment of COLI makes it a cost-effective funding method for such obligations relative to other types of investments. The current tax treatment of COLI, however, distorts investment decisions. By encouraging corporations to choose COLI over competing investment vehicles such as bonds or retained earnings, the result could be overinvestment in COLI relative to a scenario where investment decisions are motivated without regard to taxes. In addition, the current tax treatment of COLI may encourage a tax-induced increase in the value of those types of benefits. Finally, it can be argued that the COLI policies have no relation to the employee benefits being provided. That is, the tax favored benefits paid at the time of death, fund the benefits of individuals who are still alive. Tax Arbitrage In addition to the general tax benefit available to all life insurance policies, businesses may borrow against life insurance policies to achieve an additional tax benefit. This arbitrage opportunity occurs when tax free inside buildup is offset by deductible interest expenses and is commonly cited as chief motivation for COLI transactions. To the extent that COLI transactions are motivated by arbitrage opportunities, COLI is undesirable on economic grounds. On economic grounds, the tax arbitrage encourages the misallocation of corporate resources from more productive uses to life insurance. This outcome may be defended based upon the potential to use COLI proceeds to fund business obligations, but this argument is not persuasive given the resources of a business are fungible. The current treatment of COLI also subverts the goal of horizontal equity in the tax code, by not taxing the input and output of such transactions. As a result, taxpayers with the same economic income have different taxable income, which leads to different tax liabilities. In addition, Congress has previously demonstrated concern with the use of tax arbitrage. For example, the Pension Protection Act of 2006 restricted the tax arbitrage opportunities for COLI to a select few senior members of a corporation and current legislative proposals would further restrict arbitrage opportunities. Appendix. Legislative Proposals 108th-111th Congresses Legislative Proposals in the 111 th Congress The President's 2011 Budget Proposal, proposed February 1, 2010, would have reduced the ability of companies to claim an interest expense deduction from COLI. Specifically, the proposal would have repealed the exception from the pro rata interest expense disallowance rule for contracts covering employees, officers, or directors, other than 20%-owners of a business that is the owner or beneficiary of the contracts. This proposal was not acted upon by the 111 th Congress. H.R. 251 , the Life Insurance Employee Notification Act, was introduced by Representative Gene Green on January 7, 2009. It would have deemed the nondisclosure of employer-owned life insurance coverage of employees an unfair trade practice under Section 5(a)(1) of the Federal Trade Commission Act. It also would have required a detailed written notice to each employee and former employee for whom the employer carries a COLI policy. Representative Green introduced the same language in previous Congresses. This proposal is similar to the limitations included in the Pension Protection Act of 2006 but with a different enforcement mechanism. H.R. 3669 , the Employer-Owned Life Insurance Limitation Act, was introduced by Representative Luis Gutierrez September 29, 2009. This bill would have prohibited COLI policies on employees with a salary of less than $1 million per year. Employers would have been required to disclose COLI policies to those insured. Enforcement would have been through a civil private right of action and criminal penalties. Legislation in the 110 th Congress H.R. 150 , the Life Insurance Employee Notification Act, was introduced by Representative Gene Green on January 4, 2007. It would have deemed the nondisclosure of employer-owned life insurance coverage of employees an unfair trade practice under Section 5(a)(1) of the Federal Trade Commission Act. It also would have required a detailed written notice to each employee and former employee for whom the employer carries a COLI policy. Representative Green introduced the same language in the 108 th Congress as H.R. 414 and the 109 th Congress as H.R. 107 . Legislation in the 109 th Congress H.R. 4 , the Pension Protection Act of 2006, was introduced by Representative John Boehner on July 28, 2006, after conference negotiations to resolve the differences between H.R. 2830 and S. 1783 . It passed the House on July 28, the Senate on August 3, and became P.L. 109-280 when it was signed by the President on August 17. It included, in Section 863, language to add requirements to the tax code in order for a COLI policy to enjoy the typical tax advantages of life insurance. These requirements were that these policies must be on directors or highly compensated individuals and that insured employees must be notified and provide written consent at the time the life insurance contract is issued. Companies were also required to file a yearly return with the Secretary of the Treasury detailing their usage of COLI policies. This language grew out of Finance Committee activity during the 108 th Congress. Although this language would have been more restrictive than then-current COLI requirements, the Joint Tax Committee's revenue estimates from the 108 th Congress found that it would not raise appreciable revenue. This would suggest that the language would not substantially change the total amount of COLI policies purchased, though it might change the types of employees who are covered by those policies. H.R. 2830 was originally introduced by Representative John Boehner as the Pension Protection Act of 2005; after being amended by the Senate, its title became the Pension Security and Transparency Act of 2005. As introduced and passed by the House, it did not include provisions addressing the COLI issue. After its passage by the House in December 2005, the Senate took up the bill on March 3, 2006, and amended it with the text of S. 1783 , including the COLI language, as detailed below. After conference negotiations on this bill, the House and Senate ultimately took up and passed H.R. 4 , the Pension Protection Act of 2006. S. 1783 , the Pension Security and Transparency Act of 2005, was introduced by Senator Chuck Grassley on September 28, 2005. Its COLI language was identical to that in S. 219 from the 109 th Congress and S. 2424 from the 108 th Congress. The Senate passed S. 1783 on November 16, 2005. S. 219 , the National Employee Savings and Trust Equity Guarantee Act of 2005, was introduced by Senator Grassley on January 31, 2005. Its COLI language was identical to that in S. 2424 from the 108 th Congress. S. 1953 , also entitled the National Employee Savings and Trust Equity Guarantee Act of 2005, was introduced by Senator Grassley on November 2, 2005. Its COLI language was identical to that in S. 219 and S. 1783 from the 109 th Congress and S. 2424 from the 108 th Congress. H.R. 107 , the Life Insurance Employee Notification Act, was introduced by Representative Gene Green on January 4, 2005. It would have deemed the nondisclosure of employer-owned life insurance coverage of employees an unfair trade practice under Section 5(a)(1) of the Federal Trade Commission Act. It would have required a detailed written notice to each employee and former employee for whom the employer carries a COLI policy. Representative Green introduced the same language in the 108 th Congress as H.R. 414 . H.R. 2251 , the COLI Best Practices Act of 2005, was introduced by Representative Tom Reynolds on May 11, 2005. It contained in a stand-alone vehicle the requirements found in S. 219 and S. 1783 , namely that tax-advantaged COLI policies cover only directors and highly compensated employees, that such employees be notified and provide written consent, and that companies file yearly returns detailing their COLI use. Legislation in the 108 th Congress H.R. 414 , the Life Insurance Employee Notification Act, was introduced by Representative Gene Green on January 28, 2003. It would have deemed the nondisclosure of employer-owned life insurance coverage of employees an unfair trade practice under Section 5(a)(1) of the Federal Trade Commission Act. It would also have required a detailed written notice to each employee and former employee for whom the employer carries a COLI policy. H.R. 2127 , the Taxpayer Savings and Employee Notification Act of 2003, was introduced by Representative Rahm Emanuel on May 15, 2003. It contained notification provisions as in H.R. 414 , but went beyond notification and would have repealed the tax benefits relating to COLI. H.R. 2127 would have included in a company's taxable gross income both the inside buildup and the proceeds of a company-owned life insurance policy above the premiums paid except in a limited number of circumstances, such as policies on "key persons." Representative Emanuel also introduced a similar amendment on the tax benefits of COLI in the March 12, 2003, Budget Committee Markup of the FY2004 Budget, H.Con.Res. 95 . This amendment was defeated by a vote of 17-24. S.Amdt. 662 , by Senator John Edwards, along with Senators John McCain and Lindsey Graham, was offered on May 15, 2003, during the debate on S. 1054 , the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amendment was similar to H.R. 2127 in that it would have eliminated the tax benefits of COLI, but it did not include the notification provisions common to both House bills. The amendment fell on a point of order made by Senator John Kyl under the Congressional Budget Act of 1974 because it was ruled not germane to the underlying reconciliation measure. Prior to this, a motion to waive the point of order was defeated by a vote of 37-63. S. 2424 , the National Employee Savings and Trust Equity Guarantee Act was introduced by Senator Chuck Grassley on May 24, 2004, and included language (Section 812) adding requirements to the tax code in order for a COLI policy to enjoy the typical tax advantages of life insurance. These requirements are that these policies must be on directors or highly compensated individuals and that insured employees must be notified and provide written consent at the time the life insurance contract is issued. Companies are also required to file a return with the Secretary of the Treasury detailing their usage of COLI policies. S. 2424 was reported by the Finance Committee but not acted upon by the full Senate before the end of the 108 th Congress. Consideration began on the bill that would become S. 2424 while it was still in draft form several months earlier. In a September 17, 2003, markup of the draft S. 2424 , Senator Jeff Bingaman offered an amendment that would remove the tax-preferred nature of the majority of COLI policies. This amendment was adopted by the Finance Committee, but the draft bill was not introduced or brought to the floor at the time. Prior to the next Finance Committee markup, on S. 1637 , the Jumpstart Our Business Strength Act, Senator Bingaman re-filed his amendment. In addition, Senator Kent Conrad filed an amendment, later modified, that would have required notification and would have restricted the tax advantages of COLI to a much lesser extent than Senator Bingaman's amendment. In response to these filings, Chairman Grassley scheduled a hearing to directly consider the issue, and neither amendment was offered at the markup of S. 1637 . The Senate Finance Committee hearing on COLI was held October 23, 2003; it was followed by an additional markup of the draft S. 2424 on February 2, 2004. At this markup, Senator Bingaman's amendment was replaced with a modification presented by the chairman. This modification, ultimately included in S. 2424 and subsequent legislation, was strongly supported by the life insurance industry. It retained the tax-preferred nature of COLI for policies that met notification and consent requirements and that were restricted to "highly compensated" employees, including key persons. The Joint Committee on Taxation's revenue estimate indicated that this amendment would have a negligible revenue impact, suggesting that the total volume of COLI usage by corporations will not be significantly affected. In addition to this legislative activity, the Joint Committee on Taxation issued a report recommending repealing the grandfather rules associated with pre-1986 COLI contracts as a result of the committee investigation of the federal tax issues surrounding the Enron corporation.

Life insurance policies taken out by and payable to companies on their employees, directors, officers, owners, and debtors are commonly known as corporate-owned life insurance (COLI) policies. (COLI is also known as company-owned life insurance.) Such policies are separate and distinct from typical group life insurance policies offered to many employees as an employment benefit. In general, only the company, not the employee's family or other beneficiary, receives any benefit from a COLI policy. In some cases, employees or their families have no knowledge of any policy being taken out. Concerns about people "gambling" on the deaths of strangers has led to "insurable interest" laws in most states that require some possibility of financial loss as the result of an insured's death as a prerequisite for the purchase of life insurance. Although employment has generally been accepted to fulfill the need for an insurable interest, many have expressed concern about employers holding policies on lower-paid employees and continuing to hold policies after a worker has left employment. Although the chief historical justification for the favorable tax treatment of life insurance focuses on individuals, not companies, COLI policies enjoy the same basic preferences as other life insurance. As a result, a corporation enjoys either tax-deferred or tax-free growth of funds invested in COLI plans. These tax preferences are a large reason for companies to choose COLI policies rather than simply investing the money in a more straightforward way. Moreover, under certain circumstances, companies have taken loans using the cash value of the life insurance policy as collateral, used the loan proceeds to pay for the premiums of the life insurance policies, and then deducted the interest expense from their taxable income, further enhancing the advantages of COLI-related transactions. In the past, Congress has restricted the tax advantages of COLI, including limiting instances in which loan interest is allowed to be tax deductible. The 108th and 109th Congresses saw several bills introduced as well as floor and committee amendments on COLI. Language limiting COLI's tax advantages to policies taken out on the highest-paid 35% of employees and linking tax advantages to employee notice and consent was agreed to in the Senate Finance Committee in 2004 and ultimately incorporated into P.L. 109-280, which was passed by the 109th Congress in 2006. In the 112th Congress, the Life Insurance Employee Notification Act (H.R. 130), introduced by Representative Gene Green, would require employee notice of COLI, similar to those enacted in 2006. These requirements, however, would be enforced through the Federal Trade Commission Act, rather than the Internal Revenue Code. This report begins with a general background on COLI, followed by current proposals on COLI. It then addresses federal limitations on COLI from previous years, discusses state approaches to the issue, and concludes with an analysis of the issue from a public-finance perspective. An appendix provides a detailed discussion of proposals addressing COLI from the 108th through 111th Congresses. This report will be updated in the event that legislation dealing with COLI progresses.

Introduction to the IDEA The Individuals with Disabilities Education Act (IDEA) provides federal funding for the education of children with disabilities and requires, as a condition for the receipt of such funds, the provision of a free appropriate public education (FAPE) for children with disabilities. The IDEA's predecessor legislation, the Education for All Handicapped Children Act ( P.L. 94-142 , passed in 1975), responded to increased awareness of the need to educate children with disabilities, and to judicial decisions requiring that states provide an education for children with disabilities if they provided an education for children without disabilities. In its current form, the IDEA both authorizes federal funding for special education and related services and, for states that accept these funds, sets out principles under which special education and related services are to be provided. Over the past four decades, the IDEA has been the subject of numerous reauthorizations to extend services and rights to children with disabilities. The most recent reauthorization was P.L. 108-446 in 2004. Funding for IDEA Part B, Assistance for Education of all Children with Disabilities, is permanently authorized. Funding for Part C, Infants and Toddlers with Disabilities, and Part D, National Activities, was authorized through FY2011. Funding for the programs continues to be authorized through annual appropriations. The Structure and Funding of the IDEA The IDEA consists of four parts. Part A contains the general provisions, including the purposes of the act and definitions. Part B contains provisions relating to the education of school-aged children (the grants-to-states program) and the state grants program for preschool children with disabilities (Section 619). Part C authorizes state grants for programs serving infants and toddlers with disabilities. Part D contains the requirements for various national activities designed to improve the education of children with disabilities. Table 1 shows the structure and funding of the IDEA and is followed by a more detailed discussion of the four parts of the act. Part A—General Provisions Part A includes congressional findings pertinent to the act, the purposes of the act, and definitions. The definitions included in Part A are important in interpreting the requirements of the act. These include, among others, definitions of child with a disability , specific learning disability , free appropriate public education , individualized education pro gram , local educational agency , related services , special education , supplementary aids and services , transition s ervices , and excess costs . Part B—Assistance for Education of All Children with Disabilities Part B provides federal funding to states for the education of children with disabilities and requires, as a condition for the receipt of such funds, the provision of a FAPE to children with disabilities between the ages of 3 and 21. School districts within participating states must identify, locate, and evaluate all children with disabilities, regardless of the severity of their disability, to determine which children are eligible for special education and related services. Each child receiving services must have an Individualized Education Program (IEP), created by an IEP team, delineating the specific special education and related services to be provided to meet his or her needs. The statute also contains procedural safeguards, which are provisions to protect the rights of parents and children with disabilities to ensure the provision of FAPE. Section 619 authorizes grants to states for preschool programs serving children with disabilities ages three to five. Section 619 is a relatively brief section of the law and deals mostly with the state and substate funding formulas for the preschool program grants and state-level activities. Part C—Infants and Toddlers with Disabilities The general purpose of Part C is to aid each state in creating and maintaining "a statewide, comprehensive, coordinated, multidisciplinary, interagency system that provides early intervention services for infants and toddlers with disabilities and their families." Services focus on children (and their families) from birth through age two who are experiencing or have a high probability of experiencing "developmental delay" (as defined by the state) with respect to physical, mental, or other capacities. Services are detailed for each child and his or her family in an Individualized Family Service Plan (IFSP). To the maximum extent feasible, services are to be provided in "natural environments," including the home, with other infants and toddlers who are not disabled. States are required to identify a state lead agency, which might be the state educational agency (SEA) but could be other state agencies, to coordinate the system. Part D—National Activities to Improve Education of Children with Disabilities11 Part D authorizes competitive grants to improve the education of children with disabilities under three subparts with different areas of emphasis: (1) state personnel development; (2) personnel preparation, technical assistance, model demonstration projects, and dissemination of information; and (3) support to improve results for children. Under Subpart 1, competitive grants are made to SEAs for state personnel development grants to assist SEAs "in reforming and improving their systems for personnel preparation and professional development in early intervention, educational, and transitions services." Under these grants, personnel preparation and development may be provided for special education teachers, regular education teachers, principals, administrators, related services personnel, paraprofessionals, and early intervention personnel serving infants, toddlers, preschoolers, or children with disabilities. Under Subpart 2, competitive grants are made to entities such as SEAs, local education agencies (LEAs), institutions of higher education (IHEs), and nonprofit organizations for personnel development to help ensure that there are adequate numbers of personnel with skills and knowledge needed to help children with disabilities succeed, for technical assistance and dissemination of material based on knowledge gained through research and practice, and for studies and evaluations. Under Subpart 3, competitive grants are made to nonprofit organizations for parent training and information centers, which provide parents of children with disabilities with needed training and information to work with professionals in meeting the early intervention and special education needs of their children. Competitive grants are also made to entities such as SEAs, LEAs, IHEs, and nonprofit organizations for research, development, and other activities that promote the use of technology in providing special education and early intervention services. Current IDEA Funding Part B is the largest part of the IDEA, and it received nearly 95%, $12.7 billion, of the act's total funding in FY2018. Part B's funding is authorized in two different sections. Section 611, which covers children between the ages of 3 and 21 receiving special education and related services in public schools, received $12.3 billion in FY2018. Section 619, which provides supplementary preschool grants for children between the ages of 3 and 5, received $381.1 million in FY2018. In comparison, as is shown in Table 1 , Part C was appropriated $470 million (3.5% of IDEA funding) in FY2018. Less than 2% of the total IDEA funding went to Part D. IDEA Funding Trends The IDEA is one of the largest educational programs overseen by the U.S. Department of Education (ED). As Figure 1 displays, from the first year of funding in 1977 until about a decade ago, appropriations for the Part B grants-to-states program had been rising rapidly. In the first 20 years of funding for the Part B program, appropriations increased approximately 470% in constant 2017 dollars. Between the last two reauthorizations of the IDEA in 1997 and 2004, Part B appropriations rose an average of 18% per year in constant dollars. However, Part B funding trends changed after the 2004 reauthorization, and appropriations have fluctuated in the years since. Part B funding reached its highest levels in FY2005 and FY2009, with inflation-adjusted amounts exceeding $13.1 billion each year. In FY2017 the appropriation was $12 billion, and in FY2018 it was $12.3 billion. Despite recent fluctuations in Part B appropriations, funding for the Part B grants-to-states program increased steadily for most of its first four decades ( Figure 1 ). In contrast, funding levels for the two early childhood grant programs, after experiencing substantial growth in earlier periods in program history, have declined in constant dollar amounts in more recent periods. The Part B, Section 619 preschool grants program began with a period of relatively low funding between FY1980 and FY1986 ($25 million to $29 million), followed by a period of rapid escalation in funding between FY1987 ($180 million) and FY1995 ($360 million). The year-to-year escalation in Section 619 funding slowed over the next five years. In FY2000, Section 619 funding reached its highest annual appropriation level in actual dollars ($390 million), and it maintained that appropriation for the next two years. From FY2003 through the present, Section 619 appropriations have fluctuated somewhat in actual dollars and declined in constant dollars. The Section 619 preschool grants program received its highest level of funding in constant FY2017 dollars in FY1995 ($578 million). In FY2018, the Part B, Section 619 preschool grants program was appropriated $381 million. The Part C, infants and families program experienced a period of relatively constant funding growth for its first 15 years; Part C appropriations increased from $50 million in FY1987 to over $444 million in FY2004. In the years since, the IDEA Part C grants program has received relatively level appropriations in actual dollars and declining funding in constant 2017 dollars. Between FY2004, the year of the IDEA's most recent reauthorization, and FY2012, funding in nominal dollars for the Part C program changed relatively little from one year to the next, while funding in inflation-adjusted dollars eroded. For the past five years, appropriations for the Part C program have fluctuated. In FY2018, the Part C, infants and families program was appropriated $470 million. Historical Review of Funding Provisions in the IDEA and Related Acts Federal laws concerning children with disabilities date from the early 19 th century, but it was not until the Elementary and Secondary Education Act (ESEA) was reauthorized for the first time in 1966 that the first general federal assistance was provided to states for the education of children with disabilities. The original version of the ESEA, which Congress enacted in 1965 as P.L. 89-10, did not specify assistance for children with disabilities. However, the Senate Committee on Labor and Public Welfare report on the legislation included a provision stating that upon a U.S. Office of Education determination of disability, children with disabilities would be considered "educationally deprived" for purposes of eligibility for the ESEA Title I compensatory education program for disadvantaged children. P.L. 89-750, the Elementary and Secondary Education Act Amendments of 1966, established a new Title VI of the ESEA, separately authorizing an assistance program for projects in states to educate children with disabilities. Sponsors of this law argued that the U.S. Office of Education had not appropriately responded to the needs of children with disabilities under the ESEA Title I program. P.L. 89-750 authorized a two-year program of project grants to states for the education of children with disabilities at the preschool, elementary, and secondary school levels. Allotments of grant funds to states were based on the state's population of children with disabilities ages 3 through 21 in need of special education and related services. P.L. 89-750 also authorized a National Advisory Committee on the Education of the Handicapped, and established a bureau within the Office of Education to administer programs for the education and training of children and youth with disabilities. The Education of the Handicapped Act (EHA) The ESEA Amendments of 1970 (P.L. 91-230) repealed Title VI and created a separate law, the Education of the Handicapped Act (EHA), to consolidate all federal educational assistance for children with disabilities into one statute. The new program of assistance to states was essentially a grant program that supported projects providing services for students with disabilities, which was authorized for three fiscal years. By 1970, some Members of Congress argued that greater emphasis should be placed on EHA assistance to states because of the number of school-aged children with disabilities who reportedly were unserved by states. The House Committee on Education and Labor report on the bill that would become P.L. 91-230 noted that by U.S. Office of Education estimates, 60% of the total school-aged population of children with disabilities in the United States were not receiving special education services. The committee did not recommend any changes in the federal program of project grants to states to address the problem, but it urged full program funding. The committee noted that the history of assistance programs for children with disabilities had been "marked by serious discrepancies between authorizations and appropriations." In FY1969, for example, appropriations were only about 18% of the authorization. By 1974, when the EHA state grant program was next reauthorized in P.L. 93-380 , Congress had become increasingly persuaded that the program did not adequately address the educational needs of children with disabilities. States, under court mandates and their own laws, had major new responsibilities to provide educational services to all children with disabilities, but due to financial constraints many were unable to meet minimum educational requirements. The amendments enacted in P.L. 93-380 that provided a one-year "emergency" program of assistance to states set the stage for the enactment of the IDEA's predecessor legislation—the Education of All Handicapped Children Act ( P.L. 94-142 )—in 1975. Education for All Handicapped Children Act As early as 1972, an Education for All Handicapped Children Act was proposed in the 92 nd Congress in S. 3614, introduced by Senator Harrison Williams, chairman of the Senate Committee on Labor and Public Welfare, and in H.R. 15727, introduced by Representative John Brademas, chairman of the House Subcommittee on Select Education. These basically similar bills would have authorized federal assistance to states to help them implement the Supreme Court's mandate that all children with disabilities receive appropriate educational services. In contrast to the existing federal program of grants supporting projects, the program authorized by these bills would have provided federal payments to states for up to 75% of the excess costs incurred by school districts for educating children with disabilities. In his statement introducing S. 3614, Senator Williams noted the following: We have increased Federal assistance [for children with disabilities] from $45 million 5 years ago to $215 million in the present fiscal year. But these have been token expenditures. Nowhere in our public laws or in our budget figures do we find acceptance for the proposition that all handicapped children have the right to an education. It has been the courts which have forced us to the realization that we can delay no longer in making just such a commitment. [W]e at the Federal level are going to have to change our traditional methods of investing money. The theory that the Federal Government can provide minimal assistance to the states as incentive grants to provide extensive educational services simply does not meet the mark in this instance…It is hard to argue to the states that the Federal Government is serious about full educational opportunity for all handicapped children when we are not willing to invest money to make this goal a reality. If we are going to make a real commitment to full and appropriate services, and expect the states to carry through on this commitment, we will have to put our money where our mouth is. At the beginning of the 93 rd Congress, Senator Williams and Representative Brademas reintroduced the Education for All Handicapped Children Act as S. 6 and H.R. 70 , respectively. The Nixon Administration opposed the Williams and Brademas proposals, and the 93 r d Congress ended without action on either bill. The Education Amendments of 1974 ( P.L. 93-380 ) included a significant change in the EHA state grant program. Offered by Senator Charles Mathias of Maryland, the "Mathias amendment" authorized a program of federal assistance to states, for FY1975 only, through a funding allotment equaling a state's population of children ages 3 through 21 multiplied by $8.75. This authorization represented a threefold increase in the amount last authorized for the state grant program under P.L. 91-230. The Mathias amendment also, for the first time, required states as a condition of receiving assistance to adopt certain program policies and due process procedures such as those that were being proposed in S. 6 and H.R. 70 . When the Mathias amendment was considered, Senators agreed that it should be thought of as an interim emergency measure pending the enactment of S. 6 , which was being crafted by the Senate Committee on Labor and Public Welfare after extensive hearings and more thorough examination. P.L. 93-380 became law on August 24, 1974. Appropriations for FY1975 for the Mathias amendment were $100 million, approximately 15% of the amount that would have needed to be appropriated to fully fund the program, though twice the FY1974 appropriations for the state grant program. P.L. 93-554 , the Supplemental Appropriations Act for Fiscal Year 1975, which provided the FY1975 appropriations for the EHA state grant program, provided an additional $100 million in appropriations for obligations under the program in FY1976. The Education for All Handicapped Children Act was reintroduced in the 94 th Congress by Senator Williams in the Senate and Representative Brademas in the House, each bill with over 20 cosponsors. In addition to the hearings held in the previous Congress, several more days of hearings were devoted to the measures in both the House and Senate in the spring of 1975. The major concerns of witnesses before the Senate subcommittee involved the most appropriate formula for the distribution of funds under S. 6 , and the best way to enforce the education rights of children with disabilities and measure compliance. Similarly, the House committee report included views of certain committee members focusing mainly on whether the authorization levels implied by the formula might be unrealistic. Conference Action The Senate and House appointed members to a conference committee to resolve their differing versions of the Education for All Handicapped Children Act. The conference committee met on five days in October 1975 and agreed to a compromise version of the bill on October 30. Some of the most significant differences between the Senate and House proposals related to funding issues, including the funding formula, within-state distribution of funds, the excess costs provisions, preschool incentive grants, and administrative and planning costs. The conference committee agreed to a formula that would provide a maximum grant for each state that is equal to its count of children with disabilities served multiplied by a gradually increasing percentage of the national average per pupil expenditure (APPE)—beginning at 5% of the APPE in FY1978, increasing to 40% in FY1982, and then remaining at 40% every year thereafter. The authorization was permanent, and would become effective in FY1978. The maximum allowable grant that each state could receive per special education student from FY1982 onward (i.e., 40% of the APPE) came to be known as the "full funding" amount for the Education of All Handicapped Children Act, and later for the IDEA. The funding states received in FY1977 was set as the base-year amount—no state could receive less than it had that year. In years when Congress did not appropriate enough to meet the authorized level of 40% of the APPE, each state's award was reduced proportionally. The Senate Committee on Labor and Public Welfare explained its rationale for using states' special education child count in 1975, stating the following: The Committee wished to develop a formula which would target funding and eligibility for funding on the population of handicapped children for whom services would be provided. The Committee adopted this formula in order to provide an incentive to states to serve all handicapped children and to assure that the entitlement is based on the number of children actually receiving special education and related services within the State and for whom the State or the local educational agency is paying for such education. The formula in existing law, the Education of the Handicapped Act, distributes Federal funds to the States on the number of all children, aged three to twenty-one within such State. The Committee has developed a formula which generates funds on the basis of the handicapped children receiving an education within a State. President Ford Signs the Bill President Gerald Ford signed S. 6 on November 29, 1975, and it became P.L. 94-142 . In a statement on the approval of the bill, the President noted his reservations that the legislation falsely raised the hopes and expectations of the disabilities community because of excessive and unrealistic authorization levels. President Ford said, "Despite my strong support for full educational opportunities for our handicapped children, the funding levels proposed in this bill will simply not be possible if Federal expenditures are to be brought under control and a balanced budget achieved over the next few years." In the four decades since the signing of the Education for All Handicapped Children Act, appropriations for the Part B grants-to-states program have never met the authorized "full-funding" level of 40% of the national APPE. Funding Formula Changes: IDEA 1997 Since 1975, Congress has reauthorized the federal special education law five times, most recently in 2004. Known as the Individuals with Disabilities Education Act (IDEA) since its 1990 reauthorization, the act's funding provisions have undergone several changes over the past 40 years, the most significant of which were implemented in the 1997 reauthorization. In an effort to ensure that states would identify and serve all children in need of special education services, Congress designed P.L. 94-142 's funding formula to reward states for identifying students with disabilities for special education services and for continuing to provide them with special education once they were identified. Congress encouraged states to serve all children in need of special education and related services by tying Part B funding to the number of special education students each state served. By the mid-1990s, Congress found that their goal of ensuring public schools would identify and serve children with disabilities had been successful; however, a growing concern was a disproportionate number of minority children being identified as disabled, particularly in the more subjective disability categories of specific learning disability (SLD), intellectual disability, and emotional disturbance. The committee reports accompanying the 1997 IDEA amendments presented Congress's concern about the disproportionate representation of minorities in special education and explained their rationale for a new state allocation formula. The House report of the Committee on Education and the Workforce stated the following: The Committee developed the change in formula to address the problem of over-identification of children with disabilities. When the Act was first passed in 1975, States were not providing educational services to many children with disabilities. Therefore, Congress proposed to distribute federal funds for special education services in order to encourage and reward States for serving eligible children. In the 22 years since then, the States have made excellent progress in identifying children with disabilities and providing them access to special education, and are now serving 5.5 million children with disabilities or approximately 10 percent of children aged 3 through 17. Logically, a formula was established at that time that based funding on counting the number of children with disabilities identified. This was to encourage States to proactively locate children with disabilities. Today, the growing problem is over identifying children as disabled when they might not be truly disabled. The challenge today is not so much how to provide access to special education services but how to appropriately provide educational services to children with disabilities in order to improve educational results for such children. As States consider this issue, more and more States are exploring alternatives for serving more children with learning problems in the regular educational classroom. But in doing so, they face the prospect of reductions in Federal funds, as long as funding is tied to child counts. While it is unlikely that individual educators ever identify children for the additional funding that such identification brings, the financial incentive reduces the proactive scrutiny that such referrals would receive if they did not have the additional monetary benefit. It also reduces the scrutiny of children who might be moved back out of special education. In-State funding formulas that follow the current disability-based Federal child-count formula further reduce such scrutiny, with more children being identified to draw additional State funds. This problem is most intense with minority children, especially African-American males. Over-identification of minority children, particularly in urban schools with high proportions of minority students, remains a serious and growing problem in this Nation. The problem also contributes to the referral of minority special education students to more restrictive environments. The committee is also cognizant, however, that in some areas under identification remains a problem, particularly for minority children. The report explained the change from a formula based on the number of children receiving special education to a formula based on the total population of children in each state and the percentage of those children living in poverty: The Committee has squarely faced this problem by shifting, once the targeted threshold is reached, to a formula of which 85 percent of additional funds is based on the total school age population and 15 percent is based on the poverty statistic for children in a State. This system was encouraged in the 1994 report of the Department of Education's Inspector General. The Inspector General noted: ``Because [a population-based] method [of allocating funds] uses objective data derived for other purposes, [this method] eliminates the financial incentives for manipulating student counts [that exist in the current formula], including retaining students in special education just to continue receiving Federal funds.'' The Committee added a poverty factor to the formula because there is a link between poverty and certain forms of disability. This concept was also encouraged by the Inspector General's report. Based on the significant progress that has been made in providing access to special education and concerns about the over-identification of children as disabled, the Committee believes this new formula will address many of these concerns. This change will enable States to undertake good practices for addressing the learning needs of more children in the regular classroom without the unnecessary categorization or labeling thereby risking the loss of Federal funds. Changing the Federal formula may also motivate States to change their own formulas for distributing State aid in ways that eliminate inappropriate financial incentives for referring children to special education. The funding formula adopted through the 1997 IDEA amendments was set to take effect the year the federal appropriation for the grants-to-states program first exceeded $4.9 billion. The formula guaranteed states a minimum base-year amount, which was set as the amount states received the year before the new formula took effect. Since the IDEA appropriation exceeded $4.9 billion for the first time in FY2000, the base-year amount states were guaranteed was their FY1999 funding level. In years when Congress appropriated more funding to the grants-to-states program than it had the year before, funding exceeding the base-year amount would be allocated to states based on the total population of children ages 3 through 21 in the state and the percentage of those children living in poverty. Of the funding over the base-year amount, 85% was awarded based on the population of children ages 3 through 21 in the state (not only children with disabilities), and the remaining 15% was based on the state's share of children living in poverty. The full funding amount of 40% of the APPE was maintained in the formula adopted through the 1997 amendments. While there were changes and additions made to the IDEA formula in the 2004 reauthorization, which will be discussed in the next section of this report, the basic framework of the formula adopted through the 1997 amendments remains in place today. Procedures Used to Allocate IDEA Funds Part B Grants to States What follows is a description of grant allocation procedures authorized under current law. After the Secretary of Education (the Secretary) has reserved funds for technical assistance and for payments to the outlying areas, the freely associated states, and the Secretary of the Interior for a fiscal year, the Secretary allocates the remaining IDEA Part B amount among the states. Part B formula grants to states are calculated based on one of two scenarios: (1) the appropriated amount available to states for the current fiscal year is greater than or equal to the amount that was available to states in the previous year, or (2) the amount available to states in the current year is less than the amount available to states the previous year. Figure 2 summarizes the process of determining state allocations whether appropriations increase, remain the same, or decrease. The following two sections of this report will examine how IDEA allocations are calculated in years when funding increases or remains the same, and in years when funding decreases. Level or Increased Federal IDEA Part B Funding The IDEA Part B provisions specifying the allocation procedures when Part B appropriations are the same as or greater than they were in the preceding fiscal year are more complicated than the formula used when Part B appropriations are less than they were in the preceding year. A Part B appropriation equal to or greater than the previous year's appropriation is also the more common scenario, occurring in 36 of the 40 years between FY1977 and FY2017 (as displayed in Figure 1 ). The calculations used in years when Part B funding increases or remains the same are outlined below. Basic IDEA State Grant Funding Calculation As discussed previously, the base formula for state allocations was historically designed to target funds toward states with higher proportions of children with disabilities. After concerns arose that an IDEA formula based on the number of children found eligible for special education services in a state might incentivize special education placement and contribute to the disproportionate number of minority students receiving special education services, Congress changed the base formula during the reauthorization of the IDEA in 1997 to target funds toward states with larger total populations of children ages 3 through 21 years old, not specifically children with disabilities. In the current IDEA Part B formula, states with higher rates of children living in poverty are also targeted. Currently, the basic formula for allocating Part B grants, in years when appropriations to states are equal to the prior year or have increased, remains the same as the one put in place during the 1997 reauthorization of the IDEA. Under this formula, 85% of any funds over the base-year appropriation (FY1999) are distributed based on the state's share of the United States' total population of children ages 3 through 21 , and the remaining 15% is distributed according to the state's share of children of the same age range living in poverty. Each state's initial Part B grant is the sum of three factors: the state's FY1999 base-year grant, the state's share of new money based on population, and the state's share of new money based on poverty. The second two factors are calculated using the state's share of the national population of children ages 3 through 21 and the state's share of children living in poverty. Each state's share of the national child population is calculated by dividing a state's total population of children by the national population of children ages 3 through 21; and each state's share of the national population of children in poverty is calculated by dividing the state's population of children living in poverty by the U.S. population of children living in poverty. To calculate fully the initial Part B grant for an individual state, one first has to determine the state's grant based on the state's population of children ages 3 through 21 and the state's grant based on their share of children ages 3 through 21 living in poverty. State grants based on population ( State Grant pop ) are calculated by allocating 85% of the "new money" (i.e., funds over the FY1999 base-year appropriation) based on the state's share of the U.S. child population, and state grants based on poverty ( State Grant pov ) are calculated by allocating 15% of the new Part B money based on the state's share of the U.S. child population living in poverty. Each state's initial Part B grant is the sum of the state's FY1999 base-year grant, their initial state grant based on population, and their initial state grant based on poverty. Once each state's initial or "basic" grant has been calculated it may be adjusted based on each state's minimum and maximum grant levels, which also must be calculated. If the initial grant a state would receive based on the basic IDEA funding formula would fall outside the range determined by the minimum and maximum grant calculations, the state's IDEA grant is set to its floor or ceiling grant allocation as appropriate. Allocation Floor Part B describes four amounts used to determine a state's minimum grant amount or allocation floor. First, determine each of these four amounts; then set the largest of them as the state's allocation floor. The first amount is the state's preceding-year allocation, commonly known as the "hold harmless" amount. The other three amounts are calculated using three formulas for minimum grant amounts outlined in the IDEA: 1. Calculate the first state minimum grant award amount by adding the FY1999 award level for a state and 1⁄3% (i.e., 0.0033) of the amount by which the current year's (CY's) appropriation exceeds the amount appropriated for Part B in FY1999: This calculation only results in the highest minimum grant award amount for states with small populations, and therefore is sometimes referred to as the "small state minimum." 2. Calculate the second state minimum grant award amount by adding the state's prior-year (PY) award level, and that prior-year amount multiplied by any percentage increase in appropriations for Part B in excess of 1.5% above the preceding fiscal year's appropriation: This calculation results in the greatest minimum allocation for states in years when there is a large (e.g., >15%) increase in the amount appropriated for Part B. 3. The third state minimum grant award is calculated by adding a state's prior-year award and that prior-year amount multiplied by 90% of the percentage increase in the amount appropriated for Part B from the preceding fiscal year. This calculation is used for most states in years when the increase in the Part B appropriation is less than 15% above the previous fiscal year. In practical terms, this third minimum state grant will always result in a grant amount equal to or greater than a state's preceding-year allocation. The state's preceding-year allocation is compared to the results of three state award minimum calculations. The largest of these four quantities is then set as that state's allocation floor. Allocation Ceiling There is one calculation to determine each state's maximum award or ceiling (i.e., the amount the state's allocation may not exceed). The maximum award is calculated as the sum of the amount the state received the preceding fiscal year and that prior-year amount multiplied by the sum of 1.5% and the percentage increase in the amount appropriated from the preceding fiscal year. The maximum grant calculation is a unique component of the Part B formula. Most education funding formulas contain only minimum award levels or funding floors, but do not set a limit on the maximum funding a state may receive. The maximum grant level allows for the possibility that some funds would be unallocated in years in which IDEA funding rises enough that every state can receive its maximum grant. In some cases, the calculated maximum award for a state is less than the calculated minimum for that state. When this happens, the state's final floor is set equal to its ceiling, and the state receives the lesser of the two amounts—the maximum award. When Part B grants to the 50 states, the District of Columbia, and Puerto Rico for FY2015 (shown in Table 2 ) are examined, the majority of states (44 out of 52; 85%) received their minimum award amount. Only two of those states (Alaska and Montana) received the "small state minimum" allocation. In other words, the first of the three state-grant-award-minimum calculations (shown above) was used to determine minimum and final grant allocations for only two states. The other 42 states receiving their minimum award amount received the allocation derived from the third minimum state grant calculation. As mentioned previously, the third minimum grant calculation is used for most states in years when the Part B appropriation is less than 15% greater than the previous fiscal year's appropriation. One state (Arizona) received a Part B grant allocation between its minimum and maximum grant. The remaining seven states received their maximum allocations. As stated previously, a state's maximum award is the amount the state's allocation may not exceed , as opposed to the maximum amount it can receive . And, when determining a state's final floor, the lesser amount between the minimum and maximum grant for the state is the amount awarded. Therefore, when a state's maximum grant is lower than the state's highest calculated minimum grant, the maximum grant amount is allocated. This can be seen in the cases of the states awarded their maximum allocations in Table 2 . Final Part B State Grant Funding Calculation Once each state's floor and ceiling amounts are calculated, those amounts are compared to the initial grant amount calculated based upon population and poverty data. Each state's grant amount must be adjusted to fit within the range of its floor and ceiling grant levels. States' initial grant amounts that fall outside this range are either brought up to equal their floors or brought down to equal their ceilings. If sufficient funds are not available to fully cover the calculated grant levels, ratable reduction is used to arrive at allocations across the states. During the ratable reduction process, no state's grant amount may be reduced below its prior-year allocation or its hold harmless level. Final state grant amounts are calculated by adding each state's adjusted and ratably reduced new money grant and the state's FY1999 base-year grant. Decreased Federal IDEA Part B Funding If the amount appropriated for Part B grants is below the amount appropriated for the preceding fiscal year but above the amount appropriated in FY1999, a single calculation is used. Each state is allocated the sum of its FY1999 base-year grant and an amount of the current fiscal year's Part B new money proportional to the share of new money the state received the prior fiscal year. First, calculate the amount of new money provided to each state the previous year: After totaling the new money available to all states in the previous year, calculate each state's ratably reduced funding amount for the current year: Determine the final grant amount for each state by adding the state's ratably reduced new money grant amount to the state's FY1999 grant amount. If Congress provided the Part B program an annual appropriation less than or equal to the amount it provided in FY1999, a single, simpler calculation would be used. The amount each state received in FY1999 would be ratably reduced based on the amount of the reduction in overall funding for the program. This calculation has not been used to date. In FY2018, the IDEA grants-to-states program was appropriated $12.3 billion, $8 billion more than it received in FY1999, suggesting it may be unlikely IDEA funding will drop below FY1999 levels in the future. Grants to LEAs States may reserve a portion of their federal IDEA funding for statewide activities, but they are required to distribute the majority of their IDEA allocation to local educational agencies (LEAs) and public charter schools that operate as LEAs. In order for states to allocate IDEA funds to individual LEAs they must use a formula similar to the one used to divide IDEA funds among states, except that the sources of population and poverty data vary from state to state. First, the states are required to award each LEA an amount based on its FY1999 base-year allocation. Then states distribute the remaining allocation according to the share of the population of children in both public and private schools in the LEA (85%) and the LEA's share of children living in poverty (15%). If a state educational agency determines that an LEA is providing a free appropriate public education to all children with disabilities in the LEA using only state and local funds, the SEA may reallocate any unneeded federal IDEA Part B funds to other LEAs in the state that are not adequately providing FAPE to all the children with disabilities they serve. Grants for IDEA Early Childhood Programs Preschool Grants Program (Part B, Section 619) Section 619 of IDEA Part B authorizes grants to states for preschool programs serving children with disabilities ages three to five. Because Part B grants to states are used to serve children with disabilities as young as three years of age (as well as school-aged children), Section 619 is not so much a separate program as it is supplementary funding for services to preschool children with disabilities. In general, the provisions, requirements, and guarantees under the grants-to-states program that apply to school-aged children with disabilities also apply to children in this age group. Part B, Section 619 preschool grants follow the calculations previously discussed for determining Part B grants to states for children ages 3 through 21 years old, with the following adjustments: The reservation for administration and state-level activities that states may reserve from their Part B, Section 619 grant awards is greater than the amount states may reserve from their larger Part B, Section 611 grants (25% vs. 5%). Where the FY1999 grant is used in a calculation to determine " Part B Grants to States ," it is replaced by the FY1997 grant in Part B, Section 619 calculations. Infants and Families Program (IDEA Part C) The calculations used to determine the IDEA Part C infants and families program grants are simpler than those used for either of the Part B grant programs. After the Secretary has reserved funds for payments to the outlying areas, and for tribes, tribal organizations, and consortia of those groups for the provision of early intervention services on reservations, the Secretary allocates the remaining IDEA Part C amount among the 50 states, the District of Columbia, and Puerto Rico according to the ratio of infants and toddlers in each state to the number of infants and toddlers in all states. The minimum allotment for each state is either $500,000 or one-half of 1% of the total Part C funds allotted to the states, whichever is greater . If the appropriation for Part C is funded at a level insufficient to pay the full amounts that all states are eligible to receive in a given year, the Secretary must ratably reduce the states' payments, meaning the reduction will be proportionately reflected in the allotment for each state, including states initially receiving the minimum Part C grant amount. IDEA Funding Issues Full Funding The amount required to provide the maximum amount for each state's grant is commonly referred to as "full funding" of the IDEA. When Congress enacted the predecessor legislation to the IDEA in 1975, they strove to ensure that (1) states would provide every eligible child FAPE in the least restrictive environment, and (2) states would not take on an untenable financial burden by agreeing to provide special education and related services. At the time, the available estimate of the cost of educating children with disabilities was, on average, twice the cost of educating other children. A determination was made that the federal government would pay some of this additional or "excess" cost. The metric for determining this excess cost was the national average per-pupil expenditure (APPE). Congress's final determination was that the federal government would pay up to 40% of the excess cost of providing special education and related services, and 40% of the national APPE adjusted by the number of children with disabilities a state served came to be known as the "full funding" amount of IDEA Part B grants to states. IDEA funding has fallen short of the full funding amount each year from the formula's enactment through FY2018. For example, in FY2018 the amount appropriated for Part B accounted for approximately 15% of the national APPE, less than half of the 40% full funding level. In FY2009, Part B appropriations approached closer to the full funding amount than they had before or have since, when, with the addition of federal stimulus dollars, IDEA funding rose to almost 35% of the APPE. Prior to the enactment of P.L. 108-446 in 2004, the maximum amount a state could receive under the Part B grants-to-states program was based on 40% of the national APPE multiplied by the number of children with disabilities the state serves. P.L. 108-446 changed the method of calculating the maximum amount of states' grants. A state's maximum grant amount for purposes of calculating "full funding" differs from the maximum grant level calculation performed in years when the IDEA Part B appropriation has increased, as described earlier in this report. The maximum grant level calculation described earlier is used in years when the most common funding scenario occurs—IDEA Part B appropriations increase but remain below the full funding level. In contrast, the maximum amount of each state's grant for the purposes of full funding would only be calculated in a year when IDEA Part B was fully funded. A state may never receive more than its full funding maximum grant amount, even if Congress were to appropriate more than the amount necessary to fully fund all state grant awards. P.L. 108-446 set a new calculation to determine the maximum amount of state grants under full funding. Beginning in FY2007 and used for all subsequent fiscal years, the maximum amount of state grants for the purposes of full funding has been calculated as 40% of APPE multiplied by the number of children with disabilities the state served in school year 2004-2005, and then adjusted by the annual rates of change in the state's population in the age range comparable to ages for which the state provides FAPE for children with disabilities (85% of the adjustment) and in the state's population of children living in poverty in the same age range (15% of the adjustment). That is, a state's maximum grant amount or full funding level under the Part B grant-to-states program is 40% of APPE multiplied by the number of children with disabilities served and adjusted for each state's annual changes in child population and poverty rate. Prior to the enactment of P.L. 108-446 , the IDEA authorized "such sums as may be necessary" for the Part B grants-to-states program. In response to debate over how and when to reach full funding for the IDEA, P.L. 108-446 (§611(i)) amended the act to include several years of specific authorization levels, which culminated in an amount estimated to provide each state with its maximum grant amount in FY2011. The Part B grants-to-states program was not appropriated the amounts authorized by P.L. 108-446 and did not obtain full funding in FY2011. Maintenance of Effort (MOE) The IDEA was intended to help states and LEAs increase overall educational spending, rather than substituting federal funds for education spending at the state and local levels. The grants to states made under Part B may only be used to pay for the excess costs of providing special education and related services to students with disabilities and may not replace state or local funding. To these ends, the IDEA contains supplement, not supplant (SNS) and maintenance of effort (MOE) requirements. IDEA's SNS requirements prohibit a state or LEA from using IDEA grants to provide services, purchase equipment, etc., that state, local, or other federal funds currently provide or purchase or, in the absence of the IDEA funds, would have provided or purchased. The IDEA MOE provisions require that a state or an LEA not reduce their support for special education and related services below the level of support provided the previous fiscal year. In general, a state may not reduce the amount of state financial support for special education and related services for children with disabilities below the amount of that support for the preceding fiscal year. In any fiscal year in which a state does not meet this MOE requirement, the Secretary of Education is required to reduce the state's subsequent year grant by the same amount by which the state fails to meet the requirement. States support special education in different ways and through a variety of agencies; however, for each state to meet the MOE provision of the IDEA, it must provide support for special education at no lower than the same aggregate level each year as it did in the preceding fiscal year. As long as a state maintains its level of financial support for special education from one year to the next, the level of financial support for special education and related services in a state may be maintained by a combination of state agencies, including, but not necessarily limited to, the state educational agency (SEA). The MOE provision for LEAs is similar to the MOE provision for states. However, the LEA may not "reduce the level of expenditures for the education of children with disabilities made by the local educational agency from local funds below the level of those expenditures for the preceding fiscal year." At the local level, the individual LEAs, and no other local agencies, are responsible for maintaining their levels of IDEA expenditures from one fiscal year to the next. Stated another way, states and LEAs are both responsible for maintaining effort, however, states may count contributions to SEAs and other state agencies to meet this requirement, while LEAs must maintain their level of expenditures on special education themselves—they may not consider funds provided to other agencies in order to maintain their level of effort. The key difference between the state and LEA MOE requirements pertains to whether a single agency or multiple agencies bear the responsibility for maintaining financial effort. As noted above, if a state or LEA fails to meet the MOE requirement in any fiscal year, its funding allocation will be reduced during the next fiscal year in the amount by which it failed to meet the requirement. However, for both states and LEAs there are permissible reasons for reductions in MOE requirements; these reasons are discussed next. Reduction of MOE Requirements: States In certain rare instances a state may be granted a one-year waiver of the MOE requirement. The Secretary may grant a waiver, for one fiscal year at a time, in the case of "exceptional or uncontrollable circumstances" such as a natural disaster or a "precipitous and unforeseen decline in the financial resources of the state." In addition, waivers can be granted if the state can provide "clear and convincing evidence" that FAPE is available for all children with disabilities in the state. Proving that FAPE is available to every eligible child with a disability in the state is a high standard and, since the MOE provisions were first included in the IDEA in 1997, this type of waiver has never been granted. If a state does not meet its MOE requirement for any given year, including any year for which the state was granted a waiver, the state financial support required in future years is not reduced. That is, the state must provide the amount that would have been required in the absence of failing to meet MOE in the previous year. A waiver will reduce a state's financial support requirement for the year it is granted but not for subsequent years. A penalty may be imposed on a state for any fiscal year after the fiscal year the state reduces its special education funding. Reduction of MOE Requirements: LEAs LEAs vary in size, from large urban districts like New York City Public Schools and Los Angeles Unified School District to individual charter schools that operate as their own LEAs. Small LEAs, which lack the benefits economies of scale provide to large school districts, may find their special education budgets varying considerably from one year to the next due to changes in their staffing or student population. The IDEA potentially allows any LEA to reduce educational expenditures below the level of the preceding fiscal year if the reduction is attributable to the voluntary departure (e.g., by retirement) or departure for just cause of special education personnel; a decrease in enrollment of students with disabilities; the termination of an obligation to provide an individual child with a disability an exceptionally costly program, either because the child moved out of the LEA's jurisdiction, graduated, aged out of special education services, or no longer needs the program; the termination of costly expenditures for long‐term purchases such as the acquisition of equipment or construction of school facilities; the assumption of cost by the high‐cost fund/high-risk pool operated by the SEA under the IDEA provisions for high-cost funds; or an increase in the allocation of IDEA funds from the previous year that allows an LEA to employ the "50%" rule. ED has clarified in its policy letters that an LEA's reduction in MOE should only be for one of the reasons on this list. When the Minnesota Department of Education wanted to know if an LEA's increased efficiency at providing services and its subsequent cost savings could justify a reduction in MOE, providing the example of an LEA that consolidated bus routes, ED's response was two-fold. Increased efficiency alone is not a suitable reason to allow an LEA to reduce its MOE according to ED. However, if the LEA could explain how the increased efficiency was attributable to one of the circumstances outlined in the statute (listed as the six bullet points above), it could potentially justify the reduction in spending. High-Cost Pools/Risk Pools As previously mentioned, when Congress enacted the predecessor legislation to IDEA in 1975, the assumption was that education for children with disabilities was, on average, twice as costly as education for other children. While on average it is possible that this estimate was accurate, it did not account for the exceptional expenses of providing special education and related services to high-need/high-cost children with disabilities. The APPE for children with high-cost special needs can range from 3 to over 13 times more than the APPE for general education students. To help LEAs with the extraordinary costs of paying for the most expensive special education services, many states set up risk pools or high-cost funds that LEAs may apply to for extra funding when they are required to provide special education services that meet state-determined criteria for "high need." The definition of a high-need child with a disability varies from state to state. Some states set a specific dollar amount above which a child's services are considered high cost/high need. Other states define a high-need child with a disability as a child for whom the LEA's expenditures are a certain number of times higher than the APPE for a general education student. How states choose to provide additional funding to LEAs with high-need children with disabilities also varies. The state may choose to pay for a percentage of the additional costs with or without a spending cap. For example, a state could decide it will pay 50% of all expenses over $25,000 up to $100,000, or 75% of all expenses over $50,000 with no upper limit. A state may also base the amount given for each child on the total number of requests for funding from the risk pool received from all LEAs in the state in a given year. In such a scenario, funding may be distributed to LEAs on a prorated basis depending on the total number of requests the state received. Amendments adopted in the 2004 reauthorization of the IDEA allow states to use 10% of their Part B funds reserved for state-level activities to establish and make disbursements from a high-cost fund to LEAs. Though this was the first inclusion of risk pools or high-cost funds in the IDEA, many states used risk pools prior to 2004. States that had risk pool systems in place could use authorized Part B funds to support their existing risk pools as long as their systems met federal requirements. Any state that wants to use Part B funds to support a local risk pool needs to follow IDEA provisions for risk pools, including the following requirements: The SEA, in consultation with the state's LEAs, will develop a definition of a "high-need child with a disability" that addresses the financial impact a high-need child has on the budget of the child's LEA; and defines a high-need child with a disability as a child for which the cost of providing special education and related services is greater than 3 times the APPE in the state. The SEA will develop a state plan establishing eligibility criteria for LEAs to participate in the risk pool system that takes into account the number and percentage of high-need children with disabilities served by an LEA. LEAs will only be allowed to use disbursements from risk pools to provide direct services outlined in the individualized education programs (IEPs) of high-cost children with disabilities. States may operate a risk pool or high-cost fund that does not meet these requirements provided no Part B funds are used to support their risk pool or high-cost fund. Appendix A. IDEA, Part B Age Ranges Appendix B. Commonly Used Acronyms

Since the enactment of P.L. 94-142, the predecessor legislation to the Individuals with Disabilities Education Act (IDEA), in 1975, the federal government has played a prominent role in encouraging the principle of educational equality for children with disabilities through a permanent, broad-scale federal assistance program. The IDEA is a grants statute that provides federal funding for the education of children with disabilities and requires, as a condition for the receipt of such funds, that states agree to provide a free appropriate public education (FAPE; i.e., specially designed instruction provided at no cost to the parents that meets the needs of a child with a disability) to every eligible child. The IDEA, most recently reauthorized by P.L. 108-446 in 2004, was appropriated approximately $13.4 billion in FY2018. The largest part of the IDEA is Part B, Assistance for Education of all Children with Disabilities, which covers special education for children and youth with disabilities between the ages of 3 and 21. Approximately 92% of total IDEA appropriations fund the Part B, Section 611, grants-to-states program. Part B was funded at $12.7 billion in FY2018, and in the 2016-2017 school year, 6.8 million children ages 3 through 21 received educational services under it. In addition to the Part B grants-to-states program, the IDEA contains two programs for young children with disabilities. Part C authorizes federal funding for early intervention services to infants and toddlers with disabilities ages birth to three years, and Part B, Section 619 authorizes supplementary grants to states for preschool programs serving children with disabilities ages three to five. Each IDEA program serving children and youth with disabilities has followed a similar funding pattern. Appropriations for IDEA Part B (Sections 611 and 619) and Part C increased steadily from each program's inception until the early 2000s. Since the IDEA's most recent reauthorization in FY2004, the funding for both Part B and Part C programs has fluctuated. The IDEA has two formulas for determining Part B grants to states: one for years when the appropriated amount available to states is greater than or equal to the amount available to states in the previous year, and one for years when the amount available to states is less than the amount available to states the previous year. In years when the appropriated amount for Part B increases or remains the same, each state receives its base-year (FY1999) grant amount plus a share of the "new money" (i.e., the amount above the FY1999 appropriation), based on the state's share of the national child population and national population of children living in poverty, adjusted according to one maximum and three minimum grant calculations, and ratably reduced when necessary. In years when the appropriated amount for Part B decreases, each state receives its base-year grant amount plus a share of the new money the state received the previous year, which has been ratably reduced in proportion to the total new money available for the current year. This report will examine the development of the allocation formula for the Part B grants-to-states program, the major changes to the formula over the past 40 years, current funding levels and trends, and how allocations are currently calculated. Issues concerning the funding of special education and related services will also be discussed.

Background The Census Bureau's release of the first figures from the 2010 Census on December 21, 2010, shifted 12 seats among 18 states for the 113 th Congress (beginning in January 2013). Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania each lost one seat; New York and Ohio each lost two seats. Arizona, Georgia, Nevada, South Carolina, Utah, and Washington each gained one seat; Florida gained two seats, and Texas gained four seats. The reapportionment of House seats in 2010 was based on an apportionment population that is different from the actual resident population of each state. For apportionment purposes since 1970 (with the exception of 1980), the Census Bureau has added to each state's resident population the foreign-based, overseas military and federal employees and their dependents, who are from the state but not residing therein at the time of the census. In 2010, these additional persons increased the census count for the 50 states by 1,042,523, a little less than twice the number in 2000. If the foreign-based military and federal employees had not been included in the counts, there would have been no change in the 2010 apportionment of seats, although the order of seat assignment would have changed. Priority Lists and Seat Assignments The reapportionment process for the House relies on rounding principles, but the actual procedure involves computing a "priority list" of seat assignments for the states. The Constitution allocates the first 50 seats because each state must have at least one Representative. A priority list assigns the remaining 385 seats for a total of 435. Table 2 displays the end of the "priority list" that would be used to allocate Representatives based on the 2012 Census estimates of the state populations as of July 1. The law only provides for 435 seats in the House, but the table illustrates not only the last seats assigned by the apportionment formula (ending at 435), but the states that would just miss getting additional representation. Options for States Losing Seats The apportionment counts transmitted by the Census Bureau to the President (who then sends them to Congress) are considered final. Thus, most states that lost seats in the 113 th Congress had only one possible option for retaining them: urge Congress to increase the size of the House. Any other option such as changing the formula used in the computations, or changing the components of the apportionment population (such as omitting the foreign-based military and federal civilian employees) might only affect a small number of states if the House stays at 435 seats. As noted above, the 435-seat limit was imposed in 1929 by 46 Stat. 21, 26-27. Altering the size of the House would require a new law setting a different limit. Article I, Section 2 of the Constitution establishes a minimum House size (one Representative for each state), and a maximum House size (one Representative for every 30,000, or 10,306 based on the 2010 Census). In 2013, a House size of 468 would be necessary to prevent states from losing seats they held from the 108 th to the 112 th Congresses, but, by retaining seats through an increase in the House size, other states would also have their delegations become larger. At a House size of 468, California's delegation size, for example, would be 56 instead of 53 seats. The Redistricting Process The apportionment figures released on December 21, 2010, are made up of three components: total resident population figures for the 50 states and the District of Columbia, the foreign-based military and overseas federal employees allocated to each state and DC, and the sum of these numbers (excluding DC), which becomes the apportionment population. These numbers (minus DC) are all that is needed to reapportion the House, but most states need figures for very small geographic areas in order to draw new legislative and congressional districts. The Census Bureau must provide small-area population totals to the legislatures and governors of each state by one year after the census (e.g., April 1, 2011). The Census Bureau data delivered by April 1, 2011 (some states started receiving the information in February 2011), are often referred to as the P.L. 94-171 program data (89 Stat. 1023). This program provides, to each state, information from the 2010 Census. As such, the information is very limited—including age, race, and Hispanic origin. No other demographic information that might be useful to the persons constructing political jurisdictions, such as income or employment status, is available in the P.L. 94-171 data. Such data, however, are available from the results of the American Community Survey for geographic areas with populations as small as 20,000 persons. Census data are usually reported by political jurisdictions (states, cities, counties, and towns), and within political jurisdictions by special Census geography (such as Census designated places, tracts, block numbering areas, and blocks). The P.L. 94-171 program allows states, which chose to participate in it (49 in 2010), to request Census data by certain nontraditional Census geography such as voting districts (precincts) and state legislative districts. These special political jurisdiction counts enable the persons drawing the district lines to assess past voting behavior when redrawing congressional and state legislative districts. In most states, redrawing congressional districts is the responsibility of the state legislature with the concurrence of the governor. In seven states, Arizona, California, Hawaii, Idaho, Montana, New Jersey, and Washington, a non-partisan or bi-partisan commission is responsible for drawing and approving the plans. Some states have explicit deadlines in law to complete their congressional districting. Most do not, so the effective deadline for the legislatures or commissions to complete their work would have been whatever deadlines were established in the states for filing for primaries for the 2012 elections. Although many states have standards mandating equal populations, compactness, contiguousness, and other goals to not split counties, towns, and cities, federal law controls the redistricting process. Other than a requirement that multi-member states cannot elect Representatives at-large (2 U.S.C. 2c) however, no federal statutory law establishes explicit standards for redistricting. The principal laws that apply are the Supreme Court decisions mandating one person, one vote and the Voting Rights Act. The fundamental federal rule governing redistricting congressional districts, one person, one vote , was promulgated by the Supreme Court in Wesberry v. Sanders (376 U.S. 7, 1964). The Court has refined that ruling in a series of cases culminating in Karcher v. Daggett (462 U.S. 725, 1983) that one person, one vote means that any population deviation among districts in a state must be justified, but the deviations from absolute equality may be permitted if the states strive to make districts more compact, respect municipal boundaries, preserve the cores of prior districts, or avoid contests between incumbents. Section 2 of the Voting Rights Act (VRA) applies nationwide. It prohibits states or localities from imposing a "voting qualification or prerequisite to voting or standard, practice or procedure ... in a manner which results in the denial or abridgement of the right to vote on account of race or color." The Supreme Court interpreted the VRA's application to redistricting in a series of cases responding, in part, to the extraordinarily complicated districts created by many states in the 1990s to maximize minority representation (beginning with Shaw v. Reno , 509 U.S. 630, 1993). The Court ended the decade by establishing new principles concerning such practices: (1) race may be considered in districting to remedy past discrimination; (2) but, states must have a compelling state interest to ignore traditional redistricting principles and "gerrymander" to establish majority-minority districts; (3) courts will apply "strict scrutiny" to such assertions that racial "gerrymanders" are necessary to determine whether such plans are narrowly tailored to achieve the compelling state interest.

On December 21, 2010, the Commerce Department released 2010 Census population figures and the resulting reapportionment of seats in the House of Representatives. The apportionment population of the 50 states in 2010 was 309,183,463, a figure 9.9% greater than in 2000. Just as in the 108th Congress, 12 seats shifted among 18 states in the 113th Congress as a result of the reapportionment. The next census data release was February 2011, when the Census Bureau provided states the small-area data necessary to re-draw congressional and state legislative districts in time for the 2012 elections. This report examines the distribution of seats based on the most recent estimates of the population of the states (as of July 1, 2012). It explores the question of, what, if any, would be the impact on the distribution of seats in the U.S. House of Representatives if the apportionment were conducted today, using the most recent official U.S. Census population figures available. The report will be updated as is deemed necessary.

Introduction Commemorative commissions are entities established to oversee the commemoration of a person or event. These commissions typically coordinate celebrations, scholarly events, public gatherings, and other activities, often to coincide with a milestone anniversary. For example, the Christopher Columbus Quincentenary Jubilee Commission was created "to prepare a comprehensive program for commemorating the quincentennial of the voyages of discovery of Christopher Columbus, and to plan, encourage, coordinate, and conduct observances and activities commemorating the historic events associated with those voyages." This report examines commemorative commissions created by statute since the 96 th Congress (1979-1980) and focuses on the content of typical legislative language used to create commemorative commissions and how commemorative commissions are funded. This report does not address noncommemorative congressional commissions, nor does it address commemorative entities created by the President or statutory commissions tasked with designing and building monuments and memorials in Washington, DC. Cataloging Commemorative Commissions Bills creating commemorative commissions are introduced regularly in Congress. For example, since the 112 th Congress (2011-2012), more than a dozen bills were introduced to establish commemorative commissions. Similar numbers of bills have been proposed in previous Congresses. Most of these bills, however, are not enacted. To compile a list of commemorative commissions created since the 96 th Congress, a database search was conducted using the Legislative Information System (LIS). Each piece of legislation returned was examined to determine (1) if the legislation contained a commission, and (2) if the commission was commemorative in nature. A total of 21 commemorative commissions were identified by this search. Table 1 lists the name, public law number, and date of enactment for each of these commissions. Nine of the commissions were created to commemorate individuals and coincided with a milestone anniversary of their birth. The other 12 commissions were related to the commemoration of historical events and coincided with a milestone anniversary of the event. Commission Legislation Structure Statutes establishing commemorative commissions generally include language that states the mandate of the commission, provides a membership and appointment structure, outlines the commission's duties and powers, and sets a termination date for the commission. A variety of options are available for each of these organizational choices, and legislators can tailor the composition, organization, and working arrangements of a commission, based on the particular goals of Congress. As a result, the organizational structure and powers of individual commissions are often unique. Establishment and Mandate A commission's establishment is generally prescribed in a brief introductory paragraph. The Dwight David Eisenhower Centennial Commission was established with a single sentence: "There is established the Dwight David Eisenhower Centennial Commission." A bill creating a commemorative commission will usually provide congressional "findings" identifying the conditions justifying the creation of the panel. The bill proposing the Centennial of Flight Commission includes six specific findings related to the historical ramifications of the development of flight technology and the importance of commemorating the event. In other cases, legislation creating a commemorative commission may simply include a short "purpose" section describing the justification for the creation of the commission, in lieu of "findings." Membership and Appointment Commemorative commission statutes contain a variety of membership and appointment structures. Similar to general congressional advisory commission statutes, the legislation may require that commission membership contain specifically designated Members of Congress, typically Members in chamber or committee leadership positions. In other cases, selected congressional leaders appoint commission members, who may or may not be Members of Congress. A third common statutory scheme is to have selected congressional leaders recommend members, who may or may not be Members of Congress, for appointment to a commission. These leaders are often required to act either in parallel or jointly, and the recommendation may be made either to other congressional leaders, such as the Speaker of the House and President pro tempore of the Senate, or to the President. In some cases, statutory provisions may have the effect of limiting the degree of autonomy a Member has in appointing or making recommendations for commission membership. For example, statutory language may require the appointing official to select members who are specifically qualified by virtue of their education, knowledge, training, experience, expertise, distinguished service, or recognized eminence in a particular field or fields. Limitations placed on the type of individuals who can be appointed to the commission can restrict available candidates and make finding suitable appointments more difficult. Limitations, however, also allow Congress to potentially retain control over the nomination process in instances when the President or another noncongressional official is the commission's appointing authority. Most commemorative commissions do not compensate their members, except to reimburse members for expenses directly related to their service, such as travel costs. Commission Duties The duties of commemorative commissions are numerous and varied. The acts establishing several of the commissions instructed them to study ideas for a commemoration and to submit a report to Congress with their findings. For example, P.L. 105-341 instructed the Women's Progress Commemorative Commission to produce a report that identifies sites of historical significance to the women's movement; and recommends actions, under the National Historic Preservation Act and other law, to rehabilitate and preserve the sites and provide to the public interpretive and educational materials and activities at the sites. In other instances, the enacted legislation tasked the commission with actually carrying out events in commemoration of the individual or event. For example, P.L. 99-624 directed the Dwight David Eisenhower Centennial Commission to encourage, plan, develop, and coordinate observances and activities commemorating the centennial of the birth of Dwight David Eisenhower; and submit recommendations to Congress relating to a joint meeting of both Houses of Congress to commemorate that centennial. Commission Powers Most commemorative congressional commissions are authorized to hold public meetings to discuss commission matters, usually at the call of the chair or the majority of the commission. Some commissions are empowered to secure information from federal agencies. For example, the Abraham Lincoln Bicentennial Commission was authorized to secure directly from any department or agency of the United States information necessary to enable the Commission to carry out this Act. Upon the request of the Chair of the Commission, the head of that department or agency shall furnish that information to the Commission. In addition, Congress often grants commemorative commissions the ability to accept gifts and donations. For example, the Benjamin Franklin Tercentenary Commission was authorized to accept donations of "money, personal services, and real or personal property related to Benjamin Franklin or the occasion of the tercentenary of his birth." Commissions may also be given the following powers: the authority to contract with public agencies and private firms, and the authority to use the mails in the same manner as departments and agencies of the United States. Staff Commemorative commissions are usually authorized to hire staff. Many of these commissions are specifically authorized to appoint a staff director and other personnel as necessary. The size of the staff is not generally specified, allowing the commission flexibility in judging its own staffing requirements. Typically, maximum pay rates will be specified, but the commission will be granted authority to set actual pay rates within those guidelines. Many commemorative commissions are also authorized to accept voluntary services: Nothwithstanding section 1342 of title 31, United States Code, the Commission may accept and use voluntary and uncompensated services as the Commission determines necessary. For some commemorative commissions, their statutes also specify that they are to work with the General Services Administration (or another agency) to offer administrative support or available space to the commission: Upon the request of the Commission, the Administrator of General Services shall make available nationwide to the Commission, at a normal rental rate for Federal agencies, such assistance and facilities as may be necessary for the Commission to carry out its duties under this Act. Relationships with Other Entities In fulfilling their duties, most commemorative commissions have encouraged, worked closely with, and provided coordination for private groups, state and local governments, and other federal government entities taking part in the general commemoration of the person or event. Because of these cooperative efforts, federally created commissions are only a portion of any commemoration, and federal funds appropriated to a commemorative commission are only a portion of the total funding ultimately expended nationwide for commemorative activities and events. For example, P.L. 107-41 directed the Brown v. Board of Education 50 th Anniversary Commission to work in cooperation with the Brown Foundation for Educational Equity, Excellence, and Research in Topeka, Kansas, and such other public or private entities as the Commission considers appropriate, [to] encourage, plan, develop, and coordinate observances of the anniversary of the Brown decision. Similarly, P.L. 98-101 instructed the Commission on the Bicentennial of the U.S. Constitution to encourage private organizations, and State and local governments to organize and participate in bicentennial activities commemorating or examining the drafting, ratification, and history of the Constitution and the specific features of the document; coordinate, generally, activities throughout all of the States; and serve as a clearinghouse for the collection and dissemination of information about bicentennial events and plans. Termination Commemorative commissions are usually statutorily mandated to terminate. Termination dates for most commissions are linked to either a fixed period of time after the establishment of the commission, the selection of members, or the date of submission of the commission's final report. Alternatively, some commissions are given fixed calendar termination dates. Funding Commemorative commissions have been funded in two ways: through appropriations or through solicitation of nonfederal money. At times, commissions are authorized both for appropriations and to fundraise or accept donations. In addition, some commemorative commissions are not provided with explicit authorization to solicit funds or accept donations. Commissions without the statutory authority to solicit funds or accept donations are generally prohibited from engaging in those activities. Federal Funding Authorized Funding Levels Commemorative commissions approved since the 96 th Congress (1979-1980) have also varied widely in the amount of funding authorized by the acts establishing the commissions, as well as in the manner in which the funding was authorized. Table 2 lists the authorizing language and the funding amounts authorized by each of the acts. Of the 21 commissions, five were authorized specific funding levels for each fiscal year; two were authorized a lump-sum appropriation, which remained available to be expended over specified fiscal years; four were not authorized specific levels of funding. Instead, the acts' language authorized "such sums as necessary" for an unspecified number of fiscal years; one authorized a specific level of funding for the first fiscal year, and such sums as necessary for an unspecified number of subsequent fiscal years; one was not specifically authorized any appropriation; seven were specifically barred from using federal funds; and one could only make expenditures from donated funds. Appropriation of Authorized Funds Commissions created statutorily by Congress may be funded directly by specific appropriation or through general agency appropriations. For example, the Commission on the Bicentennial of the U.S. Constitution was specifically funded in both regular annual and supplemental appropriations acts. Alternately, the Women's Progress Commemoration Commission was funded through general appropriations for the National Park Service (NPS) in the Department of the Interior (DOI). It is also possible for the funding structure to change during the life of a commission. From FY1999 through FY2001, the Centennial of Flight Commemorative Commission was funded through specific line-items in the Federal Aviation Administration operations appropriations. In subsequent years, the commission was funded through general agency appropriations. Several of the commemorative commissions received agency appropriations under the NPS through the DOI. These appropriations have not appeared as specific line-items in appropriations acts. Instead, they have been budgeted within agency appropriations under the headings "Operations of the National Park System" or "National Recreation and Preservation." For example, the Jamestown 400 th Commemoration Commission was funded in FY2005 under the "National Recreation and Preservation" heading of the NPS appropriations, as part of a larger appropriation for related activities for the Jamestown 2007 celebration. Nonfederal Funding Donations In some cases, the operational expenses of the commission itself have been entirely funded through the appropriation of federal funds. However, legislation has authorized most commemorative commissions to accept donations, including donations of money, property, personal services, memorabilia, or volunteer labor. For example, P.L. 98-162 authorized the Commission on the Eleanor Roosevelt Centennial to "accept donations of money, supplies, and services to carry out its responsibilities." Similarly, P.L. 106-550 authorized the James Madison Commemorative Commission to accept donations of money, personal services, and property, both real and personal, including books, manuscripts, miscellaneous printed matter, memorabilia, relics, and other material related to James Madison. In some cases, the authorizing language placed specific limitations on donations. For example, P.L. 98-375 authorized the Christopher Columbus Quincentenary Commission to accept donations of money, property, or personal services, except that the Commission may not accept donations (1) the aggregate value of which exceeds $25,000, in the case of an individual; or (2) the aggregate value of which exceeds $50,000 in the case of donations from a foreign government, a corporation, a partnership, or any other person. In at least one case, the authorizing language specified that only donated funds could be used to pay for commission expenses. For example, P.L. 115-102 specified that "all expenditures of the [400 Years of African-American History] Commission shall be solely made from donated funds." Donation Acceptance Statutory language for the majority of commemorative commissions does not mention the words "fund raise." Instead, statutes commonly provide the commission with the authority to accept donations. For example, the Jamestown 400 th Commemoration Commission was authorized to "accept donations and make dispersions of money, personal services, and real and personal property related to Jamestown and of the significance of Jamestown in the history of the United States." Examples of other commissions with similar language include the following: Eisenhower Memorial Commission: (b) Donations. – (1) The Commission may accept, use, and dispose of gifts or donations of money, property, or personal services. Christopher Columbus Quincentenary Jubilee Commission: The Commission may accept donations of money, property, or personal services. Bicentennial of the U.S. Constitution: (h)(1) The Commission is authorized to accept, use solicit, and dispose of donations of money, property, or personal services. (2) The Commission shall prescribe regulations under which the Commission may accept donations of money, property, or personal services. Commission on the Eleanor Roosevelt Centennial: (d) The Commission may accept donations of money, supplies, and services to carry out its Responsibilities. Women's Progress Commemoration Commission: (b) Donations.—The Commission may accept donations from non-Federal sources to defray the costs of the operations of the Commission. Commission on the Abolition of the Transatlantic Slave Trade: ... accept donations and gift items related to the transatlantic slave trade, the institution of slavery, and the significance of slavery to the history of the United States. Brown v. Board of Education 50 th Anniversary Commission: (b) Gifts and Donations.—(1) Authority to accept.—The Commission may accept and use gifts or donations of money, property, or personal services. In addition, some commissions, such as the Centennial of Flight Commission, are provided with the authority to accept only nonmonetary donations. In that instance, the statutory language stated, Donations.—The Commission may accept donations of personal services and historic materials relating to the implementation of its responsibilities under the provisions of this Act. Fundraising None of the 21 commemorative commission statutes discussed in this report contain language specifically authorizing fundraising. Commissions, however, could be provided with authority to fundraise. To provide statutory fundraising authority, a commemorative commission could be given language similar to the authority given to commissions charged with creating monuments and memorials under the Commemorative Works Act, which requires the commission to raise a certain percentage of the total costs from private sources of a monument or memorial before construction can begin. For example, the National Museum of African American History and Culture Plan for Action Presidential Commission statute contains the following language authorizing fundraising: Fundraising Plan.—The Commission shall develop a fundraising plan for supporting the creation and maintenance of the Museum through contributions by the American people, and a separate plan on fundraising by the African American community. Estimating Costs Congressional commission costs vary widely. Overall expenses for any individual commission are dependent on a variety of factors, the most important of which are the number of paid staff and duration of the commission. Many commissions have few or no full-time staff; others employ large numbers. Additionally, some commissions provide compensation to members; others only reimburse members for travel expenses. Many commissions finish their work and terminate within a year of creation; in other cases, work may not be completed for several years. Secondary factors that can affect commission costs include the number of commissioners, how often the commission meets or holds hearings, and the number and size of publications the commission produces. Although congressional commissions are primarily funded through congressional appropriations, many commissions are statutorily authorized to accept donations of money and volunteer labor, which may offset costs.

Commemorative commissions are entities established to oversee the commemoration of a person or event. These commissions typically coordinate celebrations, scholarly events, public gatherings, and other activities, often to coincide with a milestone anniversary. For example, the Christopher Columbus Quincentenary Jubilee Commission was created "to prepare a comprehensive program for commemorating the quincentennial of the voyages of discovery of Christopher Columbus, and to plan, encourage, coordinate, and conduct observances and activities commemorating the historic events associated with those voyages." Using a dataset of all commemorative commissions created by statute since the 96th Congress (1979-1980), this report examines the content of typical legislative language used to create commemorative commissions and how commemorative commissions are funded. This report does not address noncommemorative congressional commissions, nor does it address commemorative entities created by the President or statutory commissions tasked with designing and building monuments and memorials in Washington, DC. Statutes establishing commemorative commissions generally include language that states the mandate of the commission, provides a membership and appointment structure, outlines the commission's duties and powers, and sets a termination date for the commission. A variety of options are available for each of these organizational choices, and legislators can tailor the composition, organization, and working arrangements of a commission, based on the particular goals of Congress. As a result, the organizational structure and powers of individual commissions are often unique. Commemorative commissions have been funded in two ways: through appropriations or through solicitation of nonfederal money. At times, commissions are authorized both for appropriations and to fundraise or accept donations. In addition, some commemorative commissions are not provided with explicit authorization to solicit funds or accept donations. Commissions without the statutory authority to solicit funds or accept donations are generally prohibited from engaging in those activities. For general information on congressional commissions, see CRS Report R40076, Congressional Commissions: Overview, Structure, and Legislative Considerations, by [author name scrubbed].

Introduction The Carl D. Perkins Career and Technical Education Act (Perkins Act) is the primary federal law aimed at developing and supporting career and technical education (CTE) programs at the secondary and postsecondary educational levels. Prior to the 115 th Congress, the Perkins Act had most recently been reauthorized in 2006 by the Carl D. Perkins Career and Technical Education Act of 2006 (Perkins IV; P.L. 109-270 ). On July 31, 2018, President Trump signed into law the Strengthening Career and Technical Education for the 21 st Century Act (Perkins V; P.L. 115-224 ), which comprehensively reauthorized the Perkins Act. Perkins V is the most recent in a series of acts that have reauthorized the main federal law authorizing support for the development of CTE programs aimed at students in secondary and postsecondary education. The provisions of Perkins V go into effect on July 1, 2019. The first year of implementation will be considered a transition year and states will be able to submit transition plans to cover requirements for the July 2019-June 2020 program year. Perkins V authorizes appropriations for CTE programs for FY2019 through FY2024. Following the transition plan, or in lieu of the transition plan, each state must submit a state plan for the period of authorization. The reauthorization of the Perkins Act in the 115 th Congress began in the House, which passed its version of the Strengthening Career and Technical Education for the 21 st Century Act ( H.R. 2353 ) by voice vote on June 22, 2017. The Senate passed its own version of the bill by voice vote on July 23, 2018. The House agreed to the Senate version of H.R. 2353 two days later, and the bill was signed into law by the President as P.L. 115-224 . This report does not attempt to provide a comprehensive analysis of Perkins V. Rather, it provides an overview of the primary differences between provisions in place under Perkins IV and those enacted in Perkins V. Table 1 compares provisions in Perkins IV with new or revised provisions in Perkins V. It also contains a section that highlights selected definitions that are significantly revised or are introduced in Perkins V. Table A-1 depicts the authorizations of appropriations for programs authorized under the Perkins Act as amended by Perkins V. Comparison of Provisions in Place under Perkins IV to Those Enacted in Perkins V Table 1 highlights the differences between provisions under Perkins IV and Perkins V as signed into law on July 31, 2018. The table is organized topically, focusing on the areas that will see the most significant changes under Perkins V. These areas include the following: overall structure and authorized funding levels, state and local funding formula provisions, state and local plan provisions, accountability and improvement plan provisions, state and local uses of funds, national activities, general provisions, selected revised definitions, and selected new definitions. Appendix. Authorization Levels in Perkins V

The Carl D. Perkins Career and Technical Education Act (Perkins Act) is the primary federal law aimed at developing and supporting career and technical education (CTE) programs at the secondary and postsecondary educational levels. Prior to the 115th Congress, the Perkins Act had most recently been reauthorized in 2006 by the Carl D. Perkins Career and Technical Education Act of 2006 (Perkins IV; P.L. 109-270). In the 115th Congress, the Perkins Act was comprehensively reauthorized again, through the Strengthening Career and Technical Education for the 21st Century Act (Perkins V; P.L. 115-224). Perkins V was signed into law by President Trump in July 2018 and is to go into effect on July 1, 2019. Under the Perkins Act, funds for the development and improvement of CTE programs are distributed to states by an allocation formula largely based on population and per capita income factors. States then distribute funds to local CTE providers at the secondary and postsecondary education levels according to within-state allocation formulas specified in statute. Recipients of Perkins funds are required to use them for a variety of purposes that help CTE students attain technical skills and earn an industry-recognized credential, a certificate, or a postsecondary degree. The accountability framework under the Perkins Act requires state and local recipients of Perkins funds to try to achieve target levels of performance on a series of core indicators of performance. The actual levels of performance on each core indicator are reported by the states and disaggregated by a number of special populations and subgroups. If a state fails to meet 90% of any of its target performance levels, it has to implement a program improvement plan for each of the core indicators of performance for which the target performance levels were not met. Perkins V makes a number of changes to the Perkins Act. Some of the key changes include the following: Fund Allocations: The state allocation formula is changed to give each state a base amount equal to its FY2018 allocation. Any additional funds are distributed among the states based on population and per capita income factors, with a greater share going to the states with the smallest initial allocation. Under Perkins V, states are allowed to reserve up to 15% of their allocation for CTE programs in rural areas or areas with high numbers of CTE students, or for innovative CTE programs, instead of 10%, which is the allowance under Perkins IV. Recipient Activities: Provisions in Perkins V require state plans to contain information about how the state's CTE activities will be coordinated with state activities under the Workforce Innovation and Opportunity Act (WIOA) and the Elementary and Secondary Education Act (ESEA). Under Perkins V, local CTE providers are required to carry out a needs assessment to better align the offered CTE programs of study with local labor market needs and in-demand occupations. Accountability Framework: Provisions in Perkins V consolidate and modify the secondary and postsecondary core indicators of performance. Under Perkins V, states are allowed to determine their own performance targets on the core indicators of performance, as long as certain minimum requirements are met. In addition to existing data reporting and disaggregation requirements, Perkins V requires states to disaggregate CTE student achievement data by the CTE program or program of study in which the concentrator is enrolled. Program Eliminations: Provisions in Perkins V eliminate Title II of the Perkins Act, known as the Tech Prep program. New Programs: Perkins V introduces a national competitive grant program aimed at identifying, supporting, and evaluating evidence-based and innovative strategies and activities to improve and modernize CTE and align workforce skills with labor market needs.

Introduction Rockets, satellites, and the services they provide, once the domain of governments, are increasingly launched and managed by privately owned companies. Until 1982, the U.S. government launched all civil and commercial payloads into orbit, and U.S. launch vehicle manufacturers produced vehicles only under contract to the National Aeronautics and Space Administration (NASA) or the Department of Defense (DOD). Most of the satellites they carried into orbit were owned by U.S. or foreign government agencies. Now, commercial payloads are generally launched by private providers, and the payloads themselves are increasingly likely to be owned by private entities: Of the 576 U.S.-owned satellites currently in orbit, 286 were launched for commercial reasons and another 12 on behalf of academic users. The growth of the commercial space sector is a result of a deliberate shift in federal policy. The Commercial Space Launch Act of 1984 states the following: [T]he United States should encourage private sector launches, reentries, and associated services and, only to the extent necessary, regulate those launches, reentries, and services to ensure compliance with international obligations of the United States and to protect the public health and safety, safety of property, and national security and foreign policy interests of the United States . That law was amended in 2004 to provide that "the regulatory standards governing human space flight ... evolve as the industry matures so that regulations neither stifle technology development nor expose crew or space flight participants to avoidable risks as the public comes to expect greater safety for crew and space flight participants from the industry." National security agencies have emphasized the importance of the commercial space industry, in particular the space industrial base. To foster its growth, the commercial space industry has purposely been insulated from some types of federal regulation often applied to other industries. For example, the Commercial Space Launch Act directs the Secretary of Transportation to issue regulations affecting the design and operation of launch vehicles only to protect the safety of crew, thereby giving launch vehicle manufacturers and operators wide leeway in developing new rockets. An initial eight-year "learning period" for this limited regulation has been twice extended, most recently until 2023. The Commercial Space Industry Global spending on space activity reached an estimated $323 billion in 2015. Of this amount, nearly 40% was generated by commercial space products and services and 37% by commercial infrastructure and support industries. The U.S. government—including military and national security agencies and NASA—accounted for about 14% of global spending, and government spending by other countries the remaining 10%. The commercial space industry has distinct subsectors. Most commercial payloads are placed in orbits around Earth by launch vehicles that have the thrust to escape Earth's gravity. Typically, the firms that provide commercial launch services also design and assemble the rockets they launch. The payloads, such as satellites and manned space capsules, are manufactured by other firms. Service providers (such as television broadcasters) may design and build their own satellites, or purchase them from third-party manufacturers. The ground stations that control and communicate with the payloads, which form an integral part of the spacecraft operations, may be operated by the launch services, the payload owners, or entirely separate entities. Satellites The satellite supply chain is global, with a small number of manufacturers. Satellites are custom-made for their users, using specialized parts, which require extensive testing to ensure they will operate in a space environment where replacement and repair are generally not options. Because there are a limited number of rocket launches each year, supply chain deadlines are governed by a satellite launch window; if that window is missed because of production or regulatory delays, it may be many months or even years before another launch vehicle will be available to carry the satellite into orbit. Minimizing the mass and physical dimensions of a satellite is critically important, because heavier or bigger satellites are likely to require larger, more costly launch rockets. Appendix A shows a range of existing satellites, their weight, and corresponding familiar objects that approximate the same mass. The United States is the largest manufacturer of spacecraft, followed by the European Union and Russia. The global commercial satellite manufacturing sector, with $6 billion in revenues in 2015, attempted 86 launches carrying 262 spacecraft. Of these, 126 were satellites weighing less than 22 pounds (10 kilograms). The growing use of these smaller satellites has led to a doubling in the number of satellites launched. However, smaller satellites comprise a tiny portion of the mass of vehicles sent into space: Of 392 tons of satellites launched in 2015, the total weight of satellites under 22 pounds was barely half a ton. Regardless of their size and type, satellites generally utilize similar types of components and instruments ( Figure 1 ), including the following: S olar panels generate electricity that is stored in onboard rechargeable batteries . A propulsion tank adjusts altitude and orbit control and assists in placing the satellite into final orbit; several thrusters assist with these maneuvers and may be used later to move the satellite into a new orbit or, when the satellite's useful life is over, into a "graveyard" orbit farther away from Earth. T hermal control is the skin that prevents damage to the internal components in the extreme temperatures of space. Satellites pass through a wide range of temperatures, ranging from about -300°F to +200°F. Certain components, such as batteries, have an optimum operational range of about +50°F to +85°F. The skin is composed of a multilayer thermal blanket made of lightweight reflective films. In addition, a coated or mirrored optical solar reflector may be used, which acts like a radiator to keep the components from overheating due to solar energy and radiation. An electronics system controls satellite functions, such as flight operations, the direction in which the satellite points, and mathematical analysis. A communications system includes a transmitter, a receiver, antenna e that send data to and receive instructions from ground stations, and an amplifier that produces high-power radio frequency signals. Specialized components are determined by the core mission of the satellite. For example, a remote sensing satellite might include an image sensor, a telescope, and a digital camera. Satellites are placed into different types of Earth orbits depending on their planned use: low Earth orbit, medium Earth orbit, geosynchronous Earth orbit, and high Earth orbit ( Figure 2 ). The altitude of the orbit determines how frequently the spacecraft orbits the Earth. Some types of space activities require closer proximity to Earth for supply and maintenance and to provide higher-resolution images of Earth. Others operate farther in space to more effectively deploy their services. The International Space Station (ISS), for example, is in low Earth orbit, taking 90 minutes for a full orbit, while a television or weather satellite in geosynchronous orbit will take a full day. A satellite in geosynchronous orbit matches the Earth's rotational speed, so unlike other types of satellites, it will remain in the same place above the Earth and can therefore provide the same locations with weather monitoring or telecommunications. At the end of June 2016, 1,419 satellites were in operation, with 55% in low Earth orbit, 36% in geosynchronous orbit, 7% in middle Earth orbit, and the remainder in high Earth orbit. Of these, 576 are U.S. satellites, 140 Russian, 181 Chinese, and 522 from other countries. Of the U.S. satellites, 286 are commercial, 146 military, 132 government, and 12 civil. Launch Services and Vehicles The commercial launch industry booked $2.6 billion in revenues in 2015, when it attempted 86 rocket launches. Of these, 83 launches successfully placed payloads into orbit. Twenty-two launches carried commercial satellites and 64 carried government payloads; some carried both. It has been estimated that total costs of global launches for commercial, civil, and military purposes (including servicing the ISS) in 2015 were about $8 billion. The U.S. Government Accountability Office (GAO) identified three factors spurring the growth of the U.S. launch industry: the NASA commercial cargo program and other federal contracts; aggressive pricing by SpaceX and some other private providers, which are "more price competitive compared with foreign launch providers"; and the emerging space tourism and small satellite industries. Launch Services A traditional spaceport was a facility owned by the federal government, such as Kennedy Space Center and Cape Canaveral Air Force Station (both in Florida) and Vandenberg Air Force Base (in California). The federal government has used these facilities for its own launches and also promoted their use for commercial space access. Several private providers of launch services have chosen to build their own facilities. The Federal Aviation Administration (FAA) has licensed 10 spaceports in seven states: California, Florida, Texas, Oklahoma, Alaska, Virginia, and New Mexico. California, Florida, and Texas each have two licensed spaceports. Additional launch sites have been proposed in other states. Spaceports are configured for specific uses. Some are planned only to launch large vertical rockets, while others hope to lure space tourism with facilities for winged launch vehicles. Regardless of the type of launch vehicles using the sites, they have common infrastructure needs, including access for delivery of large launch vehicle components; room to assemble rocket parts into a launch vehicle; facilities for receiving and storing propellants and loading them aboard rockets; secure facilities for storing cargo, payloads, and scientific experiments; work space for crews, engineers, and launch personnel; and meteorological equipment to monitor weather patterns prior to scheduled launches. The ISS also increasingly offers certain types of launch services; part of it is designated as a national laboratory, a shared resource for NASA and private industry; astronauts have used its robotic arm to launch small satellites into orbit, many of them only 4-inch cubes. In 2015, 42 small satellites, primarily with commercial functions, were launched as cargo to the ISS for later deployment into individual orbits. U.S. crew members and cargo were transported to the ISS in NASA's Space Shuttle from 2000 until 2011, when the shuttle was retired. Since then, the ISS has been resupplied by commercial launches through NASA's Commercial Orbital Transportation Services (COTS) program—the companies SpaceX and Orbital ATK are participants—as well as launches by the Japan Aerospace Exploration Agency (JAXA) and Russian Soyuz rockets. Launch Vehicles Launch vehicles have the primary function of putting a spacecraft into an orbit or a suborbital trajectory. In the process of launching a satellite, most of the rocket stages fall away in sequence until the spacecraft reaches its planned orbit; the first stage of the rocket propels the rocket from the launch pad, and then the second-stage rocket boosts the payload to orbit. Launch vehicles generally are used only once, although some commercial providers are developing vehicles that are intended to be reusable. Figure 3 is a cross section of a typical launch vehicle, the United Launch Alliance Atlas V. Its major components—from top to bottom—include the following: The nose cone or fairing , a structure made with a vented aluminum-honeycomb core and graphite epoxy covering, carries the payload. Manufacturers offer clients a choice of three payload fairings, depending on the size of the payload. The fairing protects the payload from atmospheric pressure changes and aerodynamic heating during launch. The second - stage rocket consists of fuel and oxygen tanks, control systems, and a rocket engine that carries the payload to orbit. The Atlas V is propelled by a single RL 10 Centaur engine and stainless steel fuel tanks, providing 22,300 pounds-force (lbf) of thrust, fueled by liquid hydrogen and liquid oxygen. The walls of the stainless steel tanks are insulated and so thin that they cannot support their own weight before they are pressurized, a design developed to maximize engine performance. The Centaur second stage also includes flight and guidance computers that autonomously control all aspects of the flight. A dapters connect the first and second stages of the rocket and provide the structure for housing vehicle electronics. The first stage consists of additional fuel and oxygen tanks, control systems, and rocket engines, sometimes supplemented with strap-on boosters. The Atlas V main booster is made of a special aluminum and, unlike the stage-two tanks, is structurally stable. The launch vehicle is fueled by rocket propellant (or highly purified kerosene) and liquid oxygen that provide 860,300 lbf of thrust. The RD 180 engine was developed in Russia and is produced by a U.S.-Russian joint venture. Ground Systems Ground systems are the Earth-bound infrastructure that transmits directions to satellites and receives data they collect. Ground systems include antenna services for transmission and reception of satellite radio frequency (RF) signals. There has been experimentation with optical communications (using lasers), but most satellite communication is through RF, generally using 30 megahertz (MHz) to 30 gigahertz (GHz) bands. Antenna services decode embedded data streams before passing them on for distribution and analysis. Ground service options are customized for each satellite program and may include government-owned and commercial antenna assets to maximize a satellite's communications capability. A satellite that is in frequent contact with ground stations will need smaller amounts of onboard data storage than a spacecraft that has limited opportunities to transmit data to the ground. Ground facilities include user terminals , which can be handheld mobile terminals, rooftop dish antennae for satellite television, satellite radios in cars, or large corporate dish antennae. Ground systems also include data accounting and distribution services and data processing services. In addition to data storage, these services identify data missing from transmissions and take action to retrieve it from the satellite. These services are highly automated "lights-out" systems that function around the clock with only occasional monitoring by employees. As the global space economy continues to expand, the need for international standards is growing to ensure interoperability among systems from different countries and service providers. With more than $100 billion in revenue, ground stations and related equipment comprise the largest part of commercial infrastructure. This subsector provides consumer products such as satellite phones and television, navigation chips in mobile phones, and many other products. Three-quarters of the revenue stems from geolocation and navigation equipment, such as Global Positioning System (GPS) receivers. Space-Related Products and Services Global commercial space products and services generated $126 billion in revenue in 2015. The space component of some of these products and services is not always well understood by the users, who may take some of them—such as GPS—for granted. The major commercial categories include the following: C ommunications systems relay radio and television signals sent from a point on the ground to a satellite and then to another ground point. These signals may carry such content as television programs, in-flight calls from airplane passengers, and some smartphone data. Satellite television alone accounts for almost a third of all space-related commercial activity. Earth observation provides environmental monitoring of oceans, forests, deserts, wildlife habitats, and natural disasters. G lobal atmospheric monitoring includes data collected for meteorological use to help predict weather patterns, hurricanes, and El Niño. It also measures soil water content to assist in prediction of droughts and floods. T ransportation uses provide geolocation services to delivery trucks and ride-sharing services and their passengers. Safety enhancement provides data to first responders at oil spills and forest fires and prevents train collisions with geolocation services. Satellites also have noncommercial, national security purposes, including detecting the launch of missiles; detecting nuclear explosions in the ground or atmosphere to monitor nuclear treaty compliance; and providing global jam-resistant communications for strategic and tactical forces during a conflict. Insurance Space launches are risky: three of the 86 commercial launches attempted in the United States in 2015 failed, resulting in the destruction of launch vehicles and costly payloads. Given the potential losses, insurance coverage is likely to play an important role in the development of a commercial space industry. Worldwide space insurance premiums were more than $700 million in 2015, and insured losses exceeded $600 million in 2014. Major insurers such as American International Group, Munich Re, and Allianz compete in the market. Nonetheless, insurance on space-related risks appears to have limitations. In September 2016, a rocket owned by SpaceX exploded while on the launchpad at Cape Canaveral, Florida, destroying the satellite it was preparing to launch. The Falcon 9 rocket was reportedly not insured. The owner of the satellite it was attempting to launch held $300 million of coverage. However, the policy may not be applicable because the rocket explosion took place during a prelaunch test and not during the actual launch. New Entrants Change the Industry Three developments are changing the shape of the commercial space industry: a shift in government space activities toward the use of commercial services, an increase in private financing, and an increase in the launch of small satellites. These changes are supporting the development of new entrants with new launch products. U.S. Government Redefines Procurement Whereas NASA once owned the spacecraft produced for it by suppliers like Boeing, it now is in some cases transferring risk by contracting out for services, leaving the ownership of the launch vehicles to commercial entities. Its choice of traditional procurement or a more commercially oriented approach ( Table 1 ) depends on the program mission. With the commercially oriented approach, NASA agrees on a fixed price for the services a contractor is to provide, rather than using a cost-plus methodology that reimburses the contractor's allowable expenses and a dds an additional payment to ensure a profit . One example of the new approach is procurement of transportation of astronauts to the ISS. NASA traditionally would have provided detailed descriptions of each step in development of a launch vehicle and funded it as well. Now, however, more project development is left to the contractor, which shares the cost. The commercial partner is expected to meet project milestones. If it does, it is paid and the project moves to its next stage. During the final years of the space shuttle program, NASA encouraged and funded commercial providers to develop systems that could transport crew and cargo to the ISS. The first of these was the SpaceX Dragon capsule and Falcon 9 rocket, which has ferried supplies to the ISS since 2012. Last year, four ISS cargo launches were conducted by Orbital ATK and three more by SpaceX. (Boeing and SpaceX are each developing ISS crew transportation capabilities for first use in the next few years.) New entrants are changing the economics of launches by reuse of rocket boosters. SpaceX's entry into the launch market provides NASA and DOD with new options, and it is also cutting into the international launch market formerly dominated by foreign providers. SpaceX has had several successful launches and relandings. Blue Origin has to date launched several prototypical rockets that have returned to their launchpads. Private Financing Increases Space-related industries are taking advantage of a range of private financing options, including venture capital, debt financing, and acquisition, receiving more than $13 billion in such investments between 2000 and 2015. According to Tauri Group, a space industry research organization, this trend has accelerated over the past five years, with 2015 recording $2.3 billion in space-related capital investment, a record level for one year. Several wealthy business owners—some with ties to Silicon Valley—and corporations are also investing in space-related companies, as are banks, including the U.S. Export-Import Bank. These combined capital sources have spurred the establishment of new companies: In the last five years, an average of eight new space ventures were established annually, almost triple the level of such firm creation in the early 2000s. According to Tauri Group, investors find space attractive because launch vehicle costs are forecast to drop with the use of new types of launch hardware, including reusable rockets, and because they anticipate the development of new products and services, such as space tourism and new satellite sources for collecting and analyzing data obtained in space. Growing Deployment of Small Satellites The development of small satellites for Earth imaging and establishing space-based Internet networks from LEO is now possible because satellite components have been miniaturized and standardized. Groups of small satellites are referred to as constellations; Planet Labs, for example, has a constellation of 36 small satellites in orbit, with customers paying for the images it can capture at less distance from Earth than is possible with larger satellites in higher orbits. Some observers argue that demand for data may be driving the market for small satellites, as much as the new technologies. Small satellites allow access to space by researchers, companies, and governments that cannot afford larger spacecraft. Because small satellites can travel as a secondary payload on many launch vehicles, launch costs may be only a few million dollars per satellite, although multiple small satellites may be required for many purposes. The small satellite market is addressed by a number of startup firms that hope to succeed in providing broadband, remote imaging, or communication services, such as Firefly Space Systems in Texas, Rocket Lab in California, and OneWeb in Virginia. While small satellites are normally launched on rockets with other, larger payloads, Virgin Galactic is proposing a new type of launcher: a rocket attached to the wing of a modified commercial 747 jet will launch a payload into orbit when the plane reaches an altitude of 35,000 feet. Virgin Galactic believes this form of launch vehicle, using smaller rockets, will significantly reduce the cost of putting small satellites into orbit. NASA is also utilizing small so-called CubeSats to address scientific questions and broaden the involvement of students and researchers. In 2015, 42 small satellites, primarily with commercial functions, were launched as cargo to the ISS for later deployment from there. NASA has announced that it will help develop new CubeSat technologies and will launch six small Earth-observing satellite missions. Commercial Space Workforce Declines The space industry workforce includes employees in private-sector firms as well as those working at NASA, DOD, and other government agencies. The increasing public attention given to the commercial space industry belies a dichotomy: the commercial and civil space workforces are declining, while national security workforces remain steady. Commercial employment in the space industry peaked in 2006 at about 267,000 employees and has declined steadily since then. The termination of NASA's space shuttle program in 2011 resulted in the loss of many private-sector jobs. Other major reasons for the decline in space industry employment may be many skilled workers reaching retirement age and difficulties in recruiting young talent. Jobs in this industry generally require advanced skills, such as engineering, differentiating them from the average U.S. manufacturing or service-industry job. The Space Foundation has identified six industry sectors that collectively approximate the space industry. Bureau of Labor Statistics (BLS) data show that employment in these six sectors dropped by 16% in the 10 years from 2005 to 2015 ( T a ble 2 ). These data do not show the full scope of the space industry workforce. The categories listed in Table 2 include both space and nonspace activity, while employees in other sectors who are working on space-related tasks are excluded because most of the employment in the sector is not related to space. An alternative approach to assessing the size and breadth of the space industry workforce is the 2012 space industry report by the U.S. Department of Commerce (DOC), based on a survey of 3,780 respondents in 16 different manufacturing and service segments of the space economy, including spacecraft and launch vehicles, communications systems, ground systems, electronic equipment, and software. This survey, conducted once and covering the years from 2009 to 2012, shows a somewhat larger workforce of 254,179 employees in 611 commercial companies that viewed themselves as dependent on federal space programs. In addition to commercial employment, DOC identified 13,897 space-related jobs in the U.S. government, 19,630 in nonprofit organizations, and 60,533 at universities, for a total of 348,239 workers dependent on space-related programs. The report shows shrinkage of nearly 7% in employment at companies dependent on commercial space programs from 2009 to 2012. Wages in the commercial space industry are higher than average U.S. wages. The average space industry salary of $111,000 (in 2014) is double what the average private-sector employee receives. Average salaries vary within the six industry categories cited in Table 2 , from about $92,000 in missile and vehicle propulsion (NAICS 336415) to more than $124,000 in missile and vehicle manufacturing (NAICS 336414). Policy Issues for Congress Three overarching issues will affect the development of commercial space in the future: how the industry is regulated by diverse federal agencies, the effects of new export control laws and regulations that seek to increase U.S. space industry competitiveness, and the allocation of spectrum for satellite use. Regulating and Managing Commercial Space The commercial space industry is governed by federal agencies with diverse regulatory interests. The major federal agencies with commercial space policy responsibilities are as follows: FAA 's Office of Commercial S pace Transportation regulates launches and reentries of space vehicles, as well as the U.S. launch and reentry sites, including rerouting aircraft that may interfere with a nearby rocket launch. The Department of Commerce has two major space industry interests. The National Oceanic and Atmospheric Administration (NOAA) licenses commercial imaging satellites and utilizes commercial space capabilities for improved weather forecasting and environmental data collection, and also oversees the Office of Space Commerce, which promotes the U.S. commercial space industry's economic growth and technological advancement. DOC's Bureau of Industry and Security (BIS) administers export controls and licensing for strategic technologies, including space industry components. NASA provides infrastructure and operations support and encourages private-sector investment in its launches and other activities through its Commercial Crew and Cargo Programs. Department of Defense utilizes commercial space systems and technologies for national security purposes. Through the Air Force, it provides infrastructure, operations support, and safety oversight for government and commercial launches at its launch sites. Additionally, through the Defense Technology Security Administration (DTSA), it reviews and comments on applications for export licenses, in conjunction with Department of State review. Department of State (DOS) is responsible for the export and temporary import of defense articles and services—including some commercial space components—through the International Traffic in Arms Regulations (ITAR). Federal Communications Commission licenses commercial satellite radio frequencies and determines placement of satellites in geostationary orbit. The current regulatory and management structure may require changes if the commercial space indus try grows. Private firms may take on more responsibilities for launching government satellites (including military satellites), offer space flights for tourists, undertake mining operations on asteroids and the moon, and attempt to explore and even settle Mars. This could lead to greater commercial demand for FAA to process licenses, permits, and safety reviews. Congress may need to set additional legal parameters to establish a legal basis for regulation of passenger safety in space tourism and space traffic management. In addition, the current legal provision for liability risk-sharing between launch companies and the U.S. government may require changes as the industry matures and more private individuals become passengers or crew. A better system for integrating commercial space launches into the air traffic control system is a particular concern for FAA. Currently, when a launch or reentry is planned, FAA closes airspace near the site because equipment onboard aircraft often cannot track rockets and spacecraft moving at very high speeds. Since launch times may vary from initial plans, FAA may close the airspace for a long period, causing both commercial and military aircraft to be delayed or rerouted. The FAA alert system utilizes email and phone calls to commercial and military airspace users. As the number of rocket launches increases, FAA may face pressure to reduce the length of air space closures. The agency plans to use an automated system to deliver alerts to aircraft pilots to minimize air traffic impact. In the 114 th Congress, H.R. 4945 has been proposed to change federal oversight of commercial space. In addition to making organizational changes within DOD, the legislation would direct NASA to develop a 20-year plan to land astronauts on Mars, and would require the Department of Transportation to establish an Office of Commercial Space Transportation and an Office of Spaceports and also to designate a lead government agency for space traffic management. DOC would be directed to develop a plan to coordinate space-related economic and regulatory activities, and DOS would be required to begin developing an international traffic management regime. Export Controls Spacecraft, ground stations, and some unique components are regulated by the U.S. export control system. They are considered dual-use items, as even those developed primarily for commercial or civil purposes have possible military applications. During the Cold War era, these space industry products were regulated exclusively by DOS and were considered munitions, as many of them were then designed specifically for military purposes. Although the regulation of these dual-use space products was transferred to DOC in the 1990s, Congress returned regulatory authority to DOS in 1998 after some satellite designs were improperly transferred to China. DOS's administration of export controls came under strong criticism from manufacturers of space-related equipment. The satellite industry asserted that the long licensing process led to a loss of sales abroad, and the Aerospace Industries Association (AIA) claimed that the U.S. share of the global commercial satellite market fell from 63% before export controls were transferred to DOS to 30%. A DOC survey of manufacturers found that many believed that the DOS export controls "eroded U.S. competitiveness in the international space market." In 2013, Congress transferred export control responsibilities for 80% of satellites and related items back to DOC regulation for sales to most countries. AIA and others are calling for controls on some commercial items that are still under DOS, such as apertures on electro-optical satellites used for remote sensing, integrated propulsion systems, and plasma thrusters, to be transferred to DOC. AIA also has raised concerns about the launch vehicle restrictions in the international Missile Technology Control Regime (MTCR), which regulates missile proliferation. As space tourism becomes a possibility, some MTCR rules—as incorporated into U.S. export controls—could affect the development of this commercial activity, including limitations on the type of rocket that could be used to boost space tourists into suborbital space. In addition, a space tourism rocket that is launched in one country and descends in another country could be considered a missile export subject to strict MTCR controls. Spectrum Allocation The satellite industry is concerned that sharing of certain bands for future wireless 5G use—some of which are currently used solely for satellite transmissions—could jeopardize the reliability and cost-effectiveness of their service. For decades, satellites have communicated on dedicated frequency bands assigned by the International Telecommunications Union (ITU). The specific band used by a satellite depends on its purpose. For example, lower frequencies—the L-, S-, and C-bands—are not affected by heavy rainfall and are therefore used in tropical regions; they can also simultaneously serve large areas of the globe. The Ku and Ka bands are used for television broadcasting and data services. Satellites are built to transmit a specific frequency and cannot be reprogrammed after launch. The Obama Administration directed the FCC to identify spectrum that could be used to expand Wi-Fi services in the future. To address that goal, FCC and the National Telecommunications and Information Administration (NTIA) collaborated in identifying 500 MHz of spectrum suitable for wireless broadband use, including future domestic 5G terrestrial mobile providers. Some of this spectrum was obtained by sharing frequencies in the 28 GHz band previously dedicated to satellite transmissions. The satellite industry expressed concern over sharing spectrum, particularly the 28 GHz band, contending that current satellite services could be undermined without a deeper understanding of how future 5G services will be used: [S]atellites are providing vital services to all Americans using spectrum bands above 24 GHz. Satellites "distribute point-to-multipoint video and other high bandwidth services more efficiently and more cost effectively than any other technology." In addition, high-throughput satellites are bringing competitive broadband services to all of the United States. Satellites also provide advanced services to ships, aircrafts and motor vehicles.... Consideration of repurposing spectrum access from existing users with a supporting record would result in the loss of critical services to U.S. consumers, and to vital enterprise users such as first responders and the U.S. military. The FCC contends that its approach in its July 2016 ruling struck a balance between wireless services and satellite operations and that the spectrum sharing provided in the decision would "ensure that diverse users—including federal and non-federal, satellite and terrestrial, and fixed and mobile—can co-exist and expand." The FCC also noted that there had been "dueling studies" from affected industries and said it would continue to study the issue and make adjustments if necessary. There has been congressional interest in the FCC's activities with regard to satellite spectrum. H.R. 4945 (114 th Congress) would direct the FCC to preserve primary electromagnetic access in the 27.5-28.35 GHz band for satellite operators. The FCC is also evaluating a proposal by Ligado Networks, a satellite-communications company developing a network to support 5G service, for sharing the 1675-1680 band with NOAA. DOC, the Air Force, and the Aerospace Industries Association have expressed concern that this sharing arrangement might interfere with GPS signals and the emergency response, homeland security, and aviation safety sectors that rely on them. Appendix A. Satellite Size Comparison

Rockets, satellites, and the services they provide, once the domain of governments, are increasingly launched and managed by privately owned companies. Although private aerospace firms have contracted with federal agencies since the onset of the Space Age six decades ago, U.S. government policy has sought to spur innovation and drive down costs by expanding the roles of satellite manufacturers and commercial launch providers. Global spending on space activity reached an estimated $323 billion in 2015. Of this amount, nearly 40% was generated by commercial space products and services and 37% by commercial infrastructure and support industries. The U.S. government—including national security agencies and the National Aeronautics and Space Administration (NASA)—accounted for about 14% of global spending; government spending by other countries was responsible for the remaining 10%. The satellite and launch vehicle supply chains are global, with a small number of manufacturers. In 2015, global satellite manufacturing revenues were $6 billion; launches booked $2.6 billion in revenue. Ground stations—the largest part of the commercial space infrastructure—generated more than $100 billion in revenue, largely from geolocation and navigation equipment. The face of the U.S. space industry is changing with a government shift toward use of fixed price contracts for commercial services, new entrants with new launch products, and an increase in the use of smaller satellites: NASA's commercial cargo program and other federal contracts are supporting the growth of the commercial launch industry, with less expensive rockets, some of which are planned to be reusable. Many of the new space-related companies are attracting rising levels of venture capital. Aggressive pricing by U.S. entrants is cutting into the international launch market once dominated by foreign providers. A renewed interest in low-cost satellites, some of which are small enough to be held in one hand, is prompting a range of start-ups and providing new accessibility to space by educational institutions, small businesses, and individual researchers. In order to spur innovation and growth, the commercial space industry has been purposely insulated from some types of federal regulation often applied to other industries. Nevertheless, three broad federal issues will affect the industry's future development. One is the structure of federal regulation and management; those responsibilities currently are dispersed among many agencies, and there is congressional interest in reorganizing commercial space functions at NASA and the Departments of Defense, Commerce, Transportation, and State. A second issue is the extent to which U.S. export controls are hampering U.S. satellite industry sales abroad. Export controls have recently been revamped to enable export of more commercial space products and services, but impediments may remain to reestablishing U.S. space product competitiveness. A third concern is that new Federal Communications Commission (FCC) regulations allowing wireless communication providers to share spectrum previously dedicated to satellite transmissions may result in interference. The commission has pledged to continue studying the issue.

Introduction The recent enactment of the Leahy-Smith America Invents Act (AIA) demonstrates congressional interest in the patent system. Most of the provisions of the AIA apply to any type of patented invention. For example, the first-inventor-to-file priority system, prior user rights, and post-grant and inter partes review proceedings apply equally to chemical compounds, electrical appliances, mechanical devices, and any other invention that may be protected by a patent. However, other AIA provisions are specific to particular types of inventions. That statute limited the availability of patents on tax strategies, prohibits the issuance of patents claiming human organisms, and creates "transitional proceedings" that apply exclusively to patents pertaining to business methods. The AIA also allows "prioritization of examination of applications for products, processes, or technologies that are important to the national economy or national competitiveness...." The AIA reflects the principle that, for the most part, the U.S. patent system operates in a uniform manner. All patentable inventions are generally subject to the same statutory provisions. A number of exceptions exist to this concept of technological neutrality, however. For example, statutory provisions limit the enforceability of patents claiming methods of medical treatment; call for patent term extension for certain products regulated by the Food and Drug Administration (FDA); and establish specialized patents for designs and plants. This blended architecture has for many years prompted inquiry into whether the patent system operates best as a uniform system that applies neutrally to all inventions, or whether it could or should be tailored to meet the specific needs of different industries. Commentators have proposed, for example, that software patents should receive shorter terms than patents on other inventions, and that patents on genes should be subject to compulsory licenses that allow individuals to use the patented technology upon paying a license fee. Unenacted legislation in the 112 th Congress, H.R. 6245 , proposed patent litigation reforms that would apply to patents claiming computer software and hardware, but not to other sorts of inventions. Notably, U.S. membership in the World Trade Organization (WTO) may influence congressional willingness to promulgate industry-specific patent statutes. One component of the WTO agreements, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), requires patents to be available and enforceable "without discrimination as to ... the field of technology.... " Although the TRIPS Agreement allows for some limited exceptions to this rule of technological neutrality, one consequence of U.S. membership in the WTO may be a restricted ability to tailor the patent statute to particular inventions and industries. This report considers the possibility of modifying the U.S. patent system to meet the needs of specific industries. After providing a brief review of the patent system, the report identifies different industrial traits, such as the pace of innovation, product cycle, and the cost of research and development, which potentially suggest the desirability of tailored patent rights. It then considers possible points of adjustment within the patent system, including patent term, scope of exclusive rights, and the availability of remedies for infringement. The report then discusses potential difficulties associated with distinguishing among industries within the patent system, including the provisions of the TRIPS Agreement. The report closes with concluding observations. Patent Fundamentals The patent system covers a broad variety of inventions. U.S. patents cover traditional subject matter such as machines, pharmaceuticals, and manufacturing processes, along with high-tech inventions in the fields of biotechnology, computer software, and nanotechnology. No matter what the sort of technology, however, the patent system in large measure operates under the same general principles. In particular, all inventors who wish to obtain patent rights must file an application at the U.S. Patent and Trademark Office (USPTO). USPTO examiners then review the application to ensure that certain statutory requirements are met. These statutory requirements—including that the invention be adequately described in the patent application, and that the invention must not have been obvious to a skilled artisan —apply to every invention for which a patent is sought. Similarly, once a patent has issued, the statutory term is set uniformly to 20 years from the date of filing no matter what the type of invention. All patents received the identical exclusive rights—namely, the right to prevent others from making, using, selling, offering to sell, or importing the patented invention in the United States. Some exceptions exist to this general notion of standardization. The United States has long provided for the protection of industrial designs through so-called "design patents." The Patent Law Treaties Implementation Act of 2012, P.L. 112-211 , recently caused U.S. law to conform to the Hague Agreement Concerning the International Registration of Industrial Designs, the leading international agreement on these specialized rights. The United States also established two sorts of intellectual property rights for plants: plant patents, which are administered by the USPTO; and plant variety protection certificates, which are administered by the Department of Agriculture. In addition, the Hatch-Waxman Act extends the terms of patents covering pharmaceuticals, medical devices, and other products which are subject to premarketing approval by the FDA. As well, over the years private legislation has increased the terms of a number of particular patents. Further, some commentators observe that the statutory provisions for patents are stated fairly generally. In their view, these broad parameters provide courts and the USPTO with some ability to recognize the diverse characteristics of distinct technologies and tailor their rulings accordingly. For example, one core patentability requirement is that the invention must not have been obvious to a person of ordinary skill in the art. The courts have arguably developed nuanced obviousness principles that take into account whether the invention falls within a predictable art, including many mechanical and electrical inventions, as compared to a less predictable art, such as some branches of chemistry and biotechnology. Inventions within these latter, less predictable arts may possibly be more readily able to satisfy the obviousness requirement and therefore are more likely to be patented. Despite these exceptions, the Patent Act of 1952, as amended by such legislation as the American Inventors Protection Act and AIA, is generally worded in a neutral fashion. The uniform treatment provided by the patent system may be contrasted with the diversity of the technologies and industries to which patents pertain, however, a topic this report takes up next. The Role of Patents Within Different Industries Commentators have for many years recognized that technologies and industries vary in ways that are salient to the patent system. In particular, the costs and risks of conducting R&D differ widely among industries. Arguably the patent incentive should be greater for innovative efforts that are expensive and more likely to fail. Similarly, some sectors are marked by stand-alone, discrete advances, while others feature steady, cumulative innovation. Firms that operate within the latter sorts of industries may have greater need to access technologies invented and patented by others. As well, product cycles also vary markedly across the U.S. economy. For example, patients may use a particular pharmaceutical for decades, even as consumers quickly discard their old mobile telephones and other electronics in favor of new devices. Industries with compact product cycles may be better served by short application pendency periods at the USPTO and also may be less concerned with lengthy terms of patent protection. Still another factor may be the practical availability of trade secret protection. Competitors may readily reverse engineer many electrical and mechanical products, for example. Firms within these industries must therefore seek patent rights or enjoy no effective intellectual property rights whatsoever. On the other hand, certain chemical and biotechnology inventions may be more plausibly maintained as trade secrets. Arguably greater encouragement is needed for public disclosure of chemical and biological inventions through the patent system. The number of patents that cover a particular product also varies widely among industry. Within the pharmaceutical industry, often only a handful, and sometimes only one or two patents cover an individual drug. In contrast, numerous patents may cover a particular electronics product. As RPX Corporation, a self-described "comprehensive patent risk management firm," explains: Modern products and services incorporate numerous technology components. The evolution of mobile devices provides an example. Based on our research, we believe there are more than 250,000 active patents relevant to today's smartphones, a significant increase compared to our estimate of approximately 70,000 patents that were active and relevant to mobile phones in 2000. This growth can be attributed to the expanded set of features and functionality incorporated in today's smartphones, including touchscreens, internet access, streaming video, media playback, application store readiness and other web-based services, and WiFi connectivity options. These "vast disparities in patent-to-product" ratios may influence the perceptions of different business enterprises over the value of individual patents as compared to larger portfolios of intellectual property rights. Another arguable distinction among industries is the detectability of patents that are pertinent to particular products. Fields such as small-molecule chemistry employ an internationally recognized, standardized nomenclature to identify the composition of a particular compound. As a result, firms within the agricultural, industrial, and pharmaceutical chemical industries may enjoy some confidence that they will be able to identify patents that are relevant to products they wish to sell. In contrast, fields such as software arguably have yet to develop a standardized terminology for identifying programs, procedures, algorithms, and other sorts of machine instructions. The lack of conventions for identifying software inventions potentially impacts the patent system, arguably making the identification of pertinent patents difficult for firms in the computer industry. Implications for the Patent System In view of these and possibly other distinctions between technologies and markets, policy makers may not be particularly confident that a one-size-fits-all patent system ideally encourages innovation throughout a diverse array of industries. Observers have for many years suggested that the statute distinguish among the varying inventions and industries for which patents are available. In theory, many aspects of the patent system could be tailored to reflect the needs of distinct technology sectors. Some possible points of adjustment include The speed with which the USPTO reviews patent applications could be adjusted to meet the needs of industries with varying product cycles. Patents could be more difficult to obtain within some fields than others depending upon the perceived need of the patent incentive to encourage innovation. Patents on inventions capable of being protected by trade secrets in whole or in part—for example, biotechnologies or chemical processes—might be required to have more complete technical disclosures in order to allow others to practice the invention expeditiously. The term of protection could vary among technologies depending upon the pace of innovation within particular fields. The scope of exclusive rights could be adjusted in order to immunize select individuals or enterprises—such as physicians or universities—from liability for patent infringement. Compulsory licenses could be made available for categories of patented inventions perceived to fulfill an important public need—for example, healthcare or environmental technologies—thereby allowing third parties to use the invention without the permission of the patent proprietor. Congress has implemented some of these technology-specific measures. Among other examples, the Hatch-Waxman Act extends the terms of patents covering pharmaceuticals, medical devices, and other products which are subject to premarketing approval. Congress also imposed restrictions upon the enforceability of patents claiming medical procedures. Specialized patent rights exist both for industrial designs and plants. More recently, the deliberations that led to the enactment of the Leahy-Smith America Invents Act (AIA) again placed focus upon the role of the patent system within different industries. One topic that focused attention upon these distinctions concerned the award of remedies when firms or individuals are found to infringe patents. Broadly speaking, the patent law allows courts to award two sorts of remedies against infringers: (1) injunctions, or court orders requiring an entity to cease future infringements; and (2) damages, consisting of an award of money to compensate patent proprietors for financial losses suffered due to infringements. The legislative history of the AIA reveals that certain representatives of the pharmaceutical and information technology sectors often held different views about the state of the law of patent remedies. With respect to injunctions, prior to 2006 courts would virtually always enjoin an adjudicated infringer from future practice of the patented invention. Some observers—particularly those from the information technology sector—believed that this "automatic injunction" rule was particularly unfair when the patented invention supported a single function in a multifunctional product, such as an automobile, smart phone, or computer software. They also believed that this rule encouraged the assertion of patents of dubious quality and offered patent proprietors too much leverage during licensing and settlement negotiations. However, other observers—primarily from the pharmaceutical sector—asserted that absent the award of an injunction, competitors would not respect the exclusive rights afforded by a patent. A predecessor, unenacted version of the AIA, the Patent Reform Act of 2005, proposed changes to the principles governing injunctions in patent law. Section 7 of that bill provided that in deciding whether to issue an injunction or not, "the court shall consider the fairness of the remedy in light of all the facts and the relevant interests of the parties associated with the invention." Perhaps because of the discordant view of different patent stakeholders as to the availability of injunctions in the patent community, this provision was identified as one of the most controversial within the bill. While debate about congressional action with respect to injunctions in patent law continued, the Supreme Court issued its decision in eBay Inc. v. MercExchange, L.L.C. in 2006. There the Court unanimously held that an injunction should not automatically issue based on a finding of patent infringement. Under the eBay ruling, courts must weigh equitable factors traditionally used to determine if an injunction should issue, including whether the patent proprietor suffered an irreparable injury; the award of damages would be inadequate to compensate for that injury; that considering the balance of hardships between the patent owner and infringer, an injunction is warranted; and that the public interest would not be disserved by a permanent injunction. Following the eBay decision, Congress did not include legislative provisions concerning injunctive relief in the AIA. Some commentators believe that the Supreme Court struck an appropriate balance by addressing concerns of information technology firms that were concerned that patent holders would assert their rights after the launch of a commercially successful product in an effort to extort an unreasonably large royalty using the threat of an injunction; but also recognized that most often a prevailing patent holder would be awarded an injunction. Further, the early prediction that "the biotech and pharmaceutical industries have little to fear in the post- eBay world" appears to have been correct, for the great majority of judicial decisions declining the award of a permanent injunction have concerned information technology patents. A second, arguably divisive issue between the information technology and pharmaceutical industries pertains to damages. Marketplace realities often render the determination of an appropriate damages award a difficult affair in patent litigation. In some cases, the product or process that is found to infringe may incorporate numerous additional elements beyond the patented invention. For example, the asserted patent may relate to a single component of a touch screen display, while the accused product consists of an entire smartphone. In such circumstances, a court may apply "the entire market value rule," which "permits recovery of damages based upon the entire apparatus containing several features, where the patent-related feature is the basis for consumer demand." On the other hand, if the court determines that the infringing sales were due to many factors beyond the use of the patented invention, the court may apply principles of "apportionment" to reach a just measure of damages for infringement. Some believe that current damages standards have resulted in the systemic overcompensation of patent owners. Such overcompensation may place unreasonable royalty burdens upon producers of high technology products, ultimately impeding the process of technological innovation and dissemination that the patent system is meant to foster. Others believe that current case law appropriately accounts for apportionment concerns. These observers are concerned that this reform might overly restrict damages in patent cases, thereby discouraging voluntary licensing and promoting infringement of patent rights. Limited damage awards for patent infringement might prevent innovators from realizing the value of their inventive contributions, a principal goal of the patent system. As discussion of damages reform has proceeded before Congress, the courts have also been active. One of the more notable cases on patent damages principles arose from the efforts of Lucent Technologies, Inc., to enforce its so-called "Day patent," which related to a method of entering information into fields on a computer screen without using a keyboard. In 2002, Lucent brought an infringement suit against computer manufacturer Gateway, Inc., asserting that certain pre-installed Microsoft software infringed the Day patent. At trial, the jury found the Day patent not invalid and infringed. Lucent sought damages of $561.9 million based on 8% of Microsoft's infringing sales, while Microsoft asserted "that a lump-sum payment of $6.5 million would have been the correct amount for licensing the protected technology." The jury then awarded Lucent a single lump-sum amount of $357.7 million. The litigation in Lucent v. Gateway captured the attention of many observers. In a March 3, 2009, letter addressed to Senator Patrick Leahy, Senator Arlen Specter requested a delay in Senate action on the pending patent reform bill until the Federal Circuit heard oral argument in the case. Observing a "symbiotic relationship between the judicial and legislative branches with regard to changes to the patent system," Senator Specter believed that "oral argument has the potential to facilitate a compromise or clarify the applicability of damages theories in various contexts." In its subsequent decision, the Federal Circuit upheld the lower court's determination that the Day patent was not invalid and infringed. In the most anticipated portion of the opinion, the appellate court also struck down the jury's damages award as not supported by substantial evidence. Some commentators have viewed the lengthy opinion as doing much to dampen speculative damages awards, particularly with respect to patents from the information technology sector. Following that opinion, Lucent and Microsoft have reportedly settled the litigation. Of broader interest, Congress also chose not to address damages for patent infringement within the AIA. The timely issuance of eBay and Lucent v. Gateway may have contributed to congressional belief that courts were appropriately addressing injunctions and damages, respectively. As a result, Congress did not endeavor to reconcile the perceived needs of industries with different innovation and marketplace environments. Another legislative possibility, at least in theory, was to enact distinct remedial rules for different categories of inventions. This report next explores whether industry-specific rules are a practical possibility for patent legislation. The Feasibility of Sector-Specific Patent Rules In view of the concerns noted above, commentators have gone so far to say that "it has become increasingly difficult to believe that a one-size-fits-all approach to patent law can survive." To the extent the current patent system creates a blanket set of rules that apply comparably to distinct industries, it likely over-encourages innovation in some contexts and under-incentivizes it in others. Further, some observers have asserted that the need of firms to identify and access the patented inventions of others may differ among industries. As a result, the case can be made that distinct industrial, technological, and market characteristics that exist across the breadth of the U.S. economy compel industry-specific patent statutes. However, others have questioned the wisdom and practicality of such line-drawing. The following concerns, among others, have been identified: Over its long history, the U.S. patent system has flexibly adapted to new technologies such as biotechnology and computer software. Legislative adoption of technology-specific categories may leave unanticipated, cutting-edge technologies outside the patent system. Defining a specific industry or category of technologies may prove to be a contested proposition. Over time, new industries may emerge and old industries may consolidate. The dynamic nature of the U.S. economy suggests greater need for legislative oversight within a differentiated patent regime. Even if an industry or technology remains relatively stable, the innovation environment within it might change. For example, technological or scientific advances might open new possibilities for research and development within hidebound industries—but also increase expense and risk for those firms. Distinct patent rights among industries or technologies may lead to strategic behavior on behalf of patent applicants. For example, a computer program that controls a fuel injector within an automobile could possibly be identified as either an automobile-related or a computer-related invention. The legislative effort to enact sector-specific patent laws may provide an opportunity for politically savvy firms to exert more lobbying and political power, at the possible expense of less sophisticated firms. In addition to these practical concerns, U.S. membership in the World Trade Organization (WTO) may restrict congressional ability to tailor the patent system to account for different industries and inventions, to the extent that compliance with WTO standards is desired. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) is a WTO-administered treaty that stipulates minimum standards for many forms of intellectual property protection. Article 27, paragraph one of the TRIPS Agreement expressly provides that, with some exceptions, "patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced." At the time it was drafted, the TRIPS Agreement standard of technological neutrality was arguably intended to provide for patent protection for a variety of inventions for which patents were previously unavailable in many countries. For example, certain jurisdictions did not allow patents to issue on pharmaceuticals and agricultural chemicals prior to joining the WTO. The wording of Article 27.1 appears to have broader implications than merely requiring WTO member states to grant patents on pharmaceuticals and other previously unpatentable inventions, however. Its principle of nondiscrimination seems broadly to require that all inventions in all fields of technology be treated identically—a reading that would block, for example, discriminating in favor of particular inventions as well as against them. Article 27 expressly permits some limited exceptions to this concept of homogeneity. In particular, WTO members may exclude from patentability inventions whose commercial exploitation would violate the public order or morality. However, inventions may not be exempted from patentability merely because their use is illegal. In addition, diagnostic, therapeutic, and surgical methods may also be excluded from patentability. In addition, WTO member states may deny patents on "plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes." However, if a WTO member state opts to do so, it must protect plant varieties through an alternative specialized system, typically known as "plant breeder's rights." In addition, the TRIPS Agreement allows for "security exceptions" that permit WTO members to take any action considered necessary for the protection of "essential security interests." In addition, Article 30 of the TRIPS Agreement allows for "exceptions to rights conferred." The TRIPS Agreement stipulates that each WTO member state must provide patent proprietors with the right to exclude others from making, using, selling, offering to sell, and importing the patented invention. Article 30 then reads: Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. Article 30 appears to contemplate limited exceptions to the patent rights for such reasons as scientific experiments or use of a patented product for purposes of obtaining regulatory approval. At first glance, Article 30 of the TRIPS Agreement might seem to provide WTO member states with the ability to provide technology-specific exceptions despite the wording of Article 27.1. However, one dispute settlement panel of the WTO has "concluded ... that the anti-discrimination rule of Article 27.1 does apply to exceptions of the kind authorized by Article 30." Stated differently, the WTO has reasoned that even exceptions to a patent owner's exclusive rights must be technology neutral. The WTO's conclusion that even exceptions to a patent holder's exclusive rights must operate in a uniform manner has attracted some critical commentary. On one hand, if an exception to a patent holder's exclusive rights must apply to all technologies and industries, it is less likely to be "limited" and therefore compatible with Article 27.1. On the other hand, the WTO reasoned that "the TRIPS Agreement [required] governments to apply exceptions in a nondiscriminatory manner, in order to ensure that governments do not succumb to domestic pressures to limit exceptions to areas where right holders tend to be foreign producers." The WTO dispute resolution panel in the Canada Pharmaceutical case further observed: [I]t is not true that Article 27 requires all Article 30 exceptions to be applied to all products. Article 27 prohibits only discrimination as to the place of invention, the field of technology, and whether products are imported or produced locally. Article 27 does not prohibit bona fide exceptions to deal with problems that may exist only in certain product areas. The distinction drawn by the WTO panel between the terms "field of technology" and "certain product areas" arguably does not shimmer with clarity. The panel's opinion obtains no further guidance as to the meaning of "certain product areas." However, some commentators have suggested that patent statutes may permissibly draw distinctions based on narrow categories of goods or services, in contrast to broader fields of technological endeavor. For example, Wesley A. Cann, Jr., an emeritus member of the University of Connecticut business school faculty, has asserted that "[e]ven if Article 30 would not allow a limited exception to be directed at the entire pharmaceutical industry (a position that is still open to substantial doubt), it can be argued that an exception could be made for those particular pharmaceuticals aimed at the prevention and treatment of HIV/AIDS." As a result, the membership of the United States within the WTO provides a possible constraint against tailoring the patent system to meet the perceived needs of specific industries. To the extent that WTO compliance is desired, the U.S. patent system must ordinarily act in a homogenous manner with respect to particular fields of technology. The TRIPS Agreement does permit some specific exceptions, however, for such subject matter as diagnostic, therapeutic, and surgical methods; matters of national security; and, as explained by the Canada Pharmaceutical WTO panel, "certain product areas." Concluding Observations The patent system involves numerous parameters, including the requirements to obtain a patent, the scope of proprietary rights, and the term of protection. In theory these attributes could be tailored to meet the needs of different sectors. Defining industry-specific or technology-specific patent doctrines presents some practical difficulties, however, and may also give rise to incompatibilities with the WTO TRIPS Agreement. Should Congress consider current circumstances with respect to the patent system to be appropriate, then no action need be taken. However, should Congress believe that different sectors possess distinctive needs with respect to the patent system, a number of options exist. As noted, the TRIPS Agreement provides for a number of limited exceptions to the general rule of technological neutrality. U.S. legislation could simply track the exceptions identified by the provisions of the TRIPS Agreement, with particular reference to their interpretation by WTO dispute resolution panels. Congress could also potentially draw distinctions among grounds not identified by Article 27.1 of the TRIPS Agreement—namely, the place of invention, the field of technology, and whether products are imported or produced locally. For example, the Leahy-Smith America Invents Act (AIA) established an infringement defense based upon the prior commercial use of the patented invention by the accused infringer. The AIA stipulated that this defense was unavailable if the patented invention was made by an institution of higher education, however. This "university exception" appears to comply with the TRIPS Agreement because it draws a distinction based upon the identity of the inventor, rather than on a ground identified in Article 27.1. Another option is the establishment of additional intellectual property rights that complement patents. For example, Congress has established so-called "regulatory exclusivities," a term that refers to a period of time during which a regulated product is afforded protection from competing applications for marketing approval. Most notably, the food and drug laws establish a number of regulatory exclusivities that apply to pharmaceuticals and are administered by the Food and Drug Administration. In contrast to patents, regulatory exclusivities are not subject to extensive regulation by the TRIPS Agreement. As a result, at least with respect to regulated industries, regulatory exclusivities may provide a more flexible instrument for legislative tailoring of intellectual property rights. Whether legal doctrines should be expressed as discrete rules or more generally phrased standards is a long-standing debate within the field of jurisprudence. Placed within the context of congressional consideration of our intellectual property laws, the debate suggests that distinct rules for different sectors form one possibility for patent reform. Yet Congress may also craft broader principles that may be appropriately applied across the diverse industries and technologies to which the patent system pertains. Determining whether a rule or a standard provides the most appropriate vehicle for a particular reform to our patent laws remains a matter of legislative judgment.

Congressional interest in the patent system has been demonstrated by the enactment of the Leahy-Smith America Invents Act (AIA) in the 112th Congress. Most of the provisions of the AIA apply to any type of patented invention, whether it consists of a chemical compound, mechanical device, electrical circuit, or other technology. However, other AIA provisions are specific to particular types of inventions, including business methods, tax strategies, and human organisms. The AIA reflects the principle that, for the most part, patentable inventions are generally subject to the same statutory provisions. However, a number of exceptions exist to this concept of technological neutrality. This blended architecture has for many years prompted inquiry into whether the patent system operates best as a uniform system that applies neutrally to all inventions, or whether it could or should be tailored to meet the specific needs of different industries. Technologies and industrial sectors arguably differ in ways salient to the patent system. Among these distinctions are the costs and risks of research and development, the availability of trade secret protection as an effective alternative to patenting, the number of patents that cover a particular product, and the patterns of patent acquisition and enforcement of firms within that sector. The patent system involves a number of parameters that could potentially be adjusted to meet the needs of individual sectors, including the speed with which applications are reviewed, the scope of exclusive rights afforded by a patent, and the term of the patent. While some observers suggest the desirability of sector-specific patent principles, others believe them to be infeasible and unwise. They observe that legislative efforts to define particular industries may prove difficult, that attorneys may sometimes be able to draft patents artfully so as to fall within a favored category, and that U.S. industry is dynamic and resistive to a static statutory definition. In addition, U.S. membership within the World Trade Organization (WTO) may limit the ability to tailor the patent system to account for different industries and inventions, to the extent that compliance with WTO standards is desired. The WTO-administered Agreement on Trade-Related Aspects of Intellectual Property, or TRIPS Agreement, in part requires WTO member states to make patent rights available without discrimination as to the field of technology. The TRIPS Agreement admits some exceptions exist to this principle of technological neutrality, however. Should Congress believe current circumstances to be appropriate, then no action need be taken. To the degree WTO compliance is desired, Congress could also legislate along the lines permitted by the TRIPS Agreement. Notably, although the TRIPS Agreement generally disallows discrimination with respect to technological fields, it permits distinctions on other grounds. Congress could also make use of regulatory exclusivities and other complementary intellectual property rights that the TRIPS Agreement regulates less heavily.

Introduction Each year, in October, the Energy Information Administration (EIA) publishes the Short-Term Energy and Winter Fuels Outlook (STEWFO). The purpose of the STEWFO is to provide estimates of expected average annual heating fuel expenditures in comparison to the previous year. While the STEWFO provides estimates of average annual expenses, individual expenses may vary regionally, as well as being dependant on local weather conditions, market size, the energy efficiency characteristics and size of homes, and thermostat settings. Average annual heating fuels expenditures depend on the price of fuel used, with natural gas, heating oil, propane, and electricity constituting the main heating fuels in the United States. Expenditures also depend on the quantity of fuel used, which is based on individual consumer decisions. Weather conditions, measured by heating degree-days, are the other key factor in determining expenditure levels. The National Oceanic and Atmospheric Administration (NOAA) provides heating degree-day estimates to the EIA for the STEWFO. The STEWFO is not a forecast in the statistical sense, but a projection based on assumed values of key prices. If the underlying price estimates prove to be incorrect, or the weather varies from forecast trends, actual average heating expenditures will reflect the changes. Average Annual Heating Fuels Expenditures NOAA forecasts a 2.8% reduction in heating degree-days for the 2010-2011 heating season compared to the 2009-2010 heating season for the United States as a whole. Regional differences in weather, along with regional fuel specialization, can change the regional expenditure projections from the U.S. average. In the Northeast, heating degree-days are expected to increase by 5.5%, while in the West they are expected to increase by 0.4%. Estimated heating degree-days are expected to decline 14.9% in the South, and decline by 0.7% in the Midwest. On average the household expenditure on heating fuels is projected to be $986 this winter, an increase of $24, or 2.5%, from last winter. The average expenditure increase reflects generally higher fuel prices in all categories and the partially offsetting quantity effects of generally milder weather. Table 1 provides a summary of the percentage changes in the key components of average annual heating fuel expenditures by fuel. Regionally, the EIA expects expenditures on natural gas to increase the most in the Northeast, at 11.6%, and to increase by 5.6% in the Midwest. Expenditures on natural gas are expected to decline by 3.1% in the West and by 2.5% in the South. Expenditures on heating oil are expected to increase by 13.3% in the Northeast, 9.7% in the Midwest, and 8.7% in the West, while declining by 3.5% in the South. Expenditures on propane are expected to increase by 14.1% in the Midwest, 13.8% in the Northeast, and 10.3% in the West, while declining by 5.6% in the South. Expenditures on electricity are expected to increase by 4.7% in the Northeast and 0.4% in the Midwest, while declining by 3.9% in the South and 0.4% in the West. Due to changing conditions in the fuel markets the prices assumed in the STEWFO can differ from those observed. For example, the STEWFO calculations are based on a heating oil price of $3.06 per gallon, while the actual price of heating oil in August 2010 was $2.62 per gallon, almost 15% less. Unless heating oil prices rise during the course of the winter fuel season to average $3.06 per gallon, the STEWFO will overstate expenditures by heating oil consumers. The same type of effect is likely to be observed if the weather is colder, or warmer than forecast by NOAA, or if consumers change their consumption habits at any given price, or in response to any given number of heating degree-days. Natural Gas The U.S. natural gas market is part of a North American regional market. The United States draws about 83.5% of its natural gas supplies from domestic sources, about 14% imported by pipeline, largely from Canada, and 2% largely from Trinidad, delivered in the form of liquefied natural gas. Consumers of natural gas include households and commercial customers that largely use natural gas for space heating. Electric power generators, especially those that satisfy peak demand loads, use natural gas as a raw material to power generators. Industrial consumers use natural gas as a raw material, for example in fertilizer production, and as a heat source in industrial processes. Household, commercial, and electric power generators are those consumers whose consumption is most likely to be affected by winter conditions. Table 2 presents average household natural gas consumption and price data for the winter heating seasons 2006-2007 through projected values for winter 2010-2011. On a per household basis, as presented in Table 2 , winter consumption of natural gas has been relatively stable, with an observed variation of about 5% between the highest and lowest values over the five-year period. Similarly, consumer prices have been relatively stable, but falling in 2009-2010, and increasing somewhat in the projection for 2010-2011. The price-consumption relationship suggests that natural gas demand is price inelastic for households, implying that consumption might not be expected to respond sharply to changes in price. An inelastic relationship is likely because home heating is typically considered a necessity by consumers. In addition, existing metering technology does not provide consumers easy access to quantity consumed and cost data. Income levels, along with the weather, may also be important in determining natural gas consumption. Approximately 52% of all U.S. households heat with natural gas. On a national level, over all consumer groups, total natural gas consumption fell by about 2% from 2008 to 2009. Only the electric power generating sector experienced rising consumption, an increase of about 3.3%. Residential, commercial, and industrial demands all declined from 2008 to 2009. The STEWFO projects an increase in total natural gas consumption of 4.6% from 2009 to 2010, and a further 0.1% increase in consumption for 2011. Most of the increased consumption is expected to occur in the industrial and electric power generation sectors. The STEWFO projects an increase in U.S. natural gas production of about 3.5% in 2010, to be followed by a decrease in production of 1.5% in 2011. The relative weakness of natural gas prices in 2010, reflecting the additions to reserves in the form of shale and other non-conventional sources, has spurred production. However, these lower prices, and the growing price spread between petroleum liquids and natural gas, have shifted exploration and drilling activity in the direction of liquid-rich deposits. Imports of natural gas are expected to increase by about 1.5% from 2010 to 2011, mostly on pipeline imports from Canada. Lower natural gas prices in North America than in Asia and Europe will continue to make liquefied natural gas a small component of the U.S. gas picture. Natural gas demand from households and commercial customers peaks in the winter, and to a lesser extent in the summer. This leads to accumulation of natural gas in storage facilities in the off-peak seasons. At the beginning of the winter heating season, October 1, natural gas in storage was approximately 3.5 trillion cubic feet, about 5% above the five-year average storage amount. Heating Oil Home heating oil is a middle distillate, derived from the same part of the refining process as diesel fuel. As a result, the price of home heating oil is closely related to the price of oil as well as the price of diesel fuel. Approximately 7% of U.S. households heat with oil, and most of these consumers are in the Northeast, where 80% of U.S. heating oil consumption occurs. EIA expects average heating oil expenditures per household to increase by $218, or 11.5%. Projected expenditure increases in the Northeast are 13.3%, in the Midwest 9.7%, and in the West 8.7%, while the South expects a decline of 3.5%. Diesel fuel, a product almost identical to home heating oil, has been more expensive than gasoline in 2010, averaging about $0.20 per gallon higher. About the same premium of home heating oil prices over the price of gasoline has been observed. These price differentials result from U.S. refiners' emphasis on gasoline production and a relatively high level of world demand for diesel fuel. The costs of gasoline, diesel fuel, and heating oil are all directly related to the price of crude oil on the world market. The EIA projects the price of crude oil to rise to $85 per barrel during the 2010-2011 heating season. The spot price of West Texas Intermediate, a reference crude oil, averaged over $80 per barrel in the first half of October 2010. The key risk factor for home heating oil consumers is the price of crude oil. Oil prices can be volatile. The economic recession, beginning in December 2007, and accompanied by record high crude oil prices in 2008, served to decrease demand. Overall liquid fuels consumption in the United States is projected by the EIA to increase by 1.1% in 2010 and 0.6% in 2011. Within these overall increases, gasoline consumption is expected to increase by 0.2% in 2010, while distillate consumption is expected to increase by 2.7%. The larger relative increase in distillate consumption is likely to maintain or increase the price premium of these fuels over gasoline, and create upside price risk over the STEWFO projection. Propane Propane provides primary home heating for approximately 5.6 million households in the United States, about 6% of total households. Propane consumers are projected to experience a $136, or 8%, increase in heating expenses during the winter 2010-2011 season. The number of households heating with propane has declined every year for the past five years, suggesting that propane is not a preferred fuel. EIA expects a decline of 3.1% in households using propane for 2010-2011 compared to 2009-2010. The EIA sees propane expenditures rising by 14.1% in the Midwest, 13.8% in the Northeast, and 10.3% in the West. Only in the South is a decline in propane expenditures expected, at 5.6%. The reduced consumption of propane in the South is due to milder expected weather in that region that more than offsets the expected increased cost per gallon. Propane is unique compared to the other fuels covered in this report in the sense that it is a by-product and not directly produced in its own right. The production of gasoline and natural gas both give rise to propane supply. As a result, when the availability of those fuels is high, so is the supply of propane. Complicating the propane outlook for the Northeast is a leak that was found in the TEPCO propane pipeline in New York. Several terminals have been closed, and may be closed for part of the winter heating season. The pipeline leak also threatens supplies of propane to New England, because even though the region is primarily supplied through imports, an early season cold weather episode could threaten the ability to draw additional supplies from the pipeline. Many of the same factors that affect natural gas and home heating oil prices influence expected propane prices. However, in the propane case, the relationship is indirect because of the by-product nature of propane. Propane prices, unlike the other fuels covered in this report, are affected by distance and dispersion of the consumers. This is because the distribution process usually requires the delivery, by truck, of relatively small quantities to individual consumers. Electricity Electricity prices are related to natural gas and coal prices as well as the availability of nuclear power and various alternative fuels. In addition to electricity being generated by using natural gas, natural gas is also a competitor to electricity as a home heating source. Approximately 37% of U.S. households use electricity as their primary heating source. In the Northeast electricity use is lowest, at 13%, while it is highest in the South at 61%. Overall growth in the number of households using electricity is 2.9% year on year, driven by further expansion of market share in the South. In comparison, the number of propane and heating oil customers is declining, by an expected 3.1% and 2.9%, respectively. Natural gas is the heating source used by an expanding number of customers, at an expected expansion of 1.2% in 2011. The EIA projects relatively low heating expenditure increases for those heating with electricity. In the Northeast a 4.1% increase is expected, while the South is projected to see a decline in expenditures of 3.9% and the West is projected to see a decline of 0.4%, while the Midwest will see a projected increase of 0.4%. Electricity prices have been relatively stable across the regions, with little price volatility. Risk Factors The primary risk factors concerning the STEWFO are the weather and economic conditions. Total household expenditures on home heating are equal to the price of the fuel times the quantity of the fuel used. The weather, measured by the number of heating degree days, largely determines the quantity of fuel used. Conservation, in the form of reduced temperatures inside the home, can also reduce the quantity of fuel consumed, but for a given desired temperature inside the home, heating degree days are the key factor. The 2010-2011 winter heating season is expected to be colder than last winter in the Northeast, and warmer in the South, with the Midwest and the West within 1% of last year. The other component of total heating expenditures, the price of fuel, is determined by a complex web of related prices and other economic variables. In a period of weak macroeconomic conditions, including high unemployment, the key relationship may be that between the level of economic activity, measured by the growth rate of gross domestic product and the price of crude oil. At the beginning of the 2010-2011 heating season the price of crude oil is above $80 per barrel. A higher price for crude oil directly increases the price of home heating oil and propane. Natural gas supplies are reduced as a larger spread develops between oil and gas. Electricity prices are directly affected by natural gas and coal prices. Natural gas prices are expected to increase by 5.7% during the 2010-2011 heating season. Heating Expenditure Assistance The Low Income Energy Assistance Program (LIHEAP) is the primary federal government program to supplement home heating expenditures. LIHEAP is composed of two parts: funding for block grants to states and emergency contingency funds. For FY2011, the Administration has proposed $2.51 billion for LIHEAP regular funds and $790 million for emergency contingency funds. In contrast, for FY2010 and FY2009 the totals were $4.5 billion in regular LIHEAP regular funds and $590 million in emergency contingency funds ( P.L. 111-117 for FY2010). The Administration's FY2011 plan also includes trigger mechanisms which would increase LIHEAP funds when energy prices or participation in the Supplemental Nutrition Assistance Program (formerly the Food Stamp Program) reaches pre-set levels. At the start of the winter heating season 2010-2011, the Senate Appropriations Committee has reported its version of the Departments of Labor, Health and Human Services, and Education (LHE) appropriations bill ( S. 3686 ), which provides $3.3 billion for LIHEAP. For FY2011 the House LHE subcommittee provides $5.1 billion for LIHEAP. A continuing resolution is currently funding the program at the FY2010 level ( H.R. 3081 , P.L. 111-242 ). CITGO, the United States subsidiary of the Venezuelan national oil company PDVSA, has its own Low Cost Heating Oil Program, which operates without any connection to the U.S. government. The program, operated in conjunction with a non-profit, the Citizens Energy Corporation, began in 2005. During the 2009-2010 heating season, 25 states and the District of Columbia participated in the program, which discounts the delivered cost of home heating oil by about 40%. CITGO estimates that 157,000 households, 245 homeless shelters, and 250 Native American communities benefited from the program in 2009-2010. CITGO has not announced whether the program will continue in the current year. Conclusion The STEWFO projects that Americans will generally face increased heating costs during the winter of 2010-2011. Fuel prices are generally expected to be higher, which more than offsets lower expected consumption due to milder weather, and yields costs that are projected to rise by about 2.5% for what most consumers consider a necessity. The impact of the cost increases may be accentuated by continuing high levels of unemployment. Uncertainty as to the funding levels for LIHEAP, and concern as to whether the CITGO program will continue in 2010-2011, contribute to the burden of higher heating costs.

The Energy Information Administration (EIA) in its Short-Term Energy and Winter Fuels Outlook (STEWFO) for the 2010-2011 winter heating season projects that American consumers should expect to see heating expenditures rise by 2.5% on average compared to last winter. Average expenditures for those heating with natural gas are projected to see an increase of 3.6%, while those heating with electricity are projected to see a decline in expenditures of 1.9%. These two fuels account for the heating for approximately 88% of all U.S. households. Propane and home heating oil consumers are projected to see cost increases of 7.5% and 11.5%, respectively. Within the U.S. average projections, differences exist with respect to region of the country and type of fuel. Economic conditions of slow growth and high unemployment suggest that lower consumption of all fuels is likely, especially in the context of milder winter weather conditions that have been forecast by the National Oceanic and Atmospheric Administration (NOAA). The price of oil has been increasing in the months leading up to the 2010-2011 winter heating season. If the price of oil continues to increase beyond the projected level of $85 per barrel, heating costs might be expected to rise above projected levels for all consumers. Uncertainty exists with respect to the status of funding for the Low Income Energy Assistance Program (LIHEAP), the key federal program assisting low-income households with heating expenditures. Funding levels for the program have not been determined because Congress has not passed the FY2011 appropriations for the Departments of Labor, Health and Human Services, and Education (S. 3686). A continuing resolution is currently funding the program at the FY2010 level (H.R. 3081, P.L. 111-242). It has not been announced whether the CITGO/PDVSA program that assists some U.S. heating oil consumers will be continued.

Corruption and the IFIs Corruption is broadly defined as the abuse of public or private office for personal gain. Thisincludes, but is not limited to, taking bribes, granting a contract or choosing a project in order tomake a profit or to allow someone else to make a profit, or coercing someone else to act in a corruptmanner. Most of the multilateral development banks (MDBs) define corruption and state theirpolicies relating to it in their codes of conduct for staff, procurement guidelines, and other publicdocuments. This report is based on information provided by the international financial institutions themselves, through publicly available information on their websites and correspondence withmembers of their staff. It compares, on a side-by-side basis, the international financial institutions'(IFIs') procedures and policies for preventing and punishing corruption in their operations. It doesnot attempt to evaluate the extent to which the IFIs adhere to these standards and guidelines. (1) The anti-corruption measures at the MDBs are new, and in some cases (notably in the African Development Bank) are still being implemented. The need for anti-corruption policies becameevident in the late 1990s, when scandals involving corruption became public and the activities of theMDBs were more closely scrutinized. Development specialists recognized the importance ofcombating corruption to achieve economic development, and in response the MDBs began to providetechnical assistance in corruption prevention and governance to member countries. They recognizedthat improving the anti-corruption mechanisms within their own organizations would complementgovernance activities in developing countries and increase development effectiveness, as well asimprove their own credibility on governance issues. The United States and the international community have been influential in the increased attention to anti-corruption standards. The G-8 Finance Ministers and Central Bankers issued astatement at their meeting in Rome in July 2001 that recognized the recent improvements in theinternal governance of the MDBs, but added that further improvements were still needed. At theJune 2004 G-8 Summit at Sea Island, Georgia, the G-8 issued a statement on fighting corruption indeveloping countries, announcing that the IMF agreed to publish its program documents andsurveillance reports effective July 2004. The Inter-American Development Bank (IDB) also agreedto an improved disclosure policy at the summit. Furthermore, the G-8 pledged to encouragedeveloping countries to meet the high disclosure standards set by the IFIs. The G-8 recognizes thatcorruption is detrimental to economic development, and fighting corruption requires cooperationbetween the IFIs and member countries on transparency and disclosure policies. (2) In 2003, Congress instructed the U.S. Executive Directors to seek changes in each of the MDBs that would make their procedures for controlling corruption clearer and more transparent. (3) (Forprocedural reasons, the IMF was not included within the scope of the act.) Congress specified thatthey shall use the voice and vote of the United States in each MDB to ensure that by June 30, 2005,each institution (1) posts an annual report on its website containing statistical summaries and casestudies of the fraud and corruption cases pursued by its investigations unit; (2) establishes a plan forconducting regular independent audits of internal management controls including fraud preventionand making reports publicly available; and (3) establishes an effective procedure for the receipt,retention, and treatment of complaints received by the bank regarding fraud and other matters ofinternal control. The Secretary of the Treasury is required to report to Congress by September 1,2004, on the actions taken by each MDB to achieve these goals. Experts say measures for countering corruption at the MDBs must be implemented on many levels to be effective. These include bank lending and operations; procurement of goods andservices; staff conduct; independent internal reporting mechanisms to address allegations ofmisconduct; oversight and management of bank operations; and educating staff on policies andprocedures. The establishment of effective internal controls is presumptively a deterrent, reducing the number of corruption cases that the system handles. Internal controls that aim to ensure theefficiency of the organization as a whole -- such as internal audit procedures to ascertain thatorganizational policies and procedures are being followed -- complement explicit anti-corruptionprocedures. A high level of transparency and accountability in all operations helps to combatcorruption, in addition to specific anti-corruption measures taken. Table 1. IFI Anti-Corruption Features at aGlance Source: Compiled from IFI websites and correspondence with IFI staff. Notes: a. IFAD: International Fund for Agricultural Development b. EBRD: European Bank for Reconstruction and Development c. IDB: Inter-American Development Bank d. IFAD does not have a unit dedicated to anti-corruption activities; however, the Office of InternalAudit (OA) is independent and has anti-corruption responsibilities in addition to other audit andinvestigation responsibilities. Sanctions are an important aspect of internal control, but they are only as effective as the mechanisms for detecting and investigating corrupt behavior. Each of the IFIs consider similarsanctions for misbehavior, such as demotions and dismissals of staff members, blacklisting firms,and the cancellation of loans for borrowers. Despite the efforts by the MDBs to implement internal controls and prevent corruption, it is impossible to completely eliminate the possibility that MDB resources will be used toward corruptends. It is possible for MDBs to ensure that the actual loans are used legitimately, but in a corruptcountry they may be used to free up resources for less legitimate purposes. Furthermore, there is adistinction between the operations of the MDB management and the decisions made by the executiveboard. The executive board is composed of representatives of member countries with politicalinterests, and it is these board members who make the decisions about whether to make a loan orgrant, the conditionality for that assistance, and whether borrowers have sufficiently met theconditionality requirements. Anti-corruption efforts are focused on the activities of management,not the decisions of the executive board. In the most airtight organization, it may still be possiblefor corruption to occur. However, the consistent implementation of internal controls can send a clearmessage that corruption is not tolerated within the organization, and this could have a positiveimpact on the organization's experience with corruption. The World Bank took the lead among the international financial institutions (IFIs) in implementing its anti-corruption system in 1997. The regional MDBs have moved since to set upbasically similar systems, with organizational variations. The MDBs have made substantial changesin their internal controls over the last five years, which are aimed at bolstering their effectiveness. However, there are still concerns about inadequate effectiveness and insufficient independence ofthese controls. The MDBs communicate with each other on issues of transparency and accountability through the Evaluation Cooperation Group (ECG), an organization of evaluation departments of MDBs. Allof the institutions listed below are members of the ECG, with the exception of the International Fundfor Agricultural Development (IFAD). The European Investment Bank (EIB), a component of theEuropean Union (EU), is also a member of the ECG. The United States is not a member of the EIB. Anti-Corruption Measures in the MDBs The World Bank The World Bank's Internal Audit Department (IAD) began working in anti-corruption issues in 1997. A special unit, the Department of Institutional Integrity (INT) was created in 1998, hiringspecialists from outside the bank as well as employees from within IAD. (4) In May 1998 the bankestablished the Oversight Committee on Fraud and Corruption (OCFC) to oversee the bank'santi-corruption system. The OCFC is composed of high level bank officials from administrativeoffices at the World Bank. In addition, the bank established a Sanctions Committee to reviewfindings of investigations related to fraud and corruption by contractors. Further, the bank establisheda 24-hour free telephone hotline and a post office box hotline to receive allegations of fraud andcorruption, available for use by bank staff and the public. The hotline is managed by an outside firmand observes strict confidentiality. Users of the hotline may remain anonymous. Reports of fraud or corruption from the hotline are sent to the OCFC. After an initial review, the OCFC determines whether the allegations warrant an investigation, and whether the investigationwill be carried out by the Investigations Unit of IAD, the Office of Professional Ethics, or byexternal, specialized investigative resources. At the completion of the investigation, the OCFCreviews the case and refers the case either to senior management or the Sanctions Committee forfurther action, or to the appropriate authorities for criminal prosecution or civil action. The World Bank's efforts to fight corruption also encompass the procurement process. The bank disburses billions of dollars annually to finance purchases necessary for the implementationof projects. The bank has standards and guidelines aimed at ensuring that procurement funds arespent on their intended uses, and that no staff members or contractors abuse the procurement process. One difficulty is that the borrower, not the bank, has control over the procurement process. However, the bank has taken steps to monitor compliance. Over the last two years, the bank hashired independent firms to audit more than 50 bank-funded projects. They found instances ofmisprocurement in 40 contracts out of about 45,000 that were included in the audit. (5) The SanctionsCommittee may blacklist contractors and consultants who are found to be involved in corruptactivities, either for a stated period of time or indefinitely. The bank maintains a list of such firmsineligible for bank contracts on its public website. The audits are also used to develop plans withthe borrower to build capacity to avoid future fraud and corruption. Separate from specific anti-corruption efforts, the World Bank Group has an Operations Evaluations Department (OED). An independent evaluation unit which reports directly to theexecutive directors, the OED rates the performance and development impact of bank lendingoperations. It also evaluates the effectiveness of the bank's general policies and procedures. Itsmandate is not directly related to anti-corruption, but it adds to accountability at the bank, and thuscomplements anti-corruption efforts. The bank also as an independent Inspection Panel, which also reports directly to the executive board. Composed of three outside experts, plus a small secretariat, the panel receives complaintsfrom the public and assesses whether the bank has complied with its own rules and proceduralguidelines in the design and implementation of bank-funded projects or programs. Again, this is nota specific control against financial corruption but it is a measure to insure that the bank's operationalrules or policies are not inappropriately breached. The International Monetary Fund The IMF is different from the MDBs in that it does not fund projects. Rather, it provides balance of payments finance that typically involves boosting the reserves of the central bank. Asmoney in the central bank can be fungible, it is difficult to track specific uses of IMF resources. Nonetheless, the IMF has instituted a 'safeguards' framework that aims to verify that the central bankhas the proper control and auditing systems in place to manage its resources, including funddisbursements. A key element is a requirement that countries publish annual central bank financialstatements that are independently audited in accordance with internationally-accepted standards. The centerpiece of the IMF's internal controls is its Code of Conduct for Staff, which is supported by financial disclosure requirements for senior staff (to prevent financial conflicts ofinterest) and an ethics officer. The ethics officer position was established inFebruary 2000 toinvestigate alleged violations of the Code of Conduct, and of other IMF rules and regulations. Theethics officer is appointed by the managing director, and is intended to be an impartial person havingno former employment with the IMF. However, there is no prohibition on future employment withthe fund, and the ethics officer's term may be extended by the managing director. The ethics officerconducts investigations at the direction of the managing director or the director of Human Resources(HRD), or he/she initiates investigations with the approval of the Oversight Committee (OC). TheOC is composed of three senior IMF officials, with the director of HRD as chair. The OC also rulesin the event of a staff appeal, and determines if an investigation should be begun as well as whetherone should be continued. The Independent Evaluation Office (IEO) was established in July 2001 to support the board in institutional governance and oversight responsibilities. It reports directly to the executive board andits purpose is to evaluate IMF advice, operations, and policies. The IEO staff is hired from bothoutside and from within the IMF. The IMF has made efforts in recent years to make its policies and operations more transparentand open to public scrutiny. The fund publishes all Article IV staff reports for the public as a matterof policy, unless an individual country does not consent to having its report published. Countrieshave a right under the Articles of Agreement to block any IFI disclosures about their internaleconomic conditions. Countries that block such disclosure can be readily identified, however, andpotential investors or lenders may note that there may be information about its internal economicsituation which the country does not wish to release to the public. The IMF also releases fundpolicy papers, the minutes of executive board meetings, details of loan programs, and annualevaluations. International Fund for Agricultural Development The International Fund for Agricultural Development (IFAD) is a specialized agency of the United Nations (U.N.). It seeks to prevent corruption by pre-screening potential recipients of grantfinancing, and through structured financial reporting and audit requirements for loan and grantrecipients. Grant recipients must follow procurement guidelines acceptable to IFAD to ensuretransparency. The procurement guidelines have recently been amended to specifically address fraudand corruption, and they were presented to the executive board in April 2004 for approval after theyare reviewed by the Audit Committee. IFAD is different than the other IFIs in that it is a specializedagency of the U.N., and it conducts investigations in a manner consistent with the rules of the UnitedNations. IFAD set up its Oversight Committee (OC) in May 2000 to coordinate investigations into irregular practices, either within IFAD or in connection with operations and contracts financed byIFAD. The OC is similar to investigations units in the MDBs, but it operates on a higher level asit is composed of the vice president, the general counsel, and the chief of Internal Audit. It decideswhether an investigation is warranted, determines who should be involved in the investigation, andreports the facts emerging from the investigation to the president. If external agencies, such asnational authorities, are involved in an investigation, the OC determines IFAD's role in thatinvestigation. External agencies report the findings of their investigations to the OC, which thenreports to the president. The president makes decisions about sanctions independent of the OC. The Office of Internal Audit (OA) reviews operations of IFAD for efficiency and integrity, and participates in investigations of fraud and corruption. It is an independent unit with only reviewresponsibilities and no involvement in sanctions. The head of OA reports to the president. African Development Bank As part of the bank's "zero tolerance policy," staff members of the African Development Bank (AFDB) are required to submit financial disclosures, and they are required to comply with the StaffCode of Conduct. In the recent past, allegations were investigated by the Internal Audit Department(IAD) or by an ad-hoc team, including the general counsel. The bank's Procurement ReviewCommittee (PRC) receives the findings and conclusions of investigations and decides on a plan ofaction; including sanctions, both against the borrower (cancellation of loans) or thecontractor/consultants who have been declared ineligible to participate in bank funded operationsfor a minimum period of five years. The AFDB has established guidelines and procedures for preventing and combating fraud and corruption in Bank Group operations. Efforts are also underway to establish a specific unit withinthe existing Internal Audit Department (IAD) to conduct internal investigations and to provideprotection for whistle blowers, in the form of a hotline for complaints of misconduct. It is alsoconsidering a proposal for the establishment of a senior management oversight committee to combatfraud and corruption, much like the oversight committees at some of the other MDBs. Additionally, the management of the bank has submitted final proposals to the AFDB for the establishment of an independent Compliance Review and Mediation Unit (CRMU). The CRMUwould focus on issues of noncompliance by the Bank Group with regard to operational policies andprocedures in the design, implementation or supervision of a Bank-financed project. Under this plan,third parties would be able to submit complaints of harm from bank activities to the CRMU. TheCRMU would not be directly involved in fraud or corruption investigations, but would complementthe anti-corruption activities of the bank by adding to accountability. There are units within the bank that work in similar ways to the proposed CRMU. The IAD investigates compliance with bank rules, but it does not have the capacity to respond to complaintsfrom third parties. Meanwhile, the Operations Policy and Review Department (OPRD) reviews allbank projects and programs for compliance with AFDB operating policies and procedures as theyenter the financing pipeline. The 2002 Presidential Directive on the Bank Operation Evaluation Department (OPEV) allows the department to carry out its functions independently. OPEV was established to provide acomprehensive and objective assessment of the development effectiveness of the Bank Group'sstrategies, policies, operations, processes and procedures. It undertakes, independently of the bank'soperational units, performance evaluation of completed and selected ongoing projects and examinestheir development impact. It reports directly to the board of directors, which supervises thedepartment's work through its Committee on Operations and Development Effectiveness (CODE). The reporting relationship of OPEV and its director is reportedly materially similar to that of theWorld Bank's Evaluation Department. Asian Development Bank At the Asian Development Bank (ADB), an Anti-corruption Unit (OAGA) within the Office of the Auditor General (OAG) is responsible for implementing the ADB's anti-corruption policies,with oversight from the Oversight Committee on Corruption. In addition to investigating allegationsof corruption, the OAGA provides training to ADB staff and member countries in anti-corruptionprocurement and investigative techniques. It provided extensive training to staff members on therevisions to the Code of Conduct involving corruption. OAGA receives reports of corruption and screens them to determine whether they warrant further investigation. Its decisions are reviewed by the Oversight Committee on Anti-corruption,which is comprised of three voting members and three alternates who are nominated by the auditorgeneral and approved by the president. OAGA coordinates investigations, which it may conduct byitself or with the help of external auditors, investigators, or other experts selected by OAGA ordesignated by the Oversight Committee. At the conclusion of an investigation OAGA submits itsfindings to the Oversight Committee, which then determines whether the alleged violation tookplace, whether there is need for further inquiry, and ultimately, what sanction or remedial actionADB should impose. Appeals of Oversight Committee decisions are brought to the ReviewCommittee, which is composed of ADB vice presidents. ADB may declare a firm or individual ineligible to participate in ADB-financed projects and activities for a specified time period or indefinitely. Firms declared ineligible are notified, and arelisted on the ADB website only if ADB is unable to contact them, or if they attempt to participatein an ADB activity during their period of ineligibility. If ADB consistently encounters problemswith a particular executing agency or sector, it has the flexibility to change its programming mix toavoid working in that area. Likewise ADB can focus its lending and technical assistance onstrengthening government institutions to facilitate greater transparency and accountability. The Asian Bank has an Operations Evaluation Department whose head reports to the ADB executive board through the bank president. The ADB has established a new inspection mechanismto reinforce accountability and address in a fair and objective way the concerns of persons affectedby ADB-assisted projects. A special project facilitator will focus on informal problem-solving andan independent three-member Compliance Review Panel will investigate alleged violations of theADB's operational policies and procedures. European Bank for Reconstruction and Development At the European Bank for Reconstruction and Development (EBRD), the chief compliance officer (CCO) is responsible for ensuring professional integrity. The CCO identifies relevantstandards and best practices in this area and promotes them in the bank, enhances staff awarenessof the bank's commitment to such standards, conducts investigations of allegations in accordancewith the Procedures for Reporting and Investigating Suspected Misconduct (PRISM), and monitorsthe banks' hotline and follows up as appropriate. Complaints related to fraud or corruption aredirected by the CCO to the appropriate office within the bank. The CCO is independent of bankproject operations. The hotline is reportedly available to report allegations of fraud or corruption from all countries, on the part of bank officials, employees, consultants, or bank-financed projects. The bank's Procurement Policy states that all entities involved in bank projects must adhere to high ethical standards, and it defines corruption. The bank may reject a proposal, cancel financing,or blacklist a firm for reasons of corruption in bank-related activities. The bank will maintain a listof blacklisted firms on its website, although currently no firms are blacklisted from participating inbank-financed activities. To prevent corruption through increased accountability and transparency, the EBRD has a Public Information Policy governing disclosure to the public, an Environmental Policy, and anIndependent Recourse Mechanism (IRM) to receive complaints from groups adversely affected bybank-financed projects. The IRM was approved by the board in April 2003, and was implementedshortly thereafter. Complaints to the IRM must not be related to fraud or corruption; those aredirected to the hotline and the CCO. The EBRD has a Project Evaluation Department (PED) that reports to the president via the secretary general's office and is independent of banking operations. The PED evaluates bothprojects and technical assistance programs for compliance with the bank's mandate, by comparingactual with expected outcomes. It makes note of the lessons learned and disseminates them withinthe bank. The PED also conducts sector studies and has a pilot program to evaluate countrystrategies. This form of project review may add to accountability and transparency at the bank. The broader or operational review functions are performed by the board of directors, or one of the three board committees. One such committee is the board's Audit Committee, which has theresponsibility to ensure that PED and other related functions (such as compliance and internal audit)are able to perform their duties independently. The Audit Committee also aims to ensure that thesefunctions are performing a needed role within the bank, have adequate resources and institutionalcapacity to perform their roles, and their performance meets expectations. The Audit Committeerecently recommended adopting an internal controls framework that aims to assure compliance withbank policies, and the board accepted this recommendation. The Inter-American Development Bank In June 2001, the Inter-American Development Bank (IDB) created an Oversight Committee on Fraud and Corruption (OCFC). The OCFC does not actually conduct investigations, but itoversees investigations of fraud and corruption that are conducted by the Office of InstitutionalIntegrity (OII). The OCFC may impose appropriate remedies, oversee their implementation, anddetermine when matters should be referred to national authorities. The OCFC is composed ofmembers of senior management of the bank and reports directly to the president. The OII was created in October 2003, and it is an independent office that reports directly to thebank president. It is responsible for receiving allegations of fraud and corruption and it submitsreports of completed investigations to the OCFC for a final decision. Issues not involving fraud orcorruption are referred to the proper authority within the bank. OII also aims to prevent corruptionby promoting and disseminating the bank's policies on fraud and corruption to bank staff and byleveraging the results of investigations in order to improve preventative measures. The OII alsoreportedly serves as the secretariat to the OCFC, the Ethics Committee, and the Conduct ReviewCommittee. Statistics on fraud and corruption cases at the IDB are available on its website. From its inception in April 2002 to April 2004, OCFC (and later OII) have received 183 allegations,averaging about 7 per month. The OCFC/OII have opened 92 investigations during the past twoyears, including investigations that have been concluded and those still in progress. Allegations canbe reported to the OII through a toll-free hotline number, secure email, fax, surface mail, in person,or via the bank's website. The IDB has also recently adopted a rule providing protection forwhistleblowers, strictly prohibiting retaliation against bank staff for reporting an allegation of fraudor corruption, or a violation of a law, rule or regulation of the bank. The OCFC classifies allegations in accordance with the Operating Guidelines and regulations for the Oversight Committee. Allegations relating to fraud and corruption that appear to be credibleare sent to the Auditor General's Office (AGO), which determines whether an investigation shouldbe initiated. The AGO conducts the investigation if required, with OCFC oversight. The AGOsubmits the report of the completed investigation to the OCFC for a decision. Issues not involvingfraud or corruption are referred to the proper authority within the bank. There are other mechanisms at the IDB that aim to enhance accountability and efficiency. The bank's Ethics Committee reviews allegations of unethical behavior on the part of bank staff asdescribed in the Code of Ethics. In 2003 the bank's board of executive directors adopted its ownCode of Ethics, which will regulate board members' own behavior, as distinct from the Code ofEthics for bank management. The bank requires external audits of financial statements for projectexecuting entities and the projects themselves throughout the execution period of the project, untilall funds have been disbursed. The bank's Procurement Committee oversees the bank's procurementpolicies. It resolves major procurement-related issues during project implementation, includingawards to bidders not evaluated as the lowest, and all protests by bidders submitted during theprocurement process. The Independent Investigation Mechanism (IIM) investigates formalcomplaints from groups alleging that they have been negatively affected by a bank-financed projectdue to the bank not having complied with its own operational policies. The IDB's independent evaluation office is the Office of Evaluation and Oversight (OVE), which evaluates project performance and the effectiveness of IDB policy and programs. The OVEreports to the executive board, and it has an independent budget approved by the board. Its findingsare publicized through the new information disclosure policy. Table 2. Comparison of the IFIs' Anti-Corruption Mechanisms

The international financial institutions (IFIs) all have procedures to prevent, identify, and punish corruption within their organizations. The World Bank appears to have the most extensive anddetailed process for addressing corruption issues, but the other multilateral development banks(MDBs) have or are establishing similar procedures. The International Monetary Fund (IMF) doesnot make loans for specific projects; all its loans go directly to the central bank or finance ministryof the borrower country. Nevertheless, it also has procedures for preventing, investigating, andpunishing unethical or corrupt practices. Organizations may achieve more effective anti-corruption programs by implementing complementary measures to counter corruption at many levels. These include scrutiny of the IFIs'lending procedures, their systems for the procurement of goods and services, staff conduct, oversightand management of their operations, and the education of staff on policies and procedures. Majorprocedures for controlling corruption include the establishment of an independent corruption unit,an oversight committee, mandatory staff financial disclosure procedures, and a corruption reportinghotline. The World Bank is the only IFI that has adopted procedures in all four areas. Most of theothers, excepting the African Development Bank (AFDB) and the International Fund for AgriculturalDevelopment (IFAD), have procedures in three of these areas. The AFDB requires mandatory stafffinancial disclosure and is considering possible action in the other areas. IFAD's anti-corruption unitis organized differently than the other IFIs in that anti-corruption responsibilities are carried out byits Office of Internal Audit, but it functions similarly to anti-corruption units at the other IFIs. Also,IFAD is still in the process of implementing mandatory staff financial disclosure. This report provides, on a side-by-side basis, comparisons of the anti-corruption procedures in the MDBs and the IMF. It also provides a detailed description of the institutional arrangements eachIFI has adopted to address corruption issues. This report will be updated if significant changes aremade in the systems and procedures it describes.

Overview The State of the Union address is a communication between the President and Congress in which the chief executive reports on the current conditions of the United States and provides policy proposals for the upcoming legislative year. The State of the Union address originates in the Constitution. As part of the system of checks and balances, Article II, Section 3, clause 1 requires that the President "shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient." In recent decades, the President has expanded his State of the Union audience, addressing the speech to both the nation and Members of Congress. From Congress's perspective, the State of the Union address may be considered the most important presidential speech of the year. Although Presidents may ask to address Congress in joint session on extraordinary occasions, the State of the Union is the one time Presidents are regularly scheduled to venture to the House chamber to present their programmatic priorities and set the tone for the ensuing year. Although modern Presidents communicate with Congress and the public regularly, the State of the Union provides the President with a unique opportunity to present his entire policy platform in one speech. From the President's perspective, the State of the Union address has evolved from a constitutional duty to a welcome source of executive power and authority. Standing before the American public to deliver the annual address, the President combines several constitutional roles: chief of state, chief executive, chief diplomat, commander-in-chief, and chief legislator. Besides delivering the State of the Union, there is no other annual opportunity for the President to showcase his entire arsenal of constitutional powers. Over time, the State of the Union address has evolved considerably. The format and delivery of the speech has changed, and its length has fluctuated widely. Some scholars have suggested the speech has evolved to mimic American culture and ethos, with a growing emphasis on self-interest. Technology has also influenced the delivery of the address, with the advent of radio, television, and the Internet playing significant roles in the transformation. Historical Perspective As a rhetorical tool, the State of the Union address has changed in several substantial ways since the origins of the American republic. It is difficult to point to one moment in time when the address developed into the contemporary speech now commonly recognized as the starting point of the legislative session. Instead, several Presidents throughout American history presided over shifts and variations to the address. George Washington gave the first "State of the Union" address on January 8, 1790. At that time, the speech was known as the "Annual Message." Washington's address, which was quite short at 1,089 words, was delivered before both houses of Congress. As the nomenclature implies, when Washington gave his second Annual Message the following year, he established the precedent that the President would provide information annually to Congress. John Adams followed Washington's precedent during his tenure. Likening it to a "speech from the throne" reminiscent of monarchy's vestiges, Thomas Jefferson changed course and instead submitted his Annual Message in writing. Historians also speculate that Jefferson was a poor public speaker and did not want to deliver it orally since his Inaugural Address had been barely audible and was unfavorably received. Between 1801 and 1913, Presidents fulfilled their constitutional duty by sending their yearly report as a formal written letter to Congress. These written messages contained information about the state of the nation, including policy recommendations. During this time period, the Annual Message swelled in length, with several exceeding 25,000 words. President Woodrow Wilson altered historical precedent when he delivered the 1913 Annual Message in the House chamber before a joint session of Congress. Although Wilson's action "stunned official Washington," he had written extensively in Constitutional Government about his disagreement with Jefferson's decision to submit the address in writing. Instead, Wilson read the Constitution as providing the President with the broad authority to serve as a national spokesman. Wilson altered presidential rhetoric, using it as an intermediary tool to draw widespread public attention to the policies he supported. The public's endorsement served as political leverage that could compel Members of Congress to support his legislative agenda. From 1913 until 1934, the Annual Message entered a transitional phase in which Presidents occasionally issued the address orally. Wilson delivered six of his eight Annual Messages in person, and Warren Harding presented his two addresses orally. Calvin Coolidge gave one address in the House chamber, and became the first President to broadcast the annual speech on radio. During his presidential terms, Franklin Roosevelt solidified the oral tradition of the Annual Message. Roosevelt also applied the constitutional language "State of the Union," both to the message and the event, which became the popular nomenclature from his presidency forward. Given its oral rather than written delivery, the length of the address decreased to between 5,000 and 7,000 words. Roosevelt also ushered in the modern tradition of using the collective words "we" and "our" with greater frequency than his predecessors. Figure 1 displays the length of State of the Union addresses across American presidential history. It shows the sudden drop in 1913, when Woodrow Wilson resuscitated the oral mode of delivery. The spikes after Wilson are instances in which Presidents issued the final State of the Union of their term in writing, such as Franklin Roosevelt in 1945 and Carter in 1981. After winning reelection in 1972, Richard Nixon issued a series of written messages in 1973 instead of giving an overview speech. Barack Obama's 2015 speech contained 6,718 words, which was slightly shorter than his 2014 speech of 6,989 words. The 2015 address lasted 59 minutes, 57 seconds. Harry Truman's 1947 State of the Union address was the first televised. Until 1965, Presidents issued the State of the Union during the day. To attract a larger viewing audience, Lyndon Johnson changed the time of the speech to the evening. This practice has been followed since Johnson, and Presidents now explicitly direct the address to the citizens of the United States as well as Congress. Tradition and Ceremony The State of the Union address is a speech steeped in tradition and ceremony. It is known for its display of pomp and circumstance, perhaps corroborating Thomas Jefferson's objection that the custom retains monarchical elements. In presenting the address, the President fulfills political and ceremonial functions. The combination of such roles makes the annual speech a uniquely powerful ritual. Timing Until the Twentieth Amendment changed the timing for the new terms of Senators and Representatives to January 3, the annual message was routinely delivered in December. Since 1934, the President's annual message has been delivered on a range of dates, from January 3 to February 2. To attract television viewers across the United States, the address is normally presented at nine o'clock in the evening, Eastern Standard Time. Location, Seating, and Attendance The State of the Union address is now customarily delivered in the House chamber of the Capitol, before a joint session of Congress. A concurrent resolution, agreed to by both chambers, sets aside an appointed time for a joint session of the House and Senate "for the purpose of receiving such communication as the President of the United States shall be pleased to make to them." Aside from reserved places for leadership, seats in the chamber are not assigned to Members. Any time during the day, House Members may claim a seat for the evening's address. They must, however, remain physically in the seat to retain their place for the speech. At the designated time, Senators cross the Capitol to the House chamber, where seats are reserved for them as a group at the front of the chamber. The Speaker and the Vice President (in his capacity as President of the Senate) occupy seats on the dais, and the Speaker presides. Seats in the well of the House chamber are reserved for the President's Cabinet, Justices of the Supreme Court, the Joint Chiefs of Staff, former Members of Congress, and members of the diplomatic corps. In accord with long-standing custom and to ensure the continuity of government, one Cabinet secretary does not attend the speech. After September 11, 2001, congressional leadership began designating two Members from each house of Congress, representing both parties, to remain absent from the Capitol during the President's speech. At the January 25, 2011, State of the Union, Members of Congress broke from tradition and sat next to Members of the opposing party. In previous years, Members have taken their seats in a bifurcated fashion, choosing to sit with Members of their own party. In a "Dear Colleague" letter written two weeks before the speech, Senator Mark Udall urged Members of both chambers "to cross the aisle and sit together." Members of Congress have continued the bipartisan practice of seating since 2011, although the number of Members sitting next to a Member of the opposing party has significantly dwindled. Special Guests Seating in the gallery is restricted to ticket holders and is coordinated by the House Sergeant at Arms. Each Member of Congress receives one chamber ticket, with a specific reserved seat, for the address. Congressional leadership and the White House receive multiple tickets. Since 1982, in a new tradition established by Ronald Reagan, Presidents frequently ask guests to join the First Lady in the gallery. These individuals usually have performed an act of heroism or achieved an impressive milestone that illustrates an important theme in the President's speech. At the appropriate time, the President acknowledges the guests seated adjacent to the First Lady and identifies their particular contribution. Presidential speechwriters refer to these guests as "Lenny Skutniks" in reference to the first guest highlighted by Reagan in 1982. Recent guests have included Representative Gabrielle Giffords, Apple CEO Tim Cook, CEO of Baby Einstein Julie Aigner-Clark, civil rights pioneer Rosa Parks, former President of Afghanistan Hamid Karzai, NBA star and humanitarian Dikembe Mutombo, former Treasury Secretary and Senator Lloyd Bentsen, baseball great Hank Aaron, NBA player Jason Collins, Wesley Autrey (who rescued a man on the New York City subway tracks), and numerous active military servicemembers and veterans. The biographies of the First Lady's guests are now available online. Common Elements The State of the Union address is a unique genre of presidential speech. Historian Charles Beard commented, "Whatever may be its purport, the message is the one great public document of the United States which is widely read and discussed." Karlyn Kohrs Campbell and Kathleen Hall Jamieson have identified three common rhetorical sequences in State of the Union addresses: 1. public meditations on values; 2. assessments of information and issues; and 3. policy recommendations. Common Rhetorical Sequence These three rhetorical sequences typically occur in a predictable order. The President offers his opinion concerning important values or national character. Such an assessment leads him to identify targeted issues that will constitute his legislative agenda. Finally, he offers specific policy recommendations. The iteration of values, issue identification, and policy recommendations typically repeats itself numerous times in a State of the Union speech. For example, in his 1962 address, President John F. Kennedy identified values he deemed critically important to the nation: But a stronger nation and economy require more than a balanced Budget. They require progress in those programs that spur our growth and fortify our strength. He then recognized the policy problem that arose from the values he emphasized: A strong America also depends on its farms and natural resources.... Our task is to master and turn to fully fruitful ends the magnificent productivity of our farms and farmers. The revolution on our own countryside stands in the sharpest contrast to the repeated farm failures of the Communist nations and is a source of pride to us all. Finally, Kennedy provided his specific policy recommendation: I will, therefore, submit to the Congress a new comprehensive farm program—tailored to fit the use of our land and the supplies of each crop to the long-range needs of the sixties—and designed to prevent chaos in the sixties with a program of commonsense. Presidents use this three-part rhetorical sequence when discussing both domestic and foreign policy in the State of the Union. Recurring Themes In addition to a common rhetorical sequence, State of the Union addresses also exhibit recurring thematic elements. Most include rhetoric about the past and future, bipartisanship, and optimism. Past and the Future Typically, the speech focuses on both past accomplishments and future goals. State of the Union addresses pay homage to the historical achievements of the nation and its recurring national values. In his 1983 address, Ronald Reagan stated the following: The very key to our success has been our ability, foremost among nations, to preserve our lasting values by making change work for us rather than against us. Through attention to both past and future, Presidents can use the State of the Union address to develop their own definition of the national identity. For example, Bill Clinton used his 1995 speech to promote the concept of a "New Covenant" that blended the traditional themes of "opportunity and responsibility" with the current policy challenges his Administration faced. Moving back and forth between historical themes and contemporary issues is a common rhetorical practice in State of the Union addresses. Using the past to explain legislative proposals and decisions is a method aimed at legitimizing the President's policy program. Bipartisanship The State of the Union address is not primarily a partisan speech or document. The bipartisan tone of the speech distinguishes it from other types of presidential rhetoric. Speaking before a joint session of Congress, Presidents often try to frame their arguments in such a way to build consensus. In his 2002 speech, George W. Bush stated the following: September the 11 th brought out the best in America and the best in this Congress. And I join the American people in applauding your unity and resolve. Now Americans deserve to have this same spirit directed toward addressing problems here at home. I'm a proud member of my party. Yet as we act to win the war, protect our people, and create jobs in America, we must act, first and foremost, not as Republicans, not as Democrats but as Americans. A rhetorical emphasis on bipartisanship can be politically empowering. By claiming a willingness to reach across the aisle, Presidents can remind listeners that their constitutional authority includes a mandate to protect the welfare of all citizens. Such a claim is unique to the presidency, and can serve as a powerful component of the chief executive's national leadership. Optimism The final recurring theme is optimism. No matter how terrible the crisis facing the country, Presidents always adopt a can-do or positive tone in their annual speech. Only a month after the attack on Pearl Harbor, Franklin Roosevelt began his 1942 State of the Union address with the following statement: In fulfilling my duty to report on the State of the Union, I am proud to say to you that the spirit of the American people was never higher than it is today—the Union was never more closely knit together—this country was never more deeply determined to face the solemn tasks before it. The response of the American people has been instantaneous, and it will be sustained until our security is assured. Presidents often acknowledge the difficult nature of the goals they set, but such acknowledgement is qualified by a strong statement that Americans will always fulfill their destiny, solve intractable problems, and ultimately "establish a more perfect Union." No President has ever reported that the crisis facing the nation was insurmountable. Policy Impact The State of the Union address is uniquely situated to strengthen the President's role as chief legislator. The President routinely uses the address to convey his policy priorities and advertise his past legislative successes. In the course of the speech, the President can advocate for policies already being considered by Congress, introduce innovative ideas, or threaten vetoes. Prior to Woodrow Wilson's precedent-changing personal appearances before joint sessions, Presidents from Thomas Jefferson forward directed their annual address mainly to Congress, although major newspapers and magazines analyzed the contents of the speech. Now that the State of the Union is broadcast on television, radio, and the Internet, Presidents can speak directly to Congress and the American public. By speaking directly to citizens, Presidents attempt to convince the public to pressure their elected Representatives and Senators to support particular policy proposals mentioned in the speech. From 1965 through 2015, the average number of policy requests in a State of the Union address was 34. Progression of Presidential Term Presidents often change the emphasis of their State of the Union addresses as their term in office progresses. Electoral pressures, the state of his relationship with Congress, and the President's past legislative record influence such a development. First-Year Addresses In "inaugural" State of the Union addresses, Presidents attempt to set the tone for a new Administration. Most of the rhetoric contained in early term speeches is forward-looking. In their first address, Presidents take positions on numerous policy issues in an attempt to direct the legislative agenda for the next four years. Since 1965, the average number of policy requests in a first-year State of the Union address is 42. Midterm Addresses State of the Union addresses in a President's second and third year of his term in office usually adopt a different tone. Presidents use a greater portion of their time in the address highlighting their policy achievements; approximately 10% of the sentences in midterm addresses are credit-claiming statements. The number of policy requests typically decreases in a midterm speech, falling to an average of 29. Election-Year Addresses An impending election can influence the types of arguments Presidents make in their annual address. Claims of past achievements rise. Policy proposals rise slightly to an average of 31 requests, perhaps in an attempt to demonstrate an active agenda if elected to a second term. Despite electoral considerations, Presidents do not use the State of the Union address to stump for office, according to scholars. If the election is mentioned at all, it is discussed indirectly and with a bipartisan tone. Second-Term Addresses The second-term addresses of Presidents have disparate qualities. For example, President Reagan decreased the number of policy proposals in his second-term addresses. In contrast, President Clinton increased his policy proposals. The average number of policy proposals in a second-term speech is 40. One characteristic, however, is common in second-term addresses. In their second terms, Presidents concentrate more of their legislative requests on defense and foreign policy. It might be that Presidents turn toward building their legacy in their second terms of office and decide to focus more of their resources, executive authority, political capital, and time on issues concerning defense and foreign policy. Legislative Success and Policy Proposals Given the powerful spotlight the State of the Union address provides for the President in his legislative role, are proposals mentioned in the speech actually enacted in the subsequent year? According to data from 1965 to 2015, on average 39.4% of all policy proposals contained in a State of the Union address are approved by Congress in the legislative session in which the President gave his speech, although the rate of legislative success varies widely throughout this time period. In 2015, the legislative success rate for President Obama's proposals was 35.7%. One pattern that can be discerned from Figure 2 is that Presidents typically experience increased legislative success in the year immediately following an election. Of the six Presidents since 1965 who gave State of the Union postelection addresses, the average State of the Union legislative success rate was 46.1%, almost 7 percentage points higher than the overall average. The success rate falls for second-term addresses to 32.1%. A different study using a distinct dataset examined whether policy mentions in the State of the Union address increased the likelihood the President subsequently took a position on specific legislation introduced by Congress. The results were mixed. There is a strong link between a President's State of the Union foreign policy rhetoric and his legislative position-taking. The more a President talks about foreign policy in the speech, the more likely he will engage in position-taking later in the year on related bills. There is a weaker relationship in the area of economic policy, but the number of policy mentions in the annual speech still affects presidential legislative behavior. There is no demonstrated statistical relationship in health or social welfare policy. It appears that Presidents are less likely to support their rhetoric with subsequent position-taking when Congress considers bills in these issue areas. Capturing and Holding the Public's Attention Evidence also suggests that Presidents can successfully capture the public's attention by mentioning a policy proposal in the State of the Union. Increased emphasis in a State of the Union speech translates into a higher level of public interest in that particular policy area. Both substantive arguments (in which the President took a position on an issue) and symbolic rhetoric (in which the President spoke generally about an issue but did not offer a specific recommendation) can increase public attention. Merely mentioning an issue in the State of the Union has the power to heighten the public's awareness of it. In a 2004 analysis of State of the Union addresses from 1946 to 2003, every 50 words a President devoted to an issue resulted in a 2% increase in the public identifying that problem as the most important in the nation. However, the President's ability to maintain the public's interest varies according to the issue area. Increased public attention to economic policies mentioned by the President in his State of the Union address tends to evaporate by the end of the year. Conversely, however, the American public appears to retain its interest in foreign policy: attention to foreign policy issues mentioned by the President in his annual speech remains steady at the year's conclusion. It therefore seems reasonable to conclude that the President can use the State of the Union address more successfully to reshape and reconstitute public opinion about foreign policy. Presidents may intuitively understand this disparate effect; a study of State of the Union addresses from 1956 through 2005 demonstrates that "international affairs and foreign aid" is the most frequent policy area mention by the President in the speech within this time frame. The empirical evidence suggests that presidents have used the address to discuss foreign policy issues in recent years. Using a "word cloud" tool that counts the frequency of words in a document, President George W. Bush said "terrorist" 14 times on September 20, 2001. In 2003, he used the name "Saddam Hussein" 19 times. In 2005, President Bush used the word "security" 29 times. "Iraq" was spoken 10 times in 2007. The frequent use of foreign policy terms is not, however, a product of a post-September 11 world. President Jimmy Carter said the word "Soviet" 57 times in his 1980 State of the Union, and President Lyndon Johnson said "Vietnam" 32 times in his 1966 speech. Given that Presidents must compete with cable television channels not airing the State of the Union address and other digital media, the threat of a declining viewership might depress the speech's potential salience. Smaller viewing audiences do not, however, necessarily mean the annual speech is less influential. Many citizens rely upon media coverage of the State of the Union address to learn about the President's policy priorities. Research shows that media coverage of the State of the Union address leads to increased public knowledge about the highlighted issues, regardless of a person's educational background, age, or partisan affiliation. Presidents have recently turned to the Internet as an alternative method of dissemination. In 2013, President Obama featured an "enhanced broadcast" of the State of the Union, which included charts and graphs on the White House website that appeared simultaneously as he spoke. In 2014, President Obama took a "virtual road trip" using the social media tool Google+. Participants sent in video questions and were invited to engage in a "Hangout" with the President. In 2015, the White House stated that the enhanced online broadcast of the State of the Union was the "best place" to watch the address, ostensibly encouraging viewers to use the Internet rather than view the speech on television. Because of evolving technology and alternative methods of mass communication, even if an individual does not watch the address on television or the Internet, the State of the Union presents a significant opportunity for the President to communicate his ideological preferences, ideals, and policy agenda to the public writ large. Opposition Response An opposition response is a speech given by select members of the political party not currently occupying the White House. The opposition response is usually broadcast immediately after the completion of the President's State of the Union address. It is a much shorter speech than the State of the Union; recent opposition responses have been approximately 1,500 words in length and lasted about 10 minutes. The practice of an opposition response to the State of the Union address began in 1966 when Senator Everett Dirksen and Representative Gerald Ford provided the Republican reply to President Lyndon Johnson. Format From 1967 to 1986, the opposition response adopted a variety of formats. Several times, the opposition response included comments from one or more Members of Congress. For example, in 1970, seven Democratic Members participated in a 45-minute televised response to President Richard Nixon's State of the Union speech. In 1984, 12 Democratic Members recorded a reply to President Ronald Reagan's speech that was aired on most networks. In other instances, one or two Members delivered their party's official reply. By 1987, the opposition response adopted a format in which either one or two individuals provided a reply to the President's address. Parties often select rising stars, new congressional leaders, or possible presidential candidates to give the opposing view. For example, Senator Robert Dole gave the opposition response in 1996. The new Senate minority leader, Harry Reid, used the opposition response to introduce himself to the American people in 2005. In 2006, in an attempt to highlight Virginia's status as a well-managed state, Democrats chose Governor Tim Kaine to give the reply. In 2011, now Speaker of the House Paul Ryan gave the opposition address. In 2012, Indiana Governor Mitch Daniels, also considered to be an effective state chief executive, delivered the Republican response. In 1995, Republican Governor Christine Todd Whitman of New Jersey became the first non-congressional elected official to deliver the opposition response. In 2007, Senator Jim Webb was the first freshman Member of Congress to provide the opposition response to the State of the Union address. Common Rhetorical Arguments No matter which party is giving the speech, opposition responses to the State of the Union address typically contain similar themes or arguments. The opposition's response routinely contains the following three rhetorical elements: Call for Bipartisanship As with the President in the State of the Union address, the opposition often calls for bipartisanship. Cooperation and consensus are common themes. Providing commentary from outside of the nation's capital, bipartisanship can play a more prominent role if a governor gives the address rather than a Member of Congress. For example, Democratic Governor Kathleen Sebelius of Kansas emphasized bipartisanship in her 2008 response. She stated, I'm a Democrat, but tonight, it doesn't really matter whether you think of yourself as a Democrat or a Republican or an Independent. Or none of the above.... And, so, I want to take a slight detour from tradition on this State of the Union night. In this time, normally reserved for the partisan response, I hope to offer you something more: An American Response. In other instances, the opposition response may ask the President directly to work in a bipartisan fashion to accomplish a particular task. In 2011, Representative Paul Ryan began his speech with prayers for the recovery of Representative Gabrielle Giffords and those injured or killed in the Tucson shooting massacre. The Opposition's Agenda The political party not occupying the White House uses the opposition response to outline its policy agenda. While the President's State of the Union address can include a long list of proposals, the opposition response usually focuses on two or three major issues. The brevity of the opposition response limits the range of discussion. In 2007, Senator Jim Webb remarked, "It would not be possible in this short amount of time to actually rebut the President's message, nor would it be useful." Opposition responses have always included a discussion of domestic issues. From time to time, the response also discusses foreign policy. The response usually explains what the policy agenda would be if the opposition party controlled the White House. It may also include a discussion of issues that the President did not address in his State of the Union speech. A clear distinction is drawn between the President's priorities and the priorities of the opposing political party. For example, in his 2006 speech, Virginia Governor Tim Kaine repeated the phrase "There's a better way" six times during his televised address. Direct Response to President The opposition often responds directly to specific proposals contained in the President's State of the Union address. Excerpts of the State of the Union address are usually leaked hours prior to delivery. This enables the opposing party to change its response by adding specific ripostes to the President's proposals. Other details are added as the President delivers his speech. For example, in 2000, Senator Bill Frist criticized the health care proposals offered by President Clinton: Earlier tonight we heard the President talk about his latest health care proposals. The last time he proposed a health plan was seven years ago ... Now tonight, 84 months later, the President has unveiled a similar plan just as bad as the first. It makes government even bigger and more bloated because each new program we heard about tonight—and there were about 11 of them in health care alone—comes with its own massive bureaucracy. Arguments directly responding to specific State of the Union policy proposals are usually criticisms of the President's approach or priorities. After such criticism, the opposition response usually offers counterproposals for the public's consideration. Social Media In his 2010 opposition response, Virginia Governor Bob McDonnell included an invitation for listeners to contribute ideas on social networking websites. He stated, "In fact, many of our proposals are available online at solutions.gop.gov, and we welcome your ideas on Facebook and Twitter." This remark is the first request for listeners of a State of the Union address or opposition response to use social media to communicate thoughts, ideas, or reactions. In 2014, Representative Cathy McMorris Rodgers gave the opposition address. The day before the State of the Union, she posted a six-second video on Vine revealing the location of her speech. She was the first person to use this social media tool to promote the opposition response. Concluding Observations The State of the Union address is an important weapon in the President's arsenal as a legislative leader. Although recent State of the Union addresses used a common structure and often included similar themes, the speech provides the President with the opportunity to outline his own policy agenda for the upcoming congressional session. Presidents have two audiences in mind: Congress and the American public. Presidents must receive the support of a majority in the House, and oftentimes a supermajority in the Senate, to enact their legislative proposals. Presidents have realized that the American people can help accomplish this frequently difficult task. By appealing directly to the public, a President can use popular leverage to convince Congress to adopt his policy agenda. A campaign of such sustained public pressure typically goes beyond the State of the Union address, but Presidents often use the State of the Union as an initial vehicle to introduce policy priorities to a large viewing audience. While the State of the Union address highlights the President's legislative role, it also serves as an annual reminder that the chief executive exists within a separated powers system. Legislative powers are shared between Congress and the presidency, evidenced by the constitutional requirement that the President "shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient."

The State of the Union address is a communication between the President and Congress in which the chief executive reports on the current conditions of the United States and provides policy proposals for the upcoming legislative year. Formerly known as the "Annual Message," the State of the Union address originates in the Constitution. As part of the system of checks and balances, Article II, Section 3, clause 1 mandates that the President "shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient." In recent decades, the President has expanded his State of the Union audience, addressing the speech to both the nation and Members of Congress. Over time, the State of the Union address has evolved considerably. The format and delivery of the speech have changed, and its length has fluctuated widely. Technology has also influenced the delivery of the address, with the advent of radio, television, and the Internet playing significant roles in the transformation. Although each President uses the State of the Union address to outline his Administration's policy agenda, most incorporate similar rhetorical sequences and ceremonial traditions. Bipartisanship, attention to both the past and the future, and optimism are recurring themes in State of the Union addresses. The legislative success rate of policy proposals mentioned in State of the Union addresses varies widely. Addresses given after a President's election or reelection tend to produce higher rates of legislative success. Presidents can also use the State of the Union address to increase media attention for a particular issue. Immediately following the State of the Union address, the political party not occupying the White House provides an opposition response. The response, usually much shorter than the State of the Union, outlines the opposition party's policy agenda and serves as an official rejoinder to the proposals outlined by the President.

Background Since at least the 18 th century, governments, industry, philanthropic organizations, and other nongovernmental organizations throughout the world have offered prizes as a way to reward accomplishments in science and technology (S&T). Napoleon's government offered a 12,000 franc prize (worth more than four years of a French captain's pay in 1803) for a technology that would enhance the preservation of food and help the government feed advancing military troops. In 1809, the prize was awarded to Nicolas François Appert, whose method of heating, boiling, and sealing food in airtight jars was published as a condition of the reward and serves as the basis for the modern process of canning foods. In 1919, businessman Raymond Orteig offered $25,000 (more than $375,000 today) for the first nonstop flight between New York and Paris. Charles Lindbergh, in the Spirit of St. Louis , won the prize in 1927. The success of the Orteig Prize in advancing commercial aviation is cited as inspiring the Ansari X-Prize more than 70 years later to lower the risk and cost of commercial space travel. Prizes generally fall into two main categories: innovation inducement prizes, which are designed to encourage the achievement of scientific and technical goals not yet reached, and recognition prizes such as the National Medal of Science, National Medal of Technology and Innovation, or the Nobel prizes, which reward past S&T accomplishments and do not have a specific scientific or technical goal. The prize competitions and legislation discussed in this report refer to innovation inducement prizes. According to some experts, prize competitions should be viewed as "a potential complement to, and not a substitute for, the primary instruments of direct federal support of research and innovation—peer-reviewed grants and procurement contracts." Furthermore, prizes are not always considered to be the most appropriate mechanism to address all research and innovation objectives; for example, a 2014 report by the U.S. Chamber of Commerce Foundation specifically states that prizes are not a substitute for long-term basic research. The comparative strengths of prize competitions in relation to the use of federal grants and contracts, as described by the National Academy of Sciences in a 1999 report, include (1) the ability to attract a broader spectrum of participants and ideas by reducing costs and bureaucratic barriers to participation; (2) the potential leveraging of a sponsor's financial resources; (3) the ability of federal agencies to shift the technical and other risks to contestants; and (4) the capacity to educate, inspire, and potentially mobilize the public around scientific, technical, and societal objectives. Similarly, during the Obama Administration, the Office of Management and Budget (OMB) and the Office of Science and Technology Policy (OSTP) described prize competitions as having the benefit of allowing the federal government to pay only for success and identify novel approaches, without bearing high levels of risk; establish ambitious goals without having to predict which team or approach is most likely to succeed; increase the number and diversity of individuals, organizations, and teams tackling a problem, including nonscientists and individuals who have not previously received federal funding; increase cost effectiveness, stimulate private-sector investment, and maximize the return on taxpayer dollars; further a federal agency's mission while motivating and inspiring others and capturing the public imagination; and establish clear success metrics and validation protocols that themselves become defining tools and standards for the subject, industry, or field. Some experts have indicated that while prize competitions have more uncertainty in terms of program outputs and outcomes than more traditional instruments (i.e., grants and contracts), the potential payoffs to federal agencies can be higher if properly designed and implemented. Specifically, determining the correct size of the cash prize; transparent, simple, and unbiased contest rules; and the proper treatment of intellectual property rights are considered important aspects of a successful prize competition. Broad Prize Competition Authority In 2010, Congress passed the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) providing the head of a federal agency with the authority to carry out prize competitions "to stimulate innovation that has the potential to advance the mission of the respective agency." Specifically, P.L. 111-358 added Section 24 to the Stevenson-Wydler Technology Innovation Act of 1980 (15 U.S.C. §3719) defining what activities constitute a prize competition and detailing how a federal agency should address liability issues, intellectual property rights, the judging of a prize competition, and other topics. In 2017, the American Innovation and Competitiveness Act ( P.L. 114-329 ) made a number of technical and clarifying amendments to this broad prize competition authority, including language authorizing the head of a federal agency to request and accept funds for the design and administration of a prize competition or for the cash prize itself from other federal agencies, state and local governments, private-sector for-profit entities, and nonprofit entities. The general provisions of the law, as amended, are as follows: Prize competitions are defined as being one or more of the following: (1) a competition that rewards and spurs the development of a solution to a well-defined problem; (2) a competition that helps identify and promote a broad range of ideas and facilitates development of such ideas by third parties, especially in an area that may not otherwise receive attention; (3) competitions that encourage participants to change their behavior or develop new skills during and after the competition; and (4) any other competition the head of an agency considers appropriate to stimulate innovation and advance the agency's mission. Federal agencies must advertise a competition widely to encourage broad participation, including publishing a notice of the competition on a publicly accessible government website (e.g., http://www.challenge.gov/ ). The notice must describe the subject of the prize competition, rules for participating, the registration process, the amount of the prize purse, and how the winner will be selected. To be eligible to win a federal prize competition, an individual, participating singly or within in a group, must be a United States citizen or permanent resident, cannot be a federal employee acting within the scope of their employment, and must be registered and in compliance with all the requirements and rules of the prize competition. Similarly, to be eligible to win a federal prize competition, a private entity must be incorporated in and maintain a primary place of business within the United States and must be registered and in compliance with the requirements and rules of the prize competition. Federal agencies must require all participants to register, assume any and all risks, and waive claims against the government. Registered participants must also obtain liability insurance or demonstrate financial responsibility; however, an agency can waive the insurance requirement. The federal government cannot gain an interest in intellectual property developed by a participant without written consent of the participant. The head of a federal agency must appoint one or more judges using guidelines that are transparent and promote balance. Additionally, a judge cannot have a personal or financial conflict of interest with any of the registered participants. Funding for a prize competition, including the design and administration of a competition, may consist of federally appropriated funds and/or funds provided by a state or local government or a private-sector for-profit or nonprofit entity. A federal agency can solicit and accept funds from other federal agencies, state and local governments, private-sector for-profit entities, and nonprofit entities. A prize competition cannot be announced until all of the funds have been appropriated or committed in writing. Federal agencies can enter into an agreement with a private-sector for-profit or nonprofit entity or a state or local government agency to administer a federal prize competition. A prize in excess of $50 million cannot be offered unless 30 days have elapsed after written notice is provided to Congress. The head of a federal agency must approve any award of more than $1 million. The Director of the Office of Science and Technology Policy (OSTP) must submit a biennial report to Congress detailing the use of the prize competition authority provided by P.L. 111-358 . Agency Specific Prize Competition Authorities Over the years, Congress has provided some federal agencies with additional explicit authority to conduct prize competitions. Federal agencies with specific prize competition authorities are as follows: Department of Defense (DOD) : In 1999, Congress provided prize competition authority to the Defense Advanced Research Projects Agency through the National Defense Authorization Act for Fiscal Year 2000 ( P.L. 106-65 ). In 2006, the authority was extended to the military departments through the John Warner National Defense Authorization Act for Fiscal Year 2007 ( P.L. 109-364 ). Specifically, the authority states that the Secretary of Defense can award prizes " in basic, advanced, and applied research, technology development, and prototype development that have the potential for application to the performance of the military missions of the Department of Defense ." Department of Energy (DOE) : In 2005, through the Energy Policy Act of 2005 ( P.L. 109-58 ), the Secretary of Energy was authorized to carry out a program "to award cash prizes in recognition of breakthrough achievements in research, development, demonstration, and commercial application that have the potential for application to the performance of the mission of the Department." P.L. 109-58 also authorized the Freedom Prize with the goal of advancing technologies that will reduce America's dependence on foreign oil. In 2007, through the Energy Independence and Security Act of 2007 ( P.L. 110-140 ), Congress authorized DOE to conduct the Hydrogen Prize and the Bright Tomorrow Lighting Prize to stimulate innovation and advancement in hydrogen energy technologies and solid-state lighting products, respectively. In 2011, through P.L. 111-358 , Congress authorized the Director of the Advanced Research Projects Agency-Energy to provide awards in the form of cash prizes, among other mechanisms. National Aeronautics and Space Administration (NASA) : In 2005, through the National Aeronautics and Space Administration Authorization Act of 2005 ( P.L. 109-155 ), the Administrator of NASA was granted the authority to award cash prizes "to stimulate innovation in basic and applied research, technology development, and prototype demonstration that have the potential for application to the performance of the space and aeronautical activities of the Administration." Department of Health and Human Services (HHS) : In 2006, through the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ), the Secretary of HHS was authorized "to award contracts, grants, cooperative agreements, or enter into other transactions, such as prize payments" to promote innovation and research and development on biodefense medical countermeasures. In 2016, through the 21 st Century Cures Act ( P.L. 114-255 ), the Director of the National Institutes of Health was directed to support prize competitions that would realize significant advancements in biomedical science or improve health outcomes, especially as they relate to human diseases or conditions. National Science Foundation (NSF) : In 2007, the America COMPETES Act ( P.L. 110-69 ) authorized NSF "to receive and use funds donated by others" for the specific purpose of creating prize competitions for basic research. Department of Transportation (DOT) : In 2012, through the Moving Ahead for Progress in the 21 st Century Act ( P.L. 112-141 ), the Secretary of Transportation was authorized to use up to 1% of the funds made available from the Highway Trust Fund for research and development to carry out a prize competition program "to stimulate innovation in basic and applied research and technology development that has the potential for application to the national transportation system." Department of Commerce (DOC) : In 2018, through the Consolidated Appropriations Act for Fiscal Year 2018 ( P.L. 115-141 ), the Secretary of Commerce, subject to the availability of funds, was directed to conduct prize competitions that will accelerate the development and commercialization of technologies to improve spectrum efficiency. Prize Competition Trends The use of prize competitions by federal agencies has grown since the enactment of the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) and its inclusion of a broad prize competition authority as described above. As shown in Figure 1 , the number of active prize competitions conducted under the authority provided in P.L. 111-358 grew from 7 in FY2011 to 63 in FY2016. The number of active prize competitions conducted under other authorities has also increased, peaking at 70 in FY2015. The number of federal agencies conducting active prize competitions has increased from 7 federal agencies in FY2011 to 26 in FY2016, with a high of 41 federal agencies conducting prize competitions in FY2015. The total amount of prize money offered by federal agencies has also increased over time. In FY2011, the active prize competitions conducted by federal agencies under P.L. 111-358 offered a total of $247,000 and in FY2016 the total amount of prize money offered exceeded $30 million ( Figure 2 ). The average value of the prize money offered by competitions under P.L. 111-358 increased from $35,286 in FY2011 to $527,947 in FY2016. However, an examination of the median amount of prize money offered per prize indicates that the size of federal prizes has remained relatively steady over time with a median value of $34,500 in FY2011 compared to $41,590 in FY2016. More than half of all prize competitions in FY2014-FY2016 were conducted in partnership with other federal agencies, nonprofit and for-profit private-sector entities, or others. According to OSTP, a clear distinction of the prize competitions that use the authority provided by P.L. 111-358 is "the broad partnerships that agencies are able to leverage." Specifically, in a 2017 report, OSTP found that 73% of the prize competitions conducted under P.L. 111-358 engaged in formal partnerships compared to 30% conducted under other authorities. Overall, the U.S. General Services Administration (GSA) estimates that since 2010 federal agencies have conducted more than 840 prize competitions and offered more than $280 million in prize money. Potential Policy Considerations Federal agencies have increased the use of prize competitions to spur innovation and advance the mission of their respective agencies; however, there is limited information on the effectiveness and impact of prize competitions generally. According to experts, only a small number of prize competitions have been systematically evaluated. Members of Congress may conduct oversight through hearings (or other means) to gain insight into existing federal prize competitions and related programs to inform potential changes in the use of prizes by federal agencies. Questions for congressional consideration might include the following: Would the technology or innovation have been developed in the absence of a prize competition? Did the prize competition shorten the timeframe for the development of the technology or innovation? Was the prize competition cost effective? What, if any, other benefits were gained from conducting the prize competition? Would the use of a more traditional policy tool such as a grant or contract have resulted in the development of a similar technology or innovation? If the prize competition were designed differently, would a more effective or revolutionary technology or innovation have been developed? What are the appropriate metrics for determining the success of a prize competition? Are the metrics different when evaluating the near-term and long-term impacts of a prize competition? What are the best practices of successful prize competitions? According to a 2017 report, "if measurement, assessment, and learning become standard parts of innovation challenges, the challenge community will have a growing evidence base with which to move ahead quickly in applying approaches best able to achieve funders' objectives, in terms of social impact and on other metrics." The awarding of a prize may be considered by some as evidence of the success of a prize competition; however, experts generally agree that both quantitative and qualitative information is necessary to assess success. Members of Congress may examine what metrics and other data and information federal agencies collect on federal prize competitions, including any effort by OSTP or others to standardize data collection across the federal government. The design and implementation of a prize competition is held by many to be critical to the success of the competition. Specifically, in a 1999 report, the National Academy of Engineering stated that "if prize contests are not designed or administered with care, they may discourage prudent risk taking or unorthodox approaches to particular scientific or technological challenges, or scare away potential contestants with excessive bureaucracy." Increased interest in the use of prize competitions by Congress and the current and previous Administrations has resulted in federal agencies developing more in-house expertise in the design and administration of prize competitions. For example, in FY2016, 8 federal agencies had department-wide policy and guidance on the use of prize competitions; 5 agencies had dedicated, full-time prize competition personnel; 10 agencies enabled a distributed network of prize managers and points of contact; and 5 agencies were providing centralized training and design support to agency staff. Additionally, GSA fostered the development of a federal community of practice in prize competitions, and in 2016, published a prize and challenges toolkit to assist federal agencies. On the other hand, InnoCentive, a company that performs prize competition services for public and private organizations, has argued for increased outsourcing of the design and administration of publicly funded prize competitions, stating Governments and international public institutions should be actively seeking to improve their own innovation systems expertise, but they should also support the development of a strong, vibrant, and bold innovation management industry in the private sector. Ultimately, it is this vibrant marketplace of independent organizations, with their global diversity of perspectives and ideas, that will best drive forward the evolution and progress of innovation using challenges. Members of Congress may examine the capability and expertise of federal agencies in the design and administration of prize competitions, in addition to federal agencies' use of partners and paid vendors to create teams with the ability and experience needed to run successful prize competitions. In addition to examining current federal prize competitions and federal agency expertise, some Members of Congress may want to establish new federal prize competitions through legislation. In developing such legislation, policymakers may consider some of the following questions: Should the legislation be general and flexible, providing federal agencies with an overview of the prize goals, or specific, detailing instructions to the agency regarding the prize competition? Such details may include timeframe, award amount, participant eligibility, administration, contest rule determination, competition judges, intellectual property rights, liability, and program evaluation. What should be the prize topic? Who should select it? What should be the goals of the program? What are the relative importance of technological advancement, education, and public awareness? Should there be a time limit for the prize? Should a monetary award be part of the prize? If so, how much? If not, is the publicity associated with winning the prize sufficient to encourage quality contestant participation? Should there be intermediary prizes (e.g., should partial prizes be awarded to participants that achieve certain milestones)? Who should be eligible to participate in the competition? For example, should employees of federal agencies or federally funded research and development centers (FFRDCs) be allowed to compete? If so, should they be able to use federal funds and facilities? Should foreign entities, such as non-U.S. citizens, corporations, or U.S. subsidiaries of foreign-owned corporations, be allowed to compete? Who should administer the program? For example, should a federal agency administer the program independently, do so in partnership with another federal agency or nonfederal organization, or act as a financial or nonfinancial partner in a competition administered by a nonfederal organization? Who should judge the competition? Should there be an appeal process? What are the criteria for the program to be considered successful? Answering some of these questions may require the guidance and input of the science and technology community, federal agencies, and those experienced in the administration of prize competitions. The constantly changing state of the art of science and engineering due to new discoveries and innovation may lead observers to suggest providing flexibility in prize legislation. Legislation in the 115th Congress In the 115 th Congress, as of the date of this report, more than 20 bills have been introduced to authorize or establish prize competitions within various federal agencies. See Table A-1 in the appendix for a list of the proposed legislation, a brief summary, and the most recent action. Appendix. List of Federal Prize Competition Legislation

Prize competitions are a tool for incentivizing the achievement of scientific and technological innovation by offering monetary and nonmonetary benefits (e.g., recognition) to competition participants. Prize competitions have a long history of use in both the public and private sectors, but have gained popularity in recent years. Experts view federal prize competitions as an alternative policy instrument for spurring innovation, not a substitute for more traditional methods of federal support for research and innovation such as competitive research grants and procurement contracts. The use of prize competitions by the federal government has increased significantly since the passage of the America COMPETES Reauthorization Act of 2010 (P.L. 111-358). P.L. 111-358 encouraged the use of prize competitions by providing the head of any federal agency with the authority to carry out prize competitions that have the potential to stimulate innovation and advance the agency's mission. Congress has also provided various federal agencies, including the Department of Defense, the National Aeronautics and Space Administration, the Department of Energy, the National Science Foundation, and the Department of Health and Human Services, with additional authority to conduct prize competitions. The United States General Services Administration estimates that since 2010 federal agencies have conducted more than 840 prize competitions and offered more than $280 million in prize money. While the total amount of prize money offered by federal prize competitions conducted under P.L. 111-358 has increased over time—from $247,000 in FY2011 to over $30 million in FY2016—the median amount of prize money offered per prize has remained relatively steady—$34,500 in FY2011 compared to $41,590 in FY2016. According to the Office of Management and Budget and the Office of Science and Technology Policy, prize competitions benefit the federal government by allowing federal agencies to (1) pay only for success; (2) establish ambitious goals and shift technological and other risks to prize participants; (3) increase the number and diversity of individuals, organizations, and teams tackling a problem, including those who have not previously received federal funding; (4) increase cost effectiveness, stimulate private-sector investment, and maximize the return on taxpayer dollars; and (5) motivate and inspire the public to tackle scientific, technical, and societal problems. Despite an increase in the use of federal prize competitions, there is limited information on their effectiveness and impact in spurring innovation and providing other potential benefits to the federal government. Members of Congress may wish to examine the ability of prize competitions to spur innovation in comparison to more traditional policy tools (e.g., grants and contracts); the cost effectiveness of prize competitions; the metrics federal agencies are using to evaluate the success of federal prize competitions; and the capability of federal agencies to appropriately design and administer prize competitions.

Introduction This report outlines the purpose and legislative background of providing benefits to the surviving dependents of a deceased member/retiree of the uniformed services. In certain cases, individuals other than dependents can be designated recipients of survivor benefits. This report describes the categories of beneficiaries eligible for survivor benefits under the military Survivor Benefit Plan (SBP), the formulas used in computing the income level (including the integration of SBP benefits with other federal benefits), and the costs of SBP participation incurred by the retiree and/or the beneficiary. Under the SBP, a military retiree can have a portion of his or her monthly retired pay withheld in order to provide, after his or her death, a monthly survivor benefit (55% of base amount of military retired pay at the time of the retiree's death) to a surviving spouse or other eligible recipient(s). The cost of this protection is shared by the retiree (in the form of reductions from monthly military retired pay after retirement), the government, and possibly the beneficiary (under certain types of coverage). The original intended purpose of the SBP (and its antecedents) is to "insure that the surviving dependents of military personnel who die in retirement or after becoming eligible for retirement will continue to have a reasonable level of income." Coverage was later expanded to active duty personnel as well. The Survivor Benefit Plan was created by legislation enacted on September 21, 1972, and has been modified by later legislation. The SBP replaced the Retired Serviceman's Family Protection Plan (RSFPP). The RSFPP was replaced because it had a number of unpopular features that made it unattractive. The RSFPP could be expensive for the retiree; the cost was approximately $0.23 of deducted retired pay per dollar of survivor benefits for a retired member age 45 who elected to provide coverage for a spouse who was 5 full years younger. The RSFPP was intended to be actuarially neutral in terms of costs—in other words, the cost of this program was fully paid for by its participants. The decision to elect RSFPP coverage had to be made by the prospective military retiree before his or her 18 th year of military service. Furthermore, the methods used in computing the RSFPP's cost and benefit could change between the time at which the servicemember elected to provide coverage and the time at which the member actually retired. Thus, the costs and benefits remained an unknown quantity, limiting the ability of the retiree to make future financial plans. During its 19-year history, participation in the RSFPP never exceeded more than 15% of eligible military retirees. It was expected—and has largely been proven—that the SBP would be a significant improvement over the RSFPP, in terms of participation rates, costs to the retiree, and benefits for the survivors. It also entails higher costs to taxpayers because the SBP costs are shared with the government in most cases. Major Provisions of the Survivor Benefit Plan Coverage for Military Members Retired from an Active Duty Career Six separate types of coverage are available under the SBP for military members retired from an active duty military career, characterized according to the relationship of the beneficiary or beneficiaries to the military retiree: Spouse Only; Spouse and Child(ren); Child(ren) Only; Persons with an Insurable Interest; Former Spouse; Former Spouse and Child(ren). The type of coverage and the amount of coverage provided are factors used in determining the cost to the military retiree. Generally, a retiree is automatically enrolled in the SBP upon retirement at the maximum level of coverage to his or her respective surviving spouse and surviving dependent children, unless the retiree elects not to participate, to participate at a lesser level of coverage, elects other than spouse coverage, or is ordered by a court to provide such benefits to a former spouse. To participate at a reduced level of coverage, the retiree elects to have his or her base amount of retired pay—that amount of monthly retired pay the retiree selects to be used in determining the SBP benefit and cost—be less than his or her total retired pay subject to a $300 minimum. The maximum SBP benefit is 55% of base amount of military retired pay, when the base amount and total retired pay are the same . Reduced coverage consists of 55% of the base amount of retired pay when the retiree elects a base amount that is less than total retired pay. If a retiree elects not to participate, or to participate at a reduced level of coverage, the retiree's spouse must be notified, and in the case of such an election made on or after March 1, 1986, the spouse must concur with the election for it to be effective. Any decision not to participate or to participate at a reduced level is usually irrevocable. However, under certain circumstances, a retiree who is unmarried at the time of his or her retirement and who elects not to participate in the SBP, but who marries after his or her retirement, may elect within one year of marriage to provide SBP benefits for the new spouse. This election takes effect only after a one-year waiting period. With the enactment of P.L. 99-145 (November 8, 1985, effective March 1, 1986), the spouse of a post-military-retirement marriage must be notified if the retiree does not elect to provide an SBP benefit, or elects to provide an SBP benefit at a reduced level. Spouse Only Coverage In order to be eligible for Spouse Only coverage, the intended SBP beneficiary must be a widow or widower who was (1) married to the retiree at the time of retirement, (2) married to the deceased retiree for at least one year prior to the retiree's death, or (3) the parent of a child born of a post-retirement marriage. The benefit (considering income from all federal sources—including Social Security and veterans' benefits—attributable to military service) was intended to be at least 55% of the base amount of retired pay the retiree was receiving at the time of death—which, for maximum coverage, is the same as total retired pay. Computational Formulas The computational formula for determining the amount of retired pay withheld is based on the date the member entered the service and/or the type of retirement the service member is entitled to receive. The formulas are discussed below as the " Original Computational Formula " and the " Flat-Rate Formula ." Military personnel who entered the service on or after March 1, 1990, and who are not entitled to retired pay under either Chapter 61 of title 10 U.S. Code (Retirement or Separation for Physical Disability), or Chapter 67 (Retired Pay for Non-Regular Service), that is, "Disability Retired Pay" or "Reserve Retired Pay," will have their withholdings computed under the "Flat-Rate" method. Those military personnel who first became a member before March 1, 1990, or those who have their retired pay computed under either Chapter 61 or 67 (regardless of the date of retirement) will have their SBP withholdings computed under whichever alternative (Original or Flat-Rate) is more financially advantageous. The reduction in retired pay does not apply during any month in which there is no eligible spouse (or former spouse) beneficiary. (Reductions to retired pay are not considered taxable income.) Original Computational Formula Under this method, the retiree's contribution to the total cost of providing the SBP benefit is computed as 2.5% of the first $735 of the base amount of retired pay plus 10% of the remaining base amount of retired pay. This contribution is withheld from the retiree's total monthly retired pay. For example, a hypothetical retiree (E-5, with 20 years of service in 2011) receives a monthly base amount of military retired pay of $1,388 (see Table 1 ). The cost of providing survivor protection for this retiree is $83. In other words, $83 is deducted from this hypothetical retiree's base amount of monthly retired pay of $1,388 to insure that upon the retiree's death, his or her surviving spouse will receive a monthly survivor benefit of 55% of his or her base amount of retired pay, or $764 per month, if the retiree dies while receiving the $1,388 amount. If the retiree received more than $1,388 per month in total military retired pay—say as an E-8 with 20 years of service, or $2,101—but elected to provide less than the maximum coverage (by using $1,388, rather than total retired pay, as the base amount), the computation of costs and benefits would remain the same. If an individual's retired pay increases as the result of cost-of-living adjustments (COLAs), the amount deducted from his or her retired pay, and the potential SBP benefit to his or her designated survivor (in this case, his or her spouse), usually will increase proportionately as well. The costs of SBP protection and benefits are computed on the basis of retired pay rates at the time of retirement [including any adjustments made to the base ($735) amount]. All subsequent post-retirement changes are a result of cost-of-living adjustments to retired pay. Line six is the cost of survivor protection under the Spouse Only coverage. The payment to the beneficiary is 55% of base amount military retired pay, or $763. The base $735 is indexed for inflation. Worksheets are at the end of this report. Flat-Rate Formula P.L. 101-189 (November 29, 1989, 103 Stat. 1577 et seq.) revised and simplified the computational formula for determining SBP withholdings. Under this new formula, SBP withholdings are computed to be 6.5% of the base amount of retired pay. A retiree who used $1,388 (E-5, 20 years of service) as the amount of the base amount of retired pay would have $90.00 ($1,388 x 0.065) withheld in order to provide the same level of protection under the Flat-Rate method. The basic benefit is not affected by the type of computational formula used. (See " Computational Formulas " section for an explanation of who is eligible to use the Flat-Rate method.) Remarriage Regardless of which formula is used, a surviving spouse (or eligible former spouse) may become ineligible to receive SBP benefits if he or she remarries. Eligibility for SBP benefits when remarriage occurs is dependent upon the age at remarriage and the date that such a remarriage occurs. A surviving spouse (or eligible former spouse) becomes ineligible to receive SBP benefits if he or she remarries prior to reaching age 60, if such a remarriage took place prior to November 14, 1986 (remarriage after age 60 does not affect receipt of an SBP benefit). A surviving spouse (or eligible former spouse) becomes ineligible to receive SBP benefits if he or she remarries prior to reaching age 55 if such a remarriage took place on or after November 14, 1986 (remarriage after age 55 for these beneficiaries does not affect receipt of SBP payments). If the second marriage is terminated (by death, annulment, or divorce), the original SBP benefit can be reinstated (subject to certain restrictions). The surviving spouse of two or more deceased military retirees (each a participant in the SBP) may select and receive the more financially advantageous benefit. (Effective January 1, 2004, SBP-DIC offset surviving spouses who remarry after attaining the age of 57 are eligible to receive both the full SBP and DIC. This concurrent receipt benefit for those remarrying after attaining age 57 is called the "Special Rule Concerning DIC Offset.") "Paid-Up" Provisions In 1999, Congress further expanded the generosity of the SBP by enacting the so-called "paid-up" provision. Under this language, reductions in retired pay made to cover the retiree's share cease when two conditions are met: (1) the retiree reaches age 70, and (2) the retiree has participated in the SBP for 360 months. As enacted, these provisions became effective October 1, 2008. Spouse and Child(ren) Coverage15 Under Spouse and Child(ren) coverage, upon the retiree's death, SBP benefits are first paid to the surviving spouse. If the surviving spouse predeceases the retiree, dies after becoming eligible to receive SBP benefits, or becomes ineligible to receive SBP benefits (through remarriage, for example), the SBP benefits will then be paid directly to the designated child or children. If there is more than one child, the SBP benefits are paid in equal shares to each child for as long as he or she remains eligible. The cost of this coverage is additive to that of Spouse Only coverage, and is determined on an actuarial basis, taking into account the age of the retiree, the spouse, and the youngest child. For example, a retiree who is 45 years old, with a spouse who is 40 years old (i.e., 5 full years younger than the retiree) and a child age 10, would have to pay a small additional amount of the base amount of retired pay in order to cover a child or children in addition to the amount paid for Spouse Only coverage. Since the cost of coverage is computed on an actuarial basis, it is subject to change. A child becomes ineligible for an SBP benefit upon reaching age 18 (or 22, if a full-time student). A child who marries becomes ineligible to receive SBP benefits regardless of age. An eligible child who is or becomes incapacitated (either physically or mentally) may continue to receive SBP benefits for the duration of the incapacitation if the condition existed prior to the child's 18 th birthday. Child(ren) Only Coverage Under Child(ren) Only coverage, SBP benefits are paid directly to the surviving child(ren) of a deceased military retiree regardless of whether or not there is a surviving spouse. Eligibility under this coverage is subject to the same restrictions as a child is, or children are, under Spouse and Child(ren) coverage. (Under certain circumstances, spouse coverage can be restored if a spouse later becomes eligible.) The cost of this coverage is also computed on an actuarial basis (and therefore subject to modification). For example, a military retiree who is 45 years old, has a child age 10, and elects maximum coverage, would have approximately 2.5% of his or her base amount of retired pay withheld in order to provide, at the time of his or her death, an SBP survivor benefit for the surviving child. In other words, in the example mentioned above under Spouse Only coverage, $34.00 ($1,388 x 2.5%) would be withheld from a retiree's retired pay in order to provide his or her surviving child(ren) with a benefit of $763 per month. (Child Only coverage is less expensive due to the limitation on the number of years—until age 18 or 22, under most circumstances—a beneficiary remains eligible to receive SBP benefits.) Persons with an Insurable Interest Insurable Interest coverage may be selected only if there is neither a spouse nor a dependent child at the time of retirement. Under this coverage a beneficiary is defined as "a natural person with an insurable interest" in the retiree. Included in this category are relatives of the retiree, such as a parent, sibling, or a child who may not qualify for SBP beneficiary status under Spouse Only, Spouse and Child(ren), or Child(ren) Only provisions. Non-relatives, such as a business partner, may also be covered. Unlike other SBP options, Insurable Interest must be elected at the maximum level. The cost of Insurable Interest coverage is (1) 10% of the base amount of military retired pay plus (2) 5% of total base amount of retired pay for each full 5 years that the named beneficiary is younger than the retiree. Insurable Interest coverage is thus more expensive than other types of coverage. However, the total cost to the retiree of this coverage cannot exceed 40% of total military retired pay. In other words, a retiree who wishes to provide Insurable Interest coverage to a person 30 or more years younger would have the maximum of 40% of the base amount of military retired pay withheld. For example, a retiree who is 50 years old and receives $1,388 per month as the base amount of military retired pay, elects to provide protection to a person 10 full years younger. This retiree would have the cost of this protection computed as follows: 10% of the base amount of retired pay (or $138) plus 5% for each full 5 years the beneficiary is younger (in this case the beneficiary is age 40) than the retiree. The SBP costs would thus be $277 (see Table 2 ). According to language contained in the National Defense Authorization Act for FY1995, Insurable Interest coverage could be voluntarily discontinued (except in those cases where a former spouse is being covered). Retirees discontinuing this coverage, who later remarry or acquire dependents, may again participate in the SBP under another allowable beneficiary category. Line 11 is the cost of survivor protection under the Persons with an Insurable Interest category of coverage. The payment to the beneficiary is 55% of the base amount of military retired pay less the premium, or ($1,388-276) x 55%=$611. Worksheets are at the end of this report. Former Spouse Coverage21 A military member may choose, or may be required by a court order, to provide SBP coverage for a former spouse, depending on when the divorce occurred. This election can occur as part of or incident to a divorce-related property settlement. For divorces occurring before November 14, 1986, federal law explicitly states that no court was authorized to order a member or retiree to provide SBP protection to a former spouse. If a retiree voluntarily decides, in writing , to provide benefits to a former spouse, this decision must be honored by the retiree. The retiree who elected Spouse Only or Spouse and Child(ren) coverage, and was subsequently divorced before November 14, 1986, may switch to Former Spouse coverage for the (now) ex-spouse. This latter change in coverage must be elected within one year of the date the divorce decree becomes final. If a divorce occurs on or after November 14, 1986, however, a court may order a member or retiree to provide SBP protection as part of or incident to a divorce. According to changes in law implemented by the FY1987 DOD Authorization Act ( P.L. 99-661 , November 14, 1986), "A court order may require a person to elect (or to enter into an agreement to elect) ... to provide an annuity to a former spouse (or to both a former spouse and child)." This language does not require courts to make such an order but gives them the freedom to do so. The FY1986 DOD Authorization Act ( P.L. 99-145 , November 8, 1985) included a change in Former Spouse coverage which provided that military retirees and "former spouses ... covered under the insurable interest category (could) ... elect jointly to switch to spouse coverage at the maximum level within one year (and it provided) current participants who had the option of electing Former Spouse coverage in the past and chose not to do so, the option of electing Former Spouse coverage." Those electing Former Spouse coverage after March 1, 1986, have the cost of this coverage and benefit amount computed in the same manner as in the case of Spouse Only coverage. Because a retiree may provide only one type of SBP coverage for one category of beneficiary, election of coverage for a former spouse can have the effect of denying SBP protection to a second or future spouse. However, it is not clear whether courts have the authority to divide SBP benefits between a former spouse and current/subsequent spouse. In other words, although the services will provide SBP benefits to only one category of beneficiary (former spouse, for example), it is not clear whether or not a court, as part of an equitable divorce property settlement, has the authority to divide SBP benefits between a former spouse (designated to receive them in this example) and a current/subsequent spouse. The FY2000 National Defense Authorization Act provided for the "effectuation of intended SBP annuity for [a] former spouse when not elected by reason of [the] untimely death of [the] retiree." This language pertains to any retiree who, on or after August 21, 1983, agreed to (or was required by a court to) provide SBP coverage to a former spouse, but who died within 21 days of making such an agreement (or being so required). Under this language, the former spouse of such a retiree is deemed to have been covered effective November 5, 1999. Former Spouse and Child(ren) Coverage Coverage for a former spouse and child(ren) became available on March 1, 1986. This coverage is provided on the same terms as Spouse and Child(ren) coverage described above. Coverage for Military Members Retired from the Reserve Components As with the Survivor Benefit Plan for active duty retirees, retirement eligible members of the reserves (Army Reserve, Naval Reserve, Marine Corps Reserve, Air Force Reserve and Coast Guard Reserve) and National Guard (Army National Guard and Air National Guard) may elect to provide SBP protection for their survivors. However, when the SBP was created, because members of the Reserve Components were not eligible to receive Reserve Component retired pay until age 60, regardless of the age at which they actually retire, the structure of the Reserve Component SBP (RCSBP) is different from that applicable to active duty members. Prior to 1978, Reserve Component personnel could not provide survivor protection for an eligible beneficiary until they were eligible to draw retired pay-then at age 60. (In 2008, Congress modified the law to allow reservists on extended active duty to reduce the age at which they can begin to receive retired. This reduction was limited to 50 years of age.) Legislation passed in 1978 allows Reserve Component members to decide whether or how they will participate in the RCSBP when they are notified of retirement eligibility (not yet eligible to receive retired pay)—in almost all cases, many years before reaching age 60 or earlier if based on active duty credit. Reserve Component members who are not yet eligible to receive retired pay and who are retirement eligible (aka "gray area retirees") may elect to provide SBP protection under one of three options. The costs and amount of coverage available depend on the option selected and the category of beneficiary. A prospective Reserve Component retiree must select one of the following RCSBP options within 90 days of being notified of retirement eligibility: Option A - The retiree may decline RCSBP protection. Should the retiree die before reaching eligibility to draw retired pay, no RCSBP benefit will be paid. The retiree will again be offered the opportunity to participate in the SBP when they become eligible to receive retired pay. Option B - The retiree may elect RCSBP coverage such that survivor payments will begin on (1) the date of the retiree's death of (2) the date the retiree would have become eligible to receive retired pay, whichever is later. Option C - The retiree may elect, under this option, to provide an RCSBP benefit that would begin immediately following the death of the retiree, regardless of the retiree's age at the time of death. Under option A, the costs and types of coverage available once the retiree becomes eligible to receive retired pay are the same as under the active duty SBP. Under options B and C, the cost of RCSBP protection is shared by the retiree, the Government, and the beneficiary. The retiree's portion is paid through deductions in retired pay when the retiree becomes eligible to receive retired pay. The beneficiary's or beneficiaries' share is paid through benefit reductions. The costs under options B and C are dependent upon the type of coverage (see active duty retirees), as well as the age of the retiree and selected beneficiary(ies). Under certain circumstances, an RCSBP benefit may be paid to the eligible surviving spouse, dependent child(ren), or former spouse of a member of the Reserve Components who dies (1) before being notified that he or she had completed the years of service required to be eligible for Reserve Component retired pay; or (2) during the 90-day period beginning on the date of notification that the member had completed the years of service required for eligibility for Reserve Component retired pay, if he or she had not already rejected participation in the RCSBP. The income payable is equal to 55% of retired pay which the member would have been entitled to receive had the service member been retired and at least age 60 at the time of death (less any Veterans Affairs Dependency and Indemnity Compensation payable, see below). "Forgotten Widow" Coverage In 1997, Congress created a special annuity of then-$165, now $229.89, (subject to cost of living adjustments) payable monthly to certain surviving spouses. These widows were married to certain retired or retirement-eligible members who died without electing SBP coverage. Subject to certain restrictions on remarriage and the receipt of certain other government-sponsored compensation, the eligible surviving spouse must have been married to a member who (A) became entitled to retired or retainer pay before September 21, 1972, died before March 21, 1974, and was entitled to retired or retainer pay on the date of death; or (B) died before October 1, 1978, and at the time of his death would have been entitled to retired pay under chapter 67 [Retired Pay for Non-Regular Service] of title 10, United States Code (as in effect before December 1, 1994), but for the fact that he was under 60 years of age. Coverage for Military Members Serving on Active Duty Under the original SBP, an SBP benefit may be paid to an eligible spouse, dependent child(ren), eligible former spouse, or eligible former spouse and dependent child(ren) following the death of an active duty member. This benefit will be paid if the deceased active duty service member, at the time of death, (1) was eligible to receive retired pay; or (2) was a commissioned officer, had completed 20 years of service, but was not yet eligible to retire as a commissioned officer. The SBP benefit payable to the survivor of such a deceased active duty member is equal to 55% of the amount of retired pay (less any amount received on the basis of Department of Veterans Affairs (VA) Dependency and Indemnity Compensation or DIC; see section below on VA DIC) that the deceased service member would have been eligible for had he or she elected maximum coverage and retired on the day of his or her death. Recent legislation has expanded the coverage to the survivors of individuals who die while on active duty and who are not retirement-eligible, effective September 10, 2001. Under these provisions, the surviving spouses of active duty personnel who die are provided an annuity. This annuity for an active duty (non-retirement-eligible member) is determined by assuming the individual would have been eligible to retire under Sec. 1201, Title 10 USC, with a total disability. The surviving spouse's annuity is based on the amount of disability retired pay the servicemember would have received under Sec. 1201. The spouse's share is 55% of that amount of the member's disability retired pay. Depending on when the individual entered the service, the amount used may be either the terminal monthly basic pay (for those who entered service on or before September 7, 1980) or the average basic pay for the 36- month period (i.e., "high three" years) the member earned the highest rate of basic pay (for those who entered the service after September 7, 1980). The amount of monthly disability pay is computed either by multiplying the determined amount of basic pay by the percentage disability or by computing 2.5% of basic pay times the member's years of service, whichever is higher. The legislation assumes the level of disability is 100. In 2003, Congress allowed for these benefits to be paid to the surviving children, if any, of an active member who dies. This provision was made effective November 23, 2003. As part of the National Defense Act for Fiscal Year 2007, Congress replaced the November 23, 2003 effective date with October 7, 2001. With the children as the SBP beneficiaries, the surviving spouse avoids any offsets from the receipt of Dependency and Indemnity Compensation (see " Survivor Benefit Plan and Veterans' Affairs Dependency and Indemnity Compensation "). Survivor Benefit Plan and Social Security Prior to 2004, SBP benefits were either "offset" in part by the receipt of Social Security benefits earned as a result of the military members service (aka the Social Security offset), or subjected to a two-tier benefit structure. Both reduced SBP benefits when the recipient turned age 62. Many congressional constituents expressed confusion and dissatisfaction with these provisions. The FY2005 National Defense Authorization Act contained language that made a substantial change in the computation of the SBP benefit for those age 62 and over. Simply stated, this law phased out the two-tier and Social Security offset formulas discussed above. This change substantially increased the survivors' benefits but was criticized as a form of "double dipping" since it allowed the beneficiary to receive overlapping federally supported payments from Social Security and SBP based on the same career. Survivor Benefit Plan and Veterans' Affairs Dependency and Indemnity Compensation Department of Veterans Affairs (VA) Dependency and Indemnity Compensation (DIC) was established in 1956 by the Servicemen's and Veteran's Survivor Benefit Act. "Under this Act, as amended, DIC is paid to the survivors ... of servicemen or veterans who died on or after January 1, 1957, from: (1) a disease or injury incurred or aggravated in line of duty while on active duty or active duty training; or (2) an injury incurred or aggravated in line of duty while on inactive duty training; or (3) a disability compensable under laws administered by the VA." A service member can, for example, (1) contract a disease or incur an injury during active duty or active duty training, (2) recover and return to active duty, (3) retire from an active duty or Reserve Component military career and participate in the SBP, and (4) subsequently die because of complications resulting from the original service-related disease or injury. The surviving spouse or former spouse of the retiree is then entitled to DIC payments from the VA. In this situation, however, the surviving spouse or former spouse of the retiree is not entitled to receive the combined total of full SBP and DIC benefits . Instead, the SBP benefit is offset by the amount of DIC received (with certain limitations). This offset occurs regardless of the retiree's enrollment in the SBP Supplemental. The total of DIC and offset SBP payments combined is, at least, equal to the full SBP benefit. A surviving spouse or former spouse who remarries loses his or her entitlement to Dependency and Indemnity Compensation payments. Upon losing Dependency and Indemnity Compensation, however, the remarried spouse or former spouse has his or her full SBP benefit restored, provided the remarriage—in accordance with SBP restrictions—occurs after age 60 or age 55 if the remarriage occurs after November 14, 1986. Also, if the DIC is paid to an SBP-eligible surviving spouse or former spouse, a percentage of the deceased retiree's original contributions to the SBP offset by DIC will be returned to the surviving spouse or former spouse. In other words, if the SBP is offset by DIC, that proportion of deductions from the deceased retiree's retired pay which financed the offset portion of the SBP will be refunded to the surviving spouse or former spouse. SBP payments can be restored, if the beneficiary becomes ineligible for DIC and remains eligible for SBP, provided that the refunded SBP payments are returned. As noted above, effective January 1, 2004, SBP-DIC offset surviving spouses who remarry after attaining the age of 57 are eligible to receive both the full SBP and DIC. This concurrent receipt benefit for those remarrying after attaining age 57 is called the "Special Rule Concerning DIC Offset." "Concurrent Receipt" In recent years, Congress has addressed an issue concerning the payment of military retired pay to retirees who qualify for disability compensation from the Department of Veterans Affairs (VA). In 1891, Congress passed language prohibiting what it regarded as "dual compensation" for either past or current service and a disability pension. As modified in 1941, the law prevented the concurrent receipt of both military nondisability retired pay and VA disability compensation. For those eligible for both, military retired pay was offset or reduced, dollar for dollar, by VA disability benefits. Numerous attempts to address this issue over the past few years or so resulted initially in the creation of "Combat Related Special Compensation" for certain disabled military retirees whose disability was a direct result of military combat operations or training and whose disability is rated at 10% or more. Later, in FY2004, Congress authorized concurrent receipt for all retirees with at least a 50% disability, regardless of the cause of the disability. However, 100% disabled retirees were entitled to immediate concurrent receipt effective January 1, 2005. Although such changes do not affect the receipt of an SBP annuity, some have claimed that if concurrent receipt or "special pays" for military retirees is allowed, such should also be afforded their survivors. Under this reasoning, if a military retiree is allowed to receive both military retired pay and VA disability payments or other "special pay", it is only fair that the surviving spouse also receive both the SBP annuity and DIC benefits. Critics contend that concurrent receipt was originally barred because Congress viewed it as "double dipping" or paying someone twice for the same period of service. These critics reason that allowing concurrent receipt to the retiree or the retiree's survivor are forms of "double dipping" that are inherently unfair to the taxpayer. In order to avoid this SBP-DIC offset, surviving spouses of active duty personnel are allowed to designate their children, if any, as the recipient of the SBP benefit. Unlike retirees, active duty personnel do not designate a beneficiary. (As stated earlier, children remain eligible to receive SBP until they reach age 18 or 22; or for life if mentally or physically incapacitated and if the incapacitating condition existed prior to age 18. Eligibility terminates if the child marries.) The Senate version of the National Defense Authorization Act for Fiscal Year 2006 contained a provision that woud eliminate the SBP-DIC offset entirely. This language was dropped by the conference committee prior to final passage. Again, the Senate version of the National Defense Authorization Act for Fiscal Year 2007 contained a provision that would eliminate the SBP-DIC offset entirely. This language was, too, dropped by the conference committee prior to final passage. In both the FY2008 and FY2010 National Defense Authorization Acts, language was included to eliminate this offset; and again was dropped by the conferees. Legislation ( H.R. 775 ) was introduced but did not pass in the 111 th Congress to eliminate the offset. In 2009, the Congressional Budget Office estimated the cost of eliminating this offset would be $7.0 billion over the 2010-2019 period. Despite the additional cost to the taxpayer, critics note that having eliminated the Social Security offset lead to "double dipping." Eliminating the SBP-DIC offset, they contend, would lead to "triple dipping" in that the survivor(s) would be eligible to receive three overlapping government benefits based on the same military career. Special Survivor Indemnity Allowance (SSIA) Effective 2009, Congress created the Special Survivor Indemnity Allowance or SSIA. As originally created, beginning in 2009, those subject to the SBP-DIC offset began receiving an additional $50 per month. This amount was scheduled to be increased by $10 each year until 2014 when it would reach $100. The benefit was scheduled to end in 2016. However, during the 111 th Congress, SSIA was made more generous in that for the years 2014 through 2017, the amount would increase from $150, to $200, $275, and finally, $310, after which the benefit will terminate on October 1, 2017. The amount received under SSIA may not be greater than the amount of the SBP-DIC offset. (SSIA was extended to survivors of active duty members later in October, 2008.) Although, again a generous increase at no cost to the retiree, critics have called the creation of SSIA a form of "triple dipping." Retiree and Government Contributions to SBP As noted above, the cost of the SBP is shared by the government and the retirees. The amount paid by a particular retiree varies depending on level of coverage, years of payments, years the survivor receives an annuity, etc. For active duty personnel who make no contributions, the benefit is essentially free. Certain retirees and organizations representing their interests have claimed that, as originally structured, withholdings from retired pay for SBP were expected, on average, 40% of the cost of this benefit. Further it is claimed that since retirees are living longer and since the government has manipulated the withholdings formula, the retirees' share has increased to more than 73%. These claims are made in an effort to increase government payments into the SBP in hopes of increasing benefits (particularly with regard to the apparently successful effort of eliminating the reduction in benefits that occurs when the surviving spouse reaches age 62). In reviewing these claims, a number of points may be considered. First, as noted, there is no legal mandate for any ratio of retiree to government contributions. Second, such claims of a shift in the retiree/government share appear to be based on a selective use of retiree data. Third, the claim that retirees are living longer and paying more ignores the obvious point that survivors, too, are living longer and collecting more. Fourth, the above history of this benefit shows that Congress has expanded eligibility (including "free" benefits to "forgotten widows" and active duty survivors), increased benefits, reduced costs, will eliminate withholdings under the "paid-up provision" afforded supplemental coverage, etc. At no time did Congress reduce the benefit. As such, the claims that the government's contribution to SBP have been reduced are unreliable. Nor do such claims rationalize the increase of benefits at age 62 for surviving spouses (a change that arguably creates a superior benefit relative to those available to the survivors of other federal employees). It is noteworthy that after the SBP was introduced, the FY1973 cost to retirees was $36,145,000 with a fiscal year payment to families of only $5,700,000. This is due to the relatively small number of participants who died shortly after signing up. Ten years later, as more retirees signed up and more died, the FY1983 cost to retirees grew to $652,536,000 while the payment to families grew to $406,887,000. In FY1993, as participant deaths increased, the cost to retirees was $822,955,000 with payments to families reaching $1,177,185,000. Finally, in FY2005, costs to retirees were reported to be $1,099,363,000 while payments to families surged to $2,253,728,000. From 1973 through 2005, the cumulative cost to retirees was $22,597,064,000 while cumulative payments to families was $30,923,249,000. Considering the cumulative payments by retirees and to military families, the government paid $8,326,185,000 more in benefits to families than it received. The cost to retiree/family payment gap will grow as the age 62 reduction is phased out and the "paid-up provision" is implemented. From this perspective, if the cost/benefit share has shifted, the shift has been in the favor of recipients with taxpayers assuming an increasing cost of the program. In FY2009, 874,613 were making payments into SBP with a cumulative cost to retirees of $27,340,043,000 and cumulative payments of $43,084,459,000. The National Defense Authorization Act for Fiscal Year 2006 directed Comptroller General to report on the actuarial soundness of the Survivor Benefit Plan. On July 26, 2006, the Government Accountability Office issued its report. The following is verbatim from that report: Results in Brief The significant statutory SBP program changes implemented within the past 7 fiscal years that we reviewed have resulted in increased DOD normal cost payments and annual Treasury amortization payments to the Fund in order to maintain the actuarial soundness of the Fund. When changes are made to SBP coverage or benefits, the DOD OOA [Office of the Actuary] calculates the necessary DOD and Treasury contributions to ensure that sufficient moneys are available to make all benefit payments to eligible recipients each year, and that sufficient Fund assets will be available in the future to liquidate all current unfunded liabilities. According to the DOD OOA estimates, the significant SBP program changes we reviewed have resulted in the following: – Eliminating the reduction in surviving spouses' SBP benefits when such spouses are also eligible for Social Security benefits at age 62 and thereafter increased the SBP liability by an estimated $25.2 billion as of September 30, 2004. Of this amount, Treasury and DOD will be responsible for an estimated $23.7 billion and $1.5 billion, respectively. DOD's $1.5 billion liability includes $1.3 billion in normal costs for current active duty and full-time reservists (full-time employees) and $0.2 billion in normal costs for current part-time reservists (part-time employees). – Periodically, Congress has allowed an open season for SBP enrollment, the most current one being during fiscal year 2006. Although the total effects of the SBP open season cannot be fully estimable for at least 2 years, the estimated increase in the SBP liability will likely range from $31 million to $86 million. – Eliminating further SBP premiums to be paid by retirees who are aged 70 or older and who have paid such premiums for 30 years increased the SBP liability by an estimated $2.5 billion. Of this amount, Treasury will be responsible for an estimated $2.4 billion, and DOD will be responsible for $0.1 billion in normal costs related to current full-time employees. – Extending SBP surviving spouse or child benefits for all personnel who are killed in the line of duty and are not eligible for retirement at the time of their deaths increased the SBP liability by an estimated $72 million as of September 30, 2001. Of this amount, Treasury will be responsible for an estimated $28 million, and DOD will be responsible for $44 million in normal costs related to current full-time employees. The two potential changes to SBP benefits mentioned in Section 666 of the National Defense Authorization Act for Fiscal Year 2006 would likely also result in increases to the DOD normal cost payments and the annual Treasury amortization payments to the Fund as follows. – Currently, an unmarried DOD retiree without dependent children may elect to have another person with an insurable interest as the SBP beneficiary; however, if that beneficiary dies, designation of another insurable interest is not allowed. Using conservative assumptions, the DOD OOA calculated that the SBP liability would increase by an estimated $2.2 million if retirees were allowed the option of choosing a second insurable interest. Of this increase, Treasury would be responsible for $2 million and DOD for $231,000. Of DOD's $231,000, $211,000 would be for normal costs related to current full-time employees and $20,000 for normal costs related to current part-time employees. – The survivors of veterans who die because of complications resulting from a service-connected disease or injury are entitled to DIC benefits from the Department of Veterans Affairs (VA). Under current law, SBP benefits for survivors of retired veterans are offset by any DIC payments received. The DOD OOA calculated that eliminating the current offset requirement would increase the SBP liability by an estimated $12.9 billion. Of this amount, Treasury and DOD would be responsible for $12.3 billion and $645 million, respectively. Of DOD's $645 million, $617 million would be for normal costs related to current full-time employees and $28 million for normal costs related to current part-time employees. Enactment of these legislative changes would require the Board of Actuaries and the DOD OOA to adjust DOD and Treasury payments, subject to future appropriations, by amounts necessary to offset any increased costs related to expanded benefits; for this reason, enactment of these changes should not negatively affect the actuarial soundness of the Fund. In responding to a draft of this report, DOD did not have any objections or substantive comments. DOD separately provided some technical suggestions, which we incorporated as appropriate.

The military Survivor Benefit Plan (SBP) was created in 1972. Since its creation, it has been subjected to many legislative changes. This report describes the basic provisions of the military Survivor Benefit Plan and all relevant changes or modifications that have occurred. Specifically, the military Survivor Benefit Plan is described and explained in terms of its eligibility provisions, costs, benefits, and its current or former integration with other federal programs (including Social Security and Department of Veterans Affairs Dependency and Indemnity Compensation) for members and retirees of active duty military service and the Reserve Components (both the reserves and National Guard). In addition, tables and work sheets are provided to assist the reader in computing the costs and benefits available under this program. Nearly every Congress since 1972 has, in some way, modified the provisions of the military Survivor Benefit Plan. These modifications have had a significant effect on current and prospective participants and beneficiaries. In nearly every instance, these changes have made the SBP more generous. Furthermore, these modifications involve complex issues and processes, and are, therefore, a source of numerous requests for information from constituents to their congressional representatives.

Introduction Shoulder-fired surface-to-air missiles (SAMs), also known as MANPADS (man-portable airdefense systems), developed in the late 1950s to provide military ground forces protection fromenemy aircraft, are receiving a great deal of attention as potential terrorist weapons that might beused against commercial airliners. These missiles, affordable and widely available through a varietyof sources, have been used successfully over the past three decades both in military conflicts (1) as well as by terroristorganizations. The missiles are about 5 to 6 feet in length, weigh about 35 to 40 pounds, and,depending on the model, can be purchased on the black market anywhere from a few hundred dollarsfor older models to upwards of almost a quarter million dollars for newer, more capable models.Seventeen countries, including the United States, produce man-portable air defense systems. (2) Shoulder-fired SAMsgenerally have a target detection range of about 6 miles and an engagement range of about 4 milesso aircraft flying at 20,000 feet (3.8 miles) or higher are relatively safe. (3) Most experts consider aircraftdepartures and landings as the times when it is most vulnerable to shoulder-fired SAM engagement. There are a number of different types of shoulder-fired SAMs, primarily classified by theirseekers. (4) Types of Shoulder-Fired SAMs Infrared (IR) Infrared shoulder-fired missiles are designed to home in on a heat source on an aircraft,typically the engine exhaust plume, and detonate a warhead in or near the heat source to disable theaircraft. These missiles use passive guidance, meaning that they do not emit signals to detect a heatsource, which makes them difficult to detect by targeted aircraft employing countermeasure systems. The first missiles deployed in the 1960s were IR missiles. First generation shoulder-fired SAMs suchas the U.S. Redeye, early versions of the Soviet SA-7, and the Chinese HN-5 are considered "tailchase weapons" as their seekers can only acquire and engage a high performance aircraft after it haspassed the missile's firing position. In this flight profile, the aircraft's engines are fully exposed tothe missile's seeker and provide a sufficient thermal signature for engagement. First generation IRmissiles are also highly susceptible to interfering thermal signatures from background sources,including the sun, which many experts feel makes them somewhat unreliable. Second generation IR missiles such as early versions of the U.S. Stinger, the Soviet SA-14,and the Chinese FN-6 use improved coolants to cool the seeker head which enables the seeker tofilter out most interfering background IR sources as well as permitting head-on and side engagementprofiles. These missiles also employ technologies to counter decoy flares that might be deployedby targeted aircraft and also have backup target detection modes such as the ultra violet (UV) modefound on the Stinger missile. (5) Third generation IR shoulder-fired SAMs such as the French Mistral, the Russian SA-18, and the U.S. Stinger B use single or multiple detectors to produce a quasi-image of the target andalso have the ability to recognize and reject flares dispensed from aircraft - a commoncountermeasure used to decoy IR missiles. (6) Fourth generation missiles such as the U.S. Stinger Block 2, andmissiles believed to be under development in Russia, Japan, France, and Israel could incorporatefocal plane array guidance systems and other advanced sensor systems which will permit engagementat greater ranges. (7) Command Line-of-Sight Command line-of- sight (CLOS) missiles do not home in on a particular aspect (heat sourceor radio or radar transmissions) of the targeted aircraft. Instead, the missile operator or gunnervisually acquires the target using a magnified optical sight and then uses radio controls to "fly" themissile into the aircraft. One of the benefits of such a missile is that it is not as susceptible tostandard aircraft mounted countermeasure systems which are designed primarily to defeat IRmissiles. The major drawback of CLOS missiles is that they require highly trained and skilledoperators. Numerous reports from the Soviet-Afghan War in the 1980s cite Afghan mujahedin asbeing disappointed with the British-supplied Blowpipe CLOS missile because it was too difficultto learn to use and highly inaccurate, particularly when employed against fast moving jetaircraft. (8) Given theseconsiderations, many experts believe that CLOS missiles are not as ideally suited for terrorist useas are IR missiles, which sometimes are referred to as "fire and forget" missiles. Later versions of CLOS missiles, such as the British Javelin, use a solid state televisioncamera in lieu of the optical tracker to make the gunner's task easier. The Javelin's manufacturer,Thales Air Defence Ltd., claims that their missile is virtually impervious to countermeasures. (9) Even more advanced CLOSversions, such as the British Starburst, use a laser data link in lieu of earlier radio guidance links tofly the missile to the target. Laser Beam Riders Laser beam riding shoulder-fired SAMs use lasers to guide the missiles to the target. Themissile literally flies along the laser beam and strikes the aircraft where the missile operator orgunner aims the laser. These beam riding missiles are resistant to current countermeasure systemson military and civilian aircraft. Missiles such as Sweden's RBS-70 and Britain's Starstreak, canengage aircraft from all angles and only require the operator to continuously track the target usinga joystick to keep the laser aim point on the target. Because there are no data links from the groundto the missile, the missile can not be effectively jammed after it is launched. Future beam ridingSAMs may require the operator to designate the target only once and not manually keep a continuouslaser aimpoint on the aircraft. Even though beam riders require relatively extensive training and skillto operate, many experts consider these missiles particularly menacing in the hands of terrorists dueto the missiles' resistance to most conventional countermeasures in use today. Shoulder-Fired SAM Proliferation Approximately 20 countries have manufactured MANPADS or their components, and it isestimated that a total of over 1 million of these systems have been manufactured worldwide. (10) Unclassified estimates ofthe worldwide shoulder-fired SAMs inventory are widely varied. Published estimates on the numberof missiles presently being held in international military arsenals range from 350,000 (11) to 500,000 (12) but disparities among nations in accountability, inventory control, and reporting procedures could make these figuresinaccurate. Tracking proliferation to non-state actors is considered even more difficult by manyanalysts. There are a variety of means that terrorist organizations use to obtain missiles, includingtheft, black market, international organized crime, arms dealers, and transfers from states willing tosupply missiles to terrorists. Often times, the only verification that a non-state actor has ashoulder-fired SAM is when a launcher or fragments from an expended missile are recovered afteran attack. (13) As in thecase of military arsenals, estimates of shoulder-fired SAMs in terrorist hands vary considerably.Estimates range from 5,000 (14) to 150,000 (15) of various missile types, but most experts agree that thevastmajority of them are IR guided and are likely SA-7 derivatives, versions of which are reportedlypossessed by at least 56 countries. (16) Some examples attest to the large numbers of these missiles in circulation. As of December2002, coalition forces in Afghanistan had reportedly captured 5,592 shoulder- fired SAMs from theTaliban and Al Qaeda. (17) Some of these included U.S. Stinger and British Blowpipemissiles believed to have been left over from the Afghan-Soviet War. Shoulder-fired missilescontinue to be seized routinely during coalition raids, suggesting that Taliban and Al Qaeda forcesoperating in and around Afghanistan still have access to an undetermined number of these systems. In Iraq, recent press reports indicate that 4,000 to 5,000 shoulder-fired SAMs may be available toIraqi insurgent forces. (18) Africa, the region where most terrorist attacks with these missiles have occurred, reportedly also hasa large quantity of shoulder-fired SAMs left over from Cold War sponsorships and the numerouscivil wars of that era. (19) Non-State Groups With Shoulder-Fired SAMs Unclassified estimates suggest that between 25 and 30 non-state groups possessshoulder-fired SAMs. Table 1 depicts non-state groups believed to possess shoulder-fired SAMsthrough the 1996-2001 time period. Additional groups may have obtained missiles since 2001 butdetails at the unclassified level are not known. Actual or estimated quantities of these weaponsattributed to non-state groups at the unclassified level are also unknown. Table 1. Non-State Groups with Shoulder-Fired SAMs:1996-2001 (20) Note: (c) is possession confirmed through intelligence sources or actual events; (r) is reported butnot confirmed. Recent U.S. Military Encounters with Shoulder-Fired Missiles Recent U.S. military encounters with shoulder-fired missiles in Iraq and Afghanistan canprovide some useful operational insights which could be benefit government, industry, and civilaviation officials involved in the protection of civil aviation. In December 2003 an unidentifiedshoulder-fired SAM struck an engine of a U.S. Air Force C-17 Globemaster III cargo aircraft thathad just departed Baghdad International Airport. (21) The aircraft, which was outfitted with missile defenses, made anemergency landing at Baghdad International Airport. (22) In January 2004, a C-5 Galaxy transport aircraft - also havingan antimissile system -was hit by a shoulder-fired SAM and the aircraft was able to andsuccessfully. (23) One senior Air Force official reportedly stated that "for whatever reason, the [defensive] systems on theairplanes didn't counter [the attacks]. We don't have any indications that it was a systemmalfunction." (24) Theofficial speculated that sensor placement, and aircraft altitude and maneuvering played a role in thesesystems not functioning as they were intended. (25) According to one report, from October 25, 2003 to January 2004, nine military helicopterswere shot down or crashed landed in Iraq after having been hit by hostile ground fire, resulting inthe deaths of 39 service members. (26) An Army study, commissioned after these incidents, reportedlyrevealed a number of findings. The study team reportedly concluded that RPGs, (27) and SA-7, SA-14, andSA-16 shoulder-fired SAMs were used in the attacks against the helicopters. (28) Another study findingrevealed that the Iraqis had studied the helicopter flight patterns and had developed effectivetechniques to engage the aircraft. (29) According to the Chief of the U.S. Transportation Command (USTRANSCOM), U.S.military cargo aircraft take ground fire in Afghanistan and Iraq from shoulder-fired SAMs,anti-aircraft artillery and small arms on almost a daily basis. (30) USCENTCOM officialswere unable to provide an unclassified update on shoulder-fired missiles attacks against U.S. militaryaircraft in Afghanistan and Iraq as of September 2004, although classified data of this nature isbeing tracked by USCENTCOM and DOD. (31) Some analysts believe that the U.S. has significantly improvedaircraft countermeasures and defenses and modified aircraft operating procedures, resulting in fewersuccessful attacks, but others suggest that attacks with shoulder-fired SAMs have become socommonplace that they no longer garner the attention that they once did. Civilian Aviation Encounters with Shoulder-Fired Missiles Estimates vary, but the most widely reported statistics on civilian aircraft experience withshoulder-fired missiles indicate that, over the past 26 years, 35 aircraft have come under attack fromthese weapons. (32) Ofthose 35, 24 were shot down resulting in more than 500 deaths. (33) While these statistics havebeen frequently cited, at least one report has suggested that these figures may significantly overstatethe actual numbers of civilian-use aircraft that have been attacked by shoulder-fired missiles. (34) That report insteadconcluded that only about a dozen civil-registered airplanes have been shot down during this timeperiod and further notes that some of these aircraft were operating as military transports when theywere shot down. On the contrary, available statistics may underestimate the total number of civilianencounters with shoulder-fired missiles. It is possible that some aircraft shootings may have beenattributed to other causes for various reasons and are not included in these statistics. Also, it ispossible that some failed attempts to shoot down civilian airliners have either gone undetected orunreported. For many incidents considered to be a shoulder-fired missile attack against a civilian aircraft,there is scant information to make a conclusive determination if that was, in fact, the case. In someinstances, while it is widely recognized that the incident was a shooting, there is no conclusivedetermination regarding the weapon used. For example, in some instances of aircraft shootings thereare discrepancies among accounts of the event, with some reporting that the aircraft was broughtdown by a shoulder-fired missile while others claim that anti-aircraft artillery was used. Also, inmany instances there are questions as to whether the flight operation was strictly for a civilian useor may have been for military or dual use (civilian/military) purposes. Therefore, there is nouniversal agreement as to which incidents should be included in the tally of civilian aviationencounters with shoulder-fired missiles. Based on our review of available reports and databases on the subject, the statistic of 24catastrophic losses out of 36 aircraft appears to be a reasonable estimate, but not a definitive count,of the total worldwide civil aviation shootings with shoulder-fired missiles or similar weapons. However, since most of these incidents took place in conflict zones, they are not typically consideredto be politically motivated because the targeted aircraft may have been perceived as being used formilitary purposes. (35) While most of these historical examples do not provide any particular insight into the politicalmotivation behind shootings of civilian aircraft in the current context of the global war on terrorism,they do provide some indication of the possible outcomes of such an attack. Based on the commonlycited statistic of 24 aircraft destroyed out of 36 attacks over the past 26 years, the odds of survivingan attack are not particularly encouraging. Using these numbers, the odds of surviving an attack maybe estimated to be only about 33%. However, it is important to note that these incidents include awide variety of aircraft types including small piston-engine propeller airplanes, turboprop airplanes,helicopters, and business jets, as well as large jet airliners. Since the current legislative proposalsand administration efforts to date have been aimed at addressing ways to protect large commercialjet airliners from shoulder-fired missiles, it is useful to examine past incidents involving these typesof aircraft in order to gain further insight regarding the threat. CRS reviewed various sources and found only six incidents where large turbojet airlinerswere reported to have been attacked by shoulder-fired missiles. These incidents are listed in Table2 . (36) Whether all ofthese incidents were in fact attacks using shoulder-fired missiles is still a matter of considerabledebate as conclusive evidence supporting such a finding is lacking for most of these incidents. Ofthese six encounters identified, there was a wide range of outcomes. Only two of the six shootingsresulted in catastrophic losses of the airplanes -- killing all on board. In three other incidents, theairplanes received significant damage -- but no one was killed. Finally, in the widely reportedNovember 2002 attempt to shoot down an Israeli charter jet in Mombasa, Kenya, the aircraft wasfired upon by two missiles but was not hit. Table 2. Suspected Shoulder-Fired Missile Attacks AgainstLarge Civilian Turbojet Aircraft (1978-Present) In the first instance, the official findings by Angolan authorities attributed theNovember 8, 1983, crash of a TAAG Angolan Airlines Boeing 737 to a technical problemwith the airplane, but UNITA rebels in the area claimed to have shot down the aircraft witha surface to air missile. (37) All 130 people on board were killed, potentially makingthis the deadliest single incident involving a shoulder-fired missile attack against a civilianaircraft. However, investigation of the incident failed to produce any conclusive evidenceof missile or gunfire damage on any of the aircraft wreckage. In the February 9, 1984, attack of a TAAG Angolan Airlines Boeing 737, the airplanewas struck at an altitude of 8,000 feet during climb out. The crew reportedly attempted anemergency landing at Huambo, Angola, but were unable to extend the flaps because ofdamage to the airplane's hydraulic systems. Consequently, the crew was unable to slow theairplane sufficiently before landing and overran the runway by almost 600 feet. The airplanewas a total loss but no one was killed. (38) Investigators found evidence leading them to suspect thata bomb detonation in the forward hold, rather than a missile, was responsible for the damageobserved. However, press accounts reporting that the aircraft was struck by an SA-7 firedby UNITA guerillas have led some to conclude that this incident was, in fact, a shoulder-firedmissile attack. (39) In the September 21, 1984, incident, an Ariana Afghan Airlines DC-10 was struckcausing damage to two of the airplane's three hydraulic systems. While some sources (40) defined thisincident as a shoulder-fired missile attack, another account indicated that the DC-10 was hitby "explosive bullets." (41) The most recent catastrophic loss of a civilian aircraft from a suspected MANPADSattack was the October 10, 1998, downing of a Congo Airlines Boeing 727 near Kindu,Democratic Republic of Congo. The aircraft was reportedly shot down by a missile, possiblyan SA-7, that struck one of the airplane's engines. Tutsi rebels admitted to the shooting,claiming that they believed the airplane to be carrying military supplies. The final call fromthe Captain indicated that the aircraft had been hit by a missile and had an engine fire. It wasreported that a missile struck the airplane's rear engine. The ensuing crash killed all 41persons on board. (42) The most recent attempted shooting of a passenger jet was the November 28, 2002,incident involving an Israeli-registered Boeing 757 aircraft operated by Arkia Israeli Airlines. Two SA-7 missiles were fired at the airplane on departure from Mombasa, Kenya but missed. While the threat of shoulder-fired missiles has long been recognized by aviation securityexperts, this incident focused the attention of many in Congress and the Bush Administrationon this threat and options to mitigate it. Unlike the prior attacks on jet airliners that occurredin war torn areas, the Mombasa attack was clearly a politically motivated attack, believedto have been carried out by terrorists with links to Al Qaeda. (43) That fact, coupledwith already heightened concerns over aviation security in the aftermath of the September11, 2001, terrorist attacks, has made the shoulder-fired missile threat a key issue forhomeland security. Amid this heightened concern over the threat of shoulder-fired missiles to commercialaircraft, a DHL cargo airplane was struck by a missile on November 22, 2004, whiledeparting Baghdad International Airport in Iraq. The aircraft's left wing was struck outboardfrom the engine. Damage from the missile severed the airplane's hydraulic lines. However,the flight crew was able to return to the airport applying differential thrust on the two enginesto maneuver and operating manual cranks to lower the landing gear. The aircraft, an AirbusA300-B4, departed the runway on landing causing additional damage, including extensiveengine damage from ingesting sand and debris. (44) While no one was killed or injured, the airplane wasdetermined to be a total loss. Options for Mitigating Missile Threats Most observers believe that no single solution exists to effectively mitigate the SAMthreat to airliners. Instead, a menu of options may be considered, including improvementsor modifications to commercial aircraft, changes to pilot training and air traffic controlprocedures, and improvements to airport and local security. IR Countermeasures and Aircraft Improvements Military aircraft employ a variety of countermeasures to mitigate the threat posed bySAMs. With few exceptions, commercial airlines today do not employ these protectivesystems. (45) Historical arguments against fielding countermeasures on airliners include their acquisitioncost, cost and difficulty of integrating them into the aircraft, life cycle costs, environmentalconstraints on their use, and the fear that they may promote perceptions that flying is not safe.Estimates of the cost of acquiring and installing IR countermeasures on commercial aircraftrange between $1 million and $3 million per aircraft. (46) According to FAAforecasts, there will be about 6,839 passenger jet aircraft in service in 2006, including 3,692large narrow body airplanes, 599 large wide bodies, and 2,098 regional jets. Additionally,there are expected to be 1,011 all-cargo jets deployed in air carrier operations in 2006. (47) Estimates onequipping the air carrier jet fleet with IR countermeasures vary because of assumptionsregarding the type of system, whether they would be installed directly into the aircraft orattached via a pod, and the overall number to be procured. Some IR countermeasures couldincrease the airline's operating costs by increasing the aircraft's weight and drag and thus theamount of fuel consumed. Another issue for installing IR countermeasures on passenger jetsis the logistics of equipping the fleet and the potential indirect costs associated with takingairplanes out of service to accomplish these installations. An analysis by the RANDCorporation found that, in addition to an initial purchase and installation cost of about $11billion, it would cost about $2.1 billion annually in terms of both direct and indirect orincidental costs to maintain and sustain aircraft-based IR countermeasures on a fleet of 6,800passenger jets. (48) For decades, military aircraft have ejected inexpensive flares to foil IR-guided SAMs.When a white-hot flare passes through an IR-guided SAM's field of view, its intense IRenergy can confuse the missile and cause it to lose its lock on the targeted aircraft. Althougheffective against older shoulder-fired SAMs, flares often cannot fool newer models, whichuse more sophisticated sensors. Also, most flares pose a fire hazard to combustibles on theground, and may be too risky for urban areas. DOD has recently developed new flares andsimilar decoys that may be more effective against modern IR-guided missiles, and pose lessof a fire hazard. Military aircraft also use a variety of transmitters known as IR countermeasures orIRCMs to create fields of IR energy designed to confuse shoulder-fired SAMs. Unlike flares,IRCMs do not pose a fire hazard to combustibles on the ground. Like flares, however, theyare only effective against older IR-guided missiles. Recent advances in lasers have led to thedevelopment and employment of directed IRCMs (DIRCMs), that focus their IR energydirectly on the incoming SAM. DIRCMs are able to generate more jamming power thanIRCMs, and may offer the most effective defense against modern shoulder-fired SAMs.DIRCM weight, size, cost, and reliability, however, may not yet make them attractive forcommercial airlines. Military aircraft use flares and IRCMs preemptively: in anticipation of a SAM launch,a pilot can eject numerous flares, or turn on the IRCM to foil a potential threat. However,environmental considerations may make the use of flares difficult for commercial airlines. DIRCM's can't be used preemptively. They must be aware that a missile has been launched,and use missile approach and warning systems (MAWS) for that function. (49) Because IR-guidedSAMs are difficult to detect, MAWS performance is a key factor in the overall effectivenessof the aircraft's protection system. DIRCM reliability and maintainability has also frequentlybeen cited as a key factor that will determine the cost effectiveness of these systems forcommercial use. Some estimate that current DIRCM system reliability will have to improveby a factor of 10 before they will be cost effective in a commercial setting. (50) "Camouflaging" commercial aircraft, (i.e. reducing their optical and IR reflectivityand emissivity) would make it more difficult for terrorists to employ most shoulder-firedmissiles. Suppressing or otherwise mitigating the engine's hot exhaust may be the mosteffective way to "camouflage" commercial aircraft. DOD and industry studies indicate thatthe IR signature of large aircraft engines can be reduced by as much as 80% by shielding orducting the engine exhaust, or mixing ambient air with hot jet exhaust. (51) These measuresmay adversely affect engine performance or aerodynamic drag. Also, integrating thesemeasures into existing aircraft may cause problems with aircraft weight and balance.Regardless, DOD has conducted numerous studies on IR-signature reduction, and theexploration of this body of work may merit investigation for commercial applications. (52) DOD is also developing paint that is designed to reduce an aircraft's IR reflectivityand visual profile. IR camouflage paint would not reduce an engine's heat signature, but itmight make it more difficult for terrorists to visually see the aircraft, and thus could avert aSAM launch. The Navy is studying IR camouflage paint on the V-22 Osprey . (53) The cost andmaintainability of this paint is still being studied, but the paint might actually be lighter thanconventional aircraft paint. Today, IR paint appears to offer few complications for airlineapplication compared to other potential countermeasures. Infrared signature reduction techniques appear worth examining. However, it shouldbe recognized that these measures cannot make aircraft completely invisible in the IRspectrum. An airplane's IR signature will always be much stronger than that of thesurrounding sky. Thus, like many other options discussed in this report, IR signaturereduction techniques may be able to reduce an aircraft's vulnerability to IR-guided weaponsand mitigate the IR missile threat to some degree, but they cannot completely eliminate thethreat. Regardless, some in Congress recognize that IR-signature reduction may be one toolto help mitigate IR-guided missiles. In their FY2006 report ( H.Rept. 109-359 ) appropriationsconferees added $1.3 million to the Navy's $42.6 million request for electronic warfaredevelopment. The purpose of this added funding was to pursue "infrared signature reductionto mitigate terrorist missile threats."(p.393). In addition to equipping airliners with missile countermeasures, strengthening theairframe to better withstand missile strikes has been suggested. To date, the FAA'sCommercial Aircraft Hardening Program has primarily focused on studying how hardenedaircraft can better withstand internal bomb blasts. (54) The survivability of passenger jets following missilestrikes is largely unknown, although DOD's Joint Live Fire program and the Air Force haveinitiated a multi-year effort to test the vulnerability of large turbofan engines, such as thosethat power commercial aircraft, to shoulder-fired missiles. (55) It is expected thatdeveloping hardened aircraft structures will be a challenging problem given that IR guidancesystems seek hot engine exhaust and will likely detonate at or near an aircraft engine. Since most jet airliners have wing-mounted engines, hardening of surrounding aircraftstructure will likely be infeasible, particularly with regard to modifying existing aircraft. However, some aircraft survivability experts believe that isolating critical systems, likeredundant hydraulic lines and flight control linkages, and improving fire suppression andcontainment capabilities could prevent catastrophic failures cascading from the initial missilestrike. (56) Whilesuch options can be integrated into new aircraft type designs, they are unlikely to have anynear term impact on reducing the threat since retrofitting existing air carrier jets with damagetolerant structures and systems is likely to either be technically infeasible or not economicallypractical. Moreover, aircraft hardening options will likely require extensive research andtesting before their feasibility and effectiveness can be adequately assessed. Initialindications suggest that aircraft hardening and structural redesign, if feasible, will likely bevery costly and could take many years to implement. Improved Pilot Training and Air Traffic Procedures Airline pilots already receive substantial simulator training on handling loss of powerto one engine during critical phases of flight such as takeoffs and landings. This trainingshould already prepare flight crews to handle a loss of engine power resulting from a missilestrike. Therefore, additional training for handling missile attacks may be of limited benefit. On the other hand, specific simulator exercises using missile attack scenarios may bebeneficial by preparing pilots to fly and land a damaged aircraft. Modern airliners are builtwith redundancy in avionics and flight control systems, and consequently, a missile strikethat does not cause a catastrophic structural failure would likely be survivable if the flightcrew is properly trained to handle such a scenario. Another potential mitigation technique is training flight crews in evasive maneuversif fired upon by a shoulder-fired SAM. However, this approach would not likely be effectiveand presents significant risks. Without a missile detection and warning system, it is unlikelythat a flight crew would have any indication of a missile launch. Also, large transportcategory airplanes are generally not maneuverable enough to evade a shoulder-fired SAM. There is also concern that defensive maneuvering of large transport category airplanes couldresult in a loss of control or structural failure. (57) Consequently, most observers concur that evasivemaneuvering is not a viable option for mitigating the risk of missile attacks. However,properly trained crews may be able to use other special procedures to evade missile attacks. Examples of procedures that may be considered to reduce the airplane's heat signature andvulnerability to missile strikes include minimizing the use of auxiliary power units and otherheat sources when operationally feasible; minimizing engine power settings; and, if a missilelaunch is detected, reducing engine power settings to minimum levels required to sustainflight at a safe altitude. The effectiveness and safety risks associated with techniques suchas these will need to be carefully assessed before procedural measures are implemented. Another mitigation technique may be to alter air traffic procedures to minimize theamount of time airliners are vulnerable to missile launches and make flight patterns lesspredictable. Current arrival procedures rely on gradual descents along well defined andpublicly known approach courses that place airplanes within range of shoulder-fired SAMsas far away as 50 miles from the airport. (58) Similarly, departing aircraft with heavy fuel loadsoperating at high engine power, often along predefined departure routes, may be particularlyvulnerable and can be targeted up to 30 miles away from the airport before they climb abovethe effective range of shoulder-fired SAMs. (59) Military aircraft often use spiral descents from altitude above the airfield whenoperating in hostile areas. Using spiral descents may be an option for mitigating the threatof terrorist SAM attacks to airliners approaching domestic airports. Doing so can limitapproach and descent patterns to a smaller perimeter around the airfield where securitypatrols can more effectively deter terrorist attacks. While spiral approaches may beimplemented on a limited basis, wide scale use of spiral patterns would likely requireextensive restructuring of airspace and air traffic procedures. This technique may presentsafety concerns by greatly increasing air traffic controller workload and requiring pilots tomake potentially difficult turning maneuvers at low altitude. The use of spiral patterns couldalso reduce passenger comfort and confidence in flight safety. Also, this technique wouldnot mitigate the risk to departing aircraft, which are generally considered to be the mostvulnerable to missile attacks. Another technique used by military aircraft, particularly fighter jets, to reducevulnerability on departure is to make steep, rapid climb outs above the effective range ofsurface to air missiles over a short distance. Like spiral descents, such a technique haslimited application for civilian jet airliners. A typical climb gradient for these aircraft isbetween 400 and 500 feet per mile, which means that they remain in range of shoulder-firedmissiles for about 40 to 50 miles after departure. Even if the airplane were to double itsclimb rate, which would probably be close to the maximum practically achievable climb ratefor most jet airliners, the distance traveled before safely climbing above the range ofshoulder-fired missiles would still be 20 miles or more. Climbing out at such a steep ratewould also pose a risk to the aircraft since it may not provide an adequate margin of safetyif an engine were to fail during climb out. Also, steep climb angles are likely to be perceivedas objectionable by passengers. Another option that may be considered is to vary approach and departure patterns. Regularly varying approach and departure patterns, in non-predicable ways, may make itmore difficult for terrorists to set up a shoulder-fired SAM under a known flight corridor;and, may increase the probability that they will be detected, while trying to locate a usablelaunch site, by ground surveillance, local law enforcement, or civilians reporting suspiciousactivities. One challenge to implementing this technique is that aviation radio frequenciesare not protected, and terrorists might gather intelligence regarding changing flight patterns. Also, flight tracking data are available in near real time from Internet sources and may beexploited by terrorists to gain information about aircraft position. Nonetheless, this approachcould be a deterrent by making overflights of particular locations less predictable. Limitations to this approach include disruption of normal air traffic flow which may resultin delays, increased air traffic controller workload, and possible interference with noisemitigation procedures. Varying air traffic patterns may be a viable mitigation technique,particularly at airports with low to moderate traffic and for approach and departure patternsthat overfly sparsely populated areas. Also, maximizing the use of over water approach anddeparture procedures, when available, coupled with measures to limit or restrict access to andincrease patrols of waters under these flight paths has also been suggested as a mitigationalternative. (60) Other suggested changes to air traffic procedures include the increased use ofnighttime flights and minimal use of aircraft lighting. However, this approach is likely to beopposed by the airlines and passengers since there is little demand for night flights in manydomestic markets. Furthermore, minimizing the use of aircraft lighting raises safety concernsfor aircraft collision avoidance. While the airspace system includes good radar coverage inthe vicinity of airports and airliners are required to have collision avoidance systems, the lastline of protection against midair collisions is the flight crew's ability to see and avoid otheraircraft. Therefore, increased use of night flights and minimizing aircraft lighting is notthought to be a particularly viable mitigation option. Improvements to Airport and Local Security One of the most expedient measures that can be taken to mitigate the risk fromshoulder-fired SAMs to airliners is to heighten security, surveillance, and patrols in thevicinity of airports served by air carriers. The difficulty with implementing these securitymeasures is that the approach and departure corridors where aircraft operate within range ofshoulder-fired SAMS extend for several miles beyond airport perimeters. Therefore, whileheightening security in the immediate vicinity of an airport may reduce the threat fromshoulder-fired SAMs, these measures cannot effectively mitigate the threat during the entireportion of flight while airliners are vulnerable to attack. Nonetheless, using threat andvulnerability assessments, airport and airspace managers can work with security forces todetermine those locations beyond the airport perimeter that have high threat potential andwhere aircraft are most vulnerable to attack. Using this information, security can concentratepatrols and surveillance in these high risk areas. Airport security managers will likely needto work closely with local law enforcement to coordinate efforts for patrolling these high riskareas. Terrorist acts are preceded by planning activities, much of which is observable.Because law enforcement officers can't be everywhere, public education and neighborhoodwatch programs in high risk areas may also be effective means to mitigate the threat. The AirForce has instituted a "neighborhood watch"-type program that might serve a model forbroader application. Civilians and servicemembers are trained in the "Eagle Eye Program"to recognize elements of potential terrorist activity, and how to most effectively report theirobservations. (61) Aerial patrols using sensor technology, such as Forward Looking Infrared (FLIR),may also be an effective tool for detecting terrorists lurking underneath flight paths. However, use of aerial patrols may significantly impact normal flight schedules andoperations, particularly at the nation's larger airports. Detecting and eliminating a terrorist threat before an attack is initiated is the optimalsolution. If terrorists are not detected prior to launch, rapid detection and accurateidentification of a missile attack would be a critical step in an effective defense. In 2004DOD evaluated ground-based warning systems composed of networked arrays of differentkinds of sensors (e.g., electro-optical, radar). Such ground-based sensor grids couldpotentially warn and cue aircraft-based, or ground-based missile countermeasures. Ground-based missile countermeasures could potentially take many forms. Randomly dispensing flares in the vicinity of airports has been suggested, noting that theIsraeli airline El Al occasionally used this technique during periods of heightened tension inthe 1980s. However, ground-based flares pose a risk of fires on the ground and thereforewould not be suitable at many airports in the United States, particularly those surrounded bypopulated or wooded areas. Furthermore, dispensing flares may be annoying to some andmay also diminish public confidence in the safety and security of air travel. Ground basedinterceptors are another option that has been suggested. These interceptors could be vehicle-mounted SAMs like the Marine Corps "HUMRAAM" system, or directed energyweapons like the Army's tactical high-energy laser (THEL). The THEL has successfullyintercepted rockets and artillery shells in tests. (62) Cost, reliability, probability of intercept, and potentialside-effects and unintended consequences would have to be weighed when considering theseoptions. Older "lamp-based" IR countermeasures might also offer some missile jammingcapability, by generating wide, if relatively weak, fields of IR energy near airports. Industryis also exploring, and promoting, the potential deployment of microwave-basedcountermeasures. Ground-based antennas could emit a microwave pulse intended to defeata terrorist missile by "jamming" or confusing its electronic systems. Again, costs, potentialside-effects, and unintended consequences of all of these potential approaches would haveto be assessed. The risk of interfering with, or actually shooting down a commercial aircraft,for example, may be of primary concern. Another way to mitigate the threat of shoulder-fired SAMs is through intelligence andlaw enforcement efforts to prevent terrorists from acquiring these weapons, particularlyterrorists operating inside the United States. Congress may consider ways to improve currentmissile non-proliferation efforts, and may also wish to debate ways to better shareintelligence information with airport security managers so that appropriate security measurescan be implemented to respond to specific threat information. Nonproliferation and Counterproliferation Efforts Legal transfer of shoulder-fired SAMs is not governed by an international treaty. The Wassenaar Arrangement (63) is the only international agreement that addressesshoulder-fired missiles sales and provisions governing these sales were not adopted by its 33members until December 2000. In December 2003, the Wassenaar Arrangement adoptedstrengthened guidelines over control of shoulder-fired SAM transfers. (64) Recent actions bythe Administration may, however, renew emphasis on nonproliferation. According to pressreports and a White House Fact Sheet (65) President Bush obtained commitments from 21 Asian andPacific Rim members of the Asia Pacific Economic Group (APEC) to "adopt strict domesticexport controls on MANPADs; secure stockpiles; regulate MANPADs production, transfer,and brokering; ban transfers to non-state end users; and exchange information in support ofthese efforts." APEC leaders meeting in Bangkok also agreed to strengthen their nationalcontrols on MANPADs and review progress at next year's APEC meeting in Chile. (66) Since September 11, 2001, the G-8 countries (67) have givenincreased emphasis to multilateral efforts to reduce the proliferation of and risk fromMANPADS in terrorist hands. At the 2003 G-8 summit, member countries agreed to promoteadoption of Wassenaar's strengthened MANPADS export guidelines by non-Wassenaarcountries. The G-8 also implement the following steps to prevent terrorist acquisition ofMANPADS: "To provide assistance and technical expertise for the collection, securestockpile management and destruction of Manpads surplus to national security requirements; To adopt strict national export controls on Manpads and their essentialcomponents; To ensure strong national regulation of production, transfer andbrokering; To ban transfers of Manpads to non-state end-users; Manpads shouldonly be exported to foreign governments or to agents authorised by a government; To exchange information on uncooperative countries and entities; To examine the feasibility of development for new Manpads of specifictechnical performance or launch control features that preclude their unauthorized use; To encourage action in the International Civil Aviation Organization(ICAO) Aviation Security (AVSEC) Working Group on Manpads." (68) At their 2004 Summit, G-8 countries agreed upon an action plan to implement and expandthe scope of the 2003 recommendations. (69) The International Civil Aviation Organization (ICAO), a United Nations SpecializedAgency, has also increased efforts to limit the proliferation of MANPADS. ICAO hasproposed that all 188 member countries adopt the Wassenaar Arrangement MANPADSexport guidelines, and develop a "universal regime of control for MANPADS." (70) The U.S. State Department has undertaken a number of bilateral and multilateralefforts to reduce the number of shoulder-fired SAMs that could conceivably fall into thehands of terrorists. (71) Through the Small Arms and Light Weapons DestructionProgram (72) theState Department is working with countries or regions where there is a combination of excessshoulder-fired SAMs, poor control, and a risk of proliferation to terrorist groups or otherundesirable groups to destroy excess stocks and develop security and accountabilitymeasures. Promising agreements have been reported. On February 24, 2005, for example, theUnited States and Russia announced an agreement to facilitate efforts to destroy obsoleteMANPADS and cooperate in reducing the potential for future proliferation. (73) The United Stateshas also worked with its NATO partners to reduce MANPADS stockpiles. On February 18,2005, the NATO Partnership for Peace Trust Fund Project was established to help theUkraine destroy its stockpiles of excess munitions, including MANPADS. Other countries,such as Serbia, Bosnia-Herzegovina, Cambodia, Nicaragua, and Liberia have pledged todestroy excess MANPADS in their possession. These formal and informal agreements have led to a reduction in MANPADS. As ofSeptember 20, 2005, the State Department reported a total of 17,000 excess or illicitly heldMANPADS have been destroyed world-wide. When countries have balked at implementingtheir pledges, economic and diplomatic pressure have been brought to bear. The BushAdministration, for example, threatened to withhold military aid to Nicaragua until thatcountry destroyed approximately 1,000 SA-7s (74) There are a number of both formal and informal counterproliferation actions thatcould be undertaken. Informally, U.S. and coalition forces routinely seize and destroy cachesof shoulder-fired SAMs during combat operations in Afghanistan and Iraq, thereby reducingthe number of these systems available for terrorist use. Formally, the U.S. is offering $500for each shoulder-fired SAM turned over to authorities in both Iraq and Afghanistan. (75) According to onepress report, 317 shoulder-fired missiles had been turned over to U.S. military authorities inIraq since May 1 2004, with the U.S. paying out over $100,000 in rewards for themissiles. (76) Other formal options could include infiltrating black market, organized crime or terroristgroups, and seizing or destroying these missiles or setting up "sting" operations to arrest armsbrokers and seize their missiles. Shoulder-Fired Missile Design and Manufacture It may be possible to incorporate specific characteristics in the design andmanufacture of new shoulder-fired missiles that would make it more difficult for terroriststo use them. While these measures would have no effect on the shoulder-fired missiles thathave already been manufactured and proliferated, they could be part of a long-term strategyfor reducing the threat to commercial aviation. Permissive Action Links (PALs) is one example of a technology that could beincorporated in future shoulder-fired missiles to "tamper-proof" them. PALs are essentiallymicrochip-based cryptographical "trigger locks" that ensure that only authorized personnelcan use a given weapon system. Congress has shown interest in exploring PALs for Stingermissiles ( H.R. 3576 , p.219), but a lack of implementation suggests resistanceon the part of the Army. It may be that Army representatives fear that PALs could complicatelegitimate use of a shoulder-fired missile. Incorporating PALs could potentially raise the costof a weapon system. Thus, incorporating them on a multi-lateral basis may be required soU.S. manufactures are not put at an export disadvantage vis-a-vis foreign manufacturers. Congressional Action on Shoulder-Fired Missiles Many in Congress have expressed concern about the threat MANPADS could poseto civil aircraft. Specific concerns include protecting civilians and mitigating the potentialfinancial burden for an already besieged airline industry. Legislation has been proposed, andcongressional committees have received classified briefings on the subject in closed doorhearings. (77) During the 108th Congress, Representative Steve Israel and Senator Barbara Boxerintroduced legislation ( H.R. 580 , S. 311 ) directing the Secretaryof Transportation to issue regulations requiring airliners to be equipped with missile defensesystems. (78) Language in the conference report accompanying the Emergency WartimeSupplemental Appropriations Act of 2003 ( P.L. 108-11 ; H.Rept. 108-76 ) directed theDepartment of Homeland Security (DHS) Under Secretary for Science and Technology toprepare a program plan for developing such missile protection systems for commercialaircraft. This program was subsequently funded in appropriations legislation and isprogressing. The program is described in detail below in the section of this report addressingAdministrative Plans and Programs. The National Intelligence Reform Act of 2004 ( P.L. 108-458 ) directs the Presidentto urgently pursue international treaties to limit the availability, transfer, and proliferation ofMan-portable Air Defense Systems (MANPADSs), such as shoulder-fired missiles, worldwide. The act further directs the President to continue to pursue internationalarrangements for the destruction of excess, obsolete, and illicit MANPADS stockpilesworldwide. The act requires the President to report on diplomatic efforts to addressMANPADS non-proliferation and requires the Secretary of State to provide the Congresswith annual briefings on the status of these efforts. The act also requires the FAA toestablish a process for expedited certification of airworthiness and safety for missile defensesystems that can be mounted on commercial aircraft. The act also requires the DHS toprovide a report within one year assessing the vulnerability of aircraft to MANPADS attacksand plans for securing airports and aircraft from this threat. At least three other bills introduced during the 108th Congress addressed methods formitigating the threat of shoulder-fired missiles to commercial aviation. H.R. 4056 , H.R. 5121 Section 23, and H.R. 10 Section 4103 all calledfor the pursuit of further diplomatic and cooperative efforts (including bilateral andmultilateral treaties) to limit availability, transfer, and proliferation of MANPADS.Additionally, they call for a continuation of current efforts to assure the destruction of excess,obsolete, and illicit stocks of MANPADS worldwide. These bills also called for theestablishment of agreements with foreign countries requiring MANPADS export licenses andprohibiting re-export or retransfer of MANPADS and associated components to a third party,organization, or foreign government without written consent of the government that approvedthe original transfer. Section 2241 of the State Department Authorization Bill ( S. 2144 ) mirrored the provisions of the three bills described above. Section 2125 of the bill provided$10 million in the "Nonproliferation, Antiterrorism, Demining, and Related Programs"account for multilateral and bilateral efforts to reduce the threat of MANPADS. ( P.L.108-447 .) In FY2006, several committees considered legislation pertaining tocounter-MANPADS programs. DoD requested $13.3 million in research and developmentfunds for a "MANPADS Defense Program" (P.E. # 0604618D8Z). This is to investigate thedevelopment of a ground-based, electro-optical sensor grid that is hoped to provide launchdetection and warning of shoulder-fired missiles. Key aspects of this program are to leveragecommercially available technologies to lower cost, and to ensure that system is suitable foruse in urban environments. Defense authorization conferees ( H.Rept. 109-360 , p. 600)matched the administration's funding request. Appropriations conferees ( H. Rept. 109-359 ,p.444) provided $5.5 more than requested. Administration Plans and Programs In response to P.L. 108-11 / H.Rept.108-76 , DHS submitted a plan to Congress on May22, 2003. (79) Theplan specifies a two year time frame for development, design, testing, and evaluation of ananti-missile device on a single aircraft type. The plan anticipates that a parallel FAAcertification effort will coincide with this system development and demonstration leading toan FAA-certified system that can be operationally deployed on commercial aircraft at the endof the two year project or soon thereafter. The program plan submitted by DHS estimated that the costs to carry out this projectwould consist of $2 million in FY2003 for administrative costs, $60 million in FY2004 forsystem development and initial testing, and an unspecified amount, not to exceed $60million, in FY2005 to complete development and demonstration of the system and obtainFAA certification. The Department of Homeland Security Appropriations Act for 2004 ( P.L.108-90 ) fully funded the requested $60 million in FY2004 for this effort and an additional$61 million was appropriated in FY2005 ( H.R. 4567 /P.L 108-334). ForFY2006, the requested amount of $110 million was fully appropriated for carrying theprogram into the next phase of more detailed system refinement, testing, and certification fordeployment on a wide variety of commercial passenger jets. This effort is expected toconclude in FY2007. The DHS established the system development program in a manner that would applyexisting technologies from the military environment to the commercial airline environmentrather than developing new technologies. In this manner, the DHS hopes to leverage militaryinvestment in counter-MANPADS technology in order to identify a technical solution thatcan be deployed in the civil aviation environment in a much faster time frame assuming thatsuch a system can be tailored to meet the operational needs and requirements of civilianflight operations. The DHS established a Counter-MANPADs Special Program Office (SPO) tomanage the program which the DHS envisions will consist of three phases. Phase I, whichwas completed in July 2004, consisted of an intensive six-month effort to assess proposedsolutions based on threat mitigation capabilities, system costs, airframe and avionicsintegration, and FAA certification issues. Three contractor teams led by Northrop-Grumman,BAE Systems, and United Airlines were awarded $2 million each to develop detailed systemsdescriptions and analysis of economic, manufacturing, maintenance, systems safety, andoperational effectiveness issues for applying their systems in the commercial aircraftenvironment. Following a DHS-led review of each contractor team's Phase I work and theirproposals for Phase II, on August 25, 2004, DHS awarded $45 million to BAE Systems andNorthrop Grumman to carry out Phase II of development. (80) Phase II consistedof an 18-month prototype development and evaluation based on existing technology. Bothcontractors received awards of about $45 million each for this effort which is currentlywrapping up with the delivery of two complete countermeasure units per contractor. Bothcontractors developed systems that rely on laser-based directed IR countermeasures (i.e.,DIRCM) to protect commercial aircraft from IR-guided MANPADS attacks. The UnitedAirlines-led team which was not selected for Phase II, had instead proposed a system thatwould have used expendable flare decoys to divert incoming missiles. (81) According to DHSofficials, two primary reasons why the United team was not selected was that there weresafety issues on the flight line for the expendable pyrotechnic decoys and that there wereissues with the system concerning false alarms. (82) The BAE Systems team, which also includes American Airlines and Honeywell, andthe Northrop Grumman team, which includes Federal Express and Northwest Airlines, havedeveloped prototypes over an 18 month period that are being tested on commercial aircraft.The Northrop Grumann prototype system, called Guardian, and the BAE Systems prototype,dubbed JetEye, both underwent airborne testing on widebody airliners to determine theireffectiveness. Final flight testing and completion of Phase II, originally targeted for January2006, has been delayed until late February or early March 2006, although representativesfrom both companies stated that initial data indicate both systems have been able to meet testrequirements specified by DHS. (83) Both firms, BAE Systems and Northrop Grumman, havealso developed directed energy infrared countermeasures systems for the U.S. military. (84) Northrop Grummanis currently delivering its Large Aircraft IRCM system for installation on U.S. Air Force C-17and C-130 transports while BAE is developing and delivering an IRCM system for U.S.Army aircraft. (85) That next phase of the DHS counter-MANPADS program for commercial aircraftwas funded in FY2006 appropriations and the intent of this additional funding is to gainfurther experience installing and testing the systems on a broader array of commercial aircrafttypes and improve the robustness of the systems under operational conditions encounteredin the commercial aviation environment. The FY2006 DHS Appropriations Act ( P.L.109-90 ) provides $110 million to award contracts for Phase III of the civilian airlinecounter-MANPADS program. This phase will include delivery and installation ofpre-production equipment on commercially operated aircraft by U.S. cargo carriers similarto those aircraft dedicated to meet the Civil Reserve Air Fleet (CRAF) requirement. To fostercompetition, the funds are planned to be used to maintain two contractors in Phase III. (86) During the PhaseIII effort, both companies will install test systems on a variety of aircraft types and obtaincertification for use on additional aircraft types. The goals of Phase III include live-firetesting, improving system reliability to meet performance specifications for commercialairline applications, adding ground notification alerting capabilities, and developing securityfeatures to safeguard sensitive military technology in units installed on aircraft that travelinternationally or are exported to foreign countries. (87) A House proposal to designate $10 million of the FY2006 appropriation for the DHScounter-MANPADS program toward emerging alternative counter-MANPADS technologywas not included in the final FY2006 appropriation. That proposal, contained in Housereport language, expressed concern that counter-MANPADS technologies currently beingpursued under the DHS program "will not be sufficiently able to meet the challenges ofcommercial application at a cost that is economically feasible" and recommended that somefunds be directed toward assessing other emerging technologies, principally ground-basedcountermeasures, that "may be simpler and more cost effective, but are far from fullydeveloped." (88) While annual operating and support (O&S) costs -- estimated by the RAND Corporation tobe a little over $300,000 per airplane (89) -- has raised significant concerns among both commercialairplane manufacturers and airlines over the use of aircraft-based counter-MANPADSsystems, policymakers have not directed the DHS to formally examine alternativetechnologies, although the House did recommend doing so. However, as previously noted,FY2006 DoD appropriations included R&D funding for ground-based electro-optical sensorarrays to detect and warn of shoulder-fired missile attacks. The FY2007 President's budget request includes $4.88 million for theCounter-MANPADS SPO to continue oversight and evaluation of the Phase III contractsexpected to be awarded in FY2006 and carried out in the FY2006-FY2007 time frame. TheFY2007 President's budget does not seek any additional funding for new DHSCounter-MANPADS initiatives beyond or in addition to the Phase III contracts. Conclusion No single solution can immediately and completely mitigate the shoulder-fired SAMthreat. As Congress considers possible legislative and oversight approaches, it is likely thatit may consider implementing various combinations of available mitigation alternatives inwhole or in part. In addition, Congress may consider phasing in mitigation options to bestrespond to available threat assessments or other criteria. For example, if threat assessmentsindicate that large widebody airplanes are most at risk, Congress may consider whetherinitially equipping these airplanes would more effectively deter the threat of missile attacks. Congress may also consider whether it would be more effective to initially equip aircraft usedon overseas flights, particularly those operating in countries or regions where the risk ofmissile attacks is greatest. Congress may also debate whether equipping only a portion ofthe air carrier fleet would be a sufficient deterrent, whether all-cargo jets should be equipped,whether passenger carrying regional jets should be equipped, or whether equipping the entireair carrier fleet is needed to adequately mitigate the threat. Equipping aircraft with missile countermeasure systems has advantages.Countermeasures are fixed to the aircraft, require little or no flight crew intervention, and canprotect the aircraft even when operating in areas where ground-based security measures areunavailable or infeasible to implement. Down sides include a high cost, and potentiallyundermining passenger confidence in the safety and security of air travel. Also, becauseimplementation will take time, countermeasures cannot immediately mitigate today's terroristthreat. Procedural improvements such as flight crew training, changes to air trafficmanagement, and improved security near airports may be less costly than countermeasuresand could more immediately help deter domestic terrorist attacks. However, these techniquesby themselves cannot completely mitigate the risk of domestic attacks and would not protectU.S. airliners flying to and from foreign airports. Congress and the Administration have initiated preliminary actions intended toprovide a degree of protection to commercial airliners. Legislation introduced in the 108thCongress ( H.R. 580 / S. 311 ) called for the installation of missiledefense systems in all turbojet aircraft used in scheduled air carrier service. The Departmentof Homeland Security (DHS) appropriations for 2004 ( P.L.108-90 ) designated $60 millionfor development and testing of a prototype missile countermeasure system for commercialaircraft and DHS initially envisioned a two year program totaling about $100 million todevelop, test, and certify a suitable system. Congress provided an additional $61 million tocontinue the program in FY2005 ( P.L.108-280 ), and for FY2006, designated $110 millionto conduct a more extensive third phase of the project that is anticipated to be carried outover the next two years. These actions may constitute a starting point for the considerationof additional protective measures designed to address all aspects of the shoulder-fired SAMthreat.

Recent events have focused attention on the threat that terrorists with shoulder firedsurface-to-air missiles (SAMs), referred to as Man-Portable Air Defense Systems (MANPADS), pose to commercial airliners. Most believe that no single solution exists to effectively mitigate thisthreat. Instead, a menu of options may be considered, including installing infrared (IR)countermeasures on aircraft; modifying flight operations and air traffic control procedures;improving airport and regional security; and strengthening missile non-proliferation efforts. Equipping aircraft with missile countermeasure systems can protect the aircraft even when operatingin areas where ground-based security measures are unavailable or infeasible to implement. However,this option has a relatively high cost, between $1 million and $3 million per aircraft, and the timeneeded for implementation does not allow for immediate response to the existing terrorist threat.Procedural improvements such as specific flight crew training, altering air traffic procedures tominimize exposure to the threat, and improved security near airports may be less costly thancountermeasures and could more immediately help deter domestic terrorist attacks. However, thesetechniques by themselves cannot completely mitigate the risk of domestic attacks and would notprotect U.S. airliners flying to and from foreign airports. Legislation introduced in the 108th Congress called for the installation of missile defensesystems in all turbojet aircraft used in scheduled air carrier service. Homeland Securityappropriations designated $60 million in FY2004, $61 million in FY2005, and $110 million inFY2006 to fund a program to develop and test prototype missile countermeasure systems forcommercial aircraft based on existing military technology. It is anticipated that at the conclusion ofthis program, the Department of Homeland Security will be able to provide a detailed analysis of thesuitability of such systems for use to protect commercial passenger aircraft. This report will be updated as needed.

Background On September 12, 1972, the Defense Property Disposal Service (the forerunner to DLA Disposition Services) was established under the Defense Supply Agency (now DLA). Defense property disposal offices were established worldwide on or near major military installations. DLA Disposition Services is responsible for property reuse (including the disposal and sale of surplus and excess defense equipment and supplies), precious metal recovery, recycling, hazardous property disposal, and the demilitarization of military equipment. Over the past four years, according to DLA's website, over $2.2 billion of property was reutilized. DLA Disposition Services provides support at major U.S. military installations worldwide. Headquartered in Battle Creek, MI, the DLA Disposition Services personnel serve in 16 foreign countries (including the Middle East and Southwestern Asia), 2 U.S. territories (Guam and Puerto Rico), and 41 states. DLA Disposition Services are provided in field offices in Afghanistan, Iraq, and Kuwait with teams deploying out to forward operating bases to assist combat units. With over 90 field offices, DLA Disposition Services employs about 1,500 people. The Reutilization/Transfer/Donation Program establishes a process for inventory considered no longer needed by the Department of Defense (DOD) to be redistributed among various groups. Property disposal means redistributing, transferring, donating, selling, demilitarizing, destroying, or other "end of life cycle" activities. Disposal is the final stage before the property leaves DOD's control. In some cases, the act of demilitarization—destroying the item's military offensive and defensive capability—accomplishes the intent of disposal. Property is considered excess when one particular federal agency determines it is not needed for its particular use, while property is considered surplus when it is no longer needed by the federal government. Most property turned in to DLA Disposition Services by the military services is offered for use in other DOD activities and to other federal agencies. Property considered surplus can be reused, transferred, donated, or sold; potential recipients may include law enforcement agencies, school systems, medical institutions, civic and community organizations, libraries, homeless assistance providers, state and local government agencies, and the public. During FY2008, about 56,000 military organizations and components turned in over 3.5 million items to DLA Disposition Services. About half of all surplus items are designated for the foreign military sales program, and about half are made available to other government agencies, eligible donees, or sold to the public. On July 31, 2008, DLA awarded Liquidity Services, Inc. a contract to be the primary manager for the receipt, storage, marketing, and disposition of virtually all usable defense surplus property approved by DOD for sale to the public. The contract had a base term of three years with two one-year renewal options. The contract was later extended through February 15, 2013. On September 13, 2012, Liquidity Services announced that DLA had exercised the second of (potentially) two 12-month extension periods, under its "Surplus Useable Property Sales Contract" to sell DOD surplus property. The surplus contract's performance period was extended through February 13, 2014. Major New Developments10 Congressional Concerns over the 1033 Program Some Members of Congress have expressed concern over the 1033 Program and the types of military equipment made available to state and local law enforcement agencies, particularly in the in the aftermath of clashes between protesters and police. The concerns of these Members were elevated in the aftermath of the August 2014 shooting death incident in Ferguson, MO, and the widely circulated photographs of heavily armed police using equipment believed to be transferred from the federal government through the 1033 Law Enforcement Support Program, as well as from other sources. (See section on the Law Enforcement Support Office) On September 9, 2014, the U.S. Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled "Oversight of Federal Programs Equipping State and Law Enforcement." The Temporary Suspension of the Potential Transfer of Surplus Vehicles from DLA to Law Enforcement Support Programs In May 2014, DLA reportedly began investigating the potential transfer and/or sale of soft skinned Humvees. In the process of researching any potential challenges or restrictions, the U.S. Army informed DLA that the engines in these vehicles were not allowed to be "entered into commerce" as they were not specifically approved as meeting Environmental Protection Agency (EPA) Clear Air Act standards. These vehicles were instead granted a National Security Exemption (NSE) by EPA for military tactical use only dating back to 1988. The NSE is founded in both statute and regulation. DLA Disposition Services was unaware of this arrangement between the Army and the EPA. At the time, DLA was made aware that other vehicles/engines that DLA had previously donated, transferred or entered into law-enforcement and fire-fighter support programs (1033 programs) were also not necessarily Clean Air Act compliant, but had received the NSE. Transfer, donation, and sale could all possibly trigger the statutory prohibition on "entry into commerce" of the NSE vehicles and engines. On June 30, 2014, DLA notified the Law Enforcement Support Office (LESO) State Coordinators and the U.S. Forestry Service of the decision to temporarily suspend release of all vehicles and equipment with diesel engines pending resolution with EPA. Consequently, release of all vehicles and equipment with diesel engines was temporarily suspended by DLA Disposition based on the statutory and regulatory language. Requisitions for other property and equipment continued to be released. On June 30, 2014, DLA notified the Law Enforcement Support Office (LESO) State Coordinators and the U.S. Forestry Service of a decision to temporarily suspend release of all vehicles and equipment with diesel engines, pending resolution of issues with the Environmental Protection Agency (EPA). According to several press reports, DOD announced that DLA would end the sale, donation, and/or transfer of surplus military vehicles to state and local agencies. These vehicles were historically used for law enforcement support and rural firefighting programs. However, on July 9, 2014, DLA Disposition Services announced that it would continue to make these military vehicles available to authorized law enforcement and fire-fighting program recipients. DLA Disposition Services posted the following notice on its website: Following discussions with the EPA, DLA will immediately resume issuing military vehicles and equipment with an associated national security exemption (NSE) to authorized law enforcement agencies and to DOD Fire Fighter Program recipients. EPA has confirmed that equipment transferred to law enforcement and fire-fighting agencies through these programs will continue to be covered by any National Security Exemption (NSE) previously issued by EPA, with the understanding that DLA retains title to the vehicles and appropriate inventory and other management controls remain in effect. We are amending our Memoranda of Understanding to reflect this agreement. Memorandum of Agreement The following is a Memorandum of Agreement, provided to CRS by DLA officials during August 2014, on the agreement reached between DLA and EPA on the national security exemption issue. XXI. ADDENDUM A. As of July 1, 2014, the DLA LESO has implemented policy and procedural changes which place additional controls on certain excess DOD property with Demilitarization codes of A and Q (with an Integrity Code of 6). These items will be subsequently referred to as "National Security Exemption (NSE) restricted DEMIL A and Q6 items. "Section III-General Terms and Conditions, § G-H, has been amended via Section XXI-Addendum, to reflect the additional controls placed on these items. 1. The DLA LESO will maintain a list of National Security Exemption (NSE) restricted DEMIL A and Q6 items, by National Stock Numbers (NSN), which will be treated as controlled property. 2. All items falling into this category that were acquired with an MRO/Ship date after July 1, 2013, will be treated as controlled property, and will not be systematically archived from the DLA LESO inventory. Law Enforcement Agencies (LEA) are not authorized to sell NSE restricted A and Q6 items. 3. When an NSE restricted DEMIL A and Q6 item is no longer needed by a Law Enforcement Agency, the item must be turned back into a DLA Disposition Services location or transferred to another participating Law Enforcement Agency within the DLA LESO. 4. For Annual Inventory purposes, Law Enforcement Agencies who obtain or have obtained NSE restricted DEMIL A and Q6 items after July 1, 2013, must now provide Serial numbers for these items. In addition, photographs of these items may also be required, if the item falls into a Federal Supply Group (FSG) of 10, 15, 19 or 23. 5. Law Enforcement Agencies may request to sell items with a DEMIL Code of Q (with an Integrity Code of 6), which do not fall into the category of NSE restricted items, but must gain State Coordinator and DLA LESO approval, prior to the actual sale of such items. These items will not be systematically archived from the DLA LESO inventory. 6. Only excess property with a DEMIL Code of A, which does not fall into the category of NSE restricted items, will continue to be systematically archived from the DLA LESO inventory one year from MRO/Ship date. Title for items in this category will continue to pass to the LEA. Controlling Legal Authority Authority for the disposal of surplus defense property can be found in P.L. 94-519 , 10 U.S.C. 381, which amends the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 484), P.L. 107-117 , and DOD Directive 4140.1, Supply Chain Materiel Management Policy; DOD 4160.21-M Defense Materiel Disposition Manual, and DOD 4160.21-M-1 Defense Demilitarization Manual. DLA Disposition Services DLA Disposition Services manages the reutilization, transfer, donation and sale of surplus military property. The Reutilization/Transfer/Donation Program through DLA Disposition Services establishes a process for property considered no longer needed by DOD to be redistributed among various groups. Property considered surplus can be reused, transferred, donated, or sold; potential recipients may include law enforcement agencies, school systems, medical institutions, civic and community organizations, libraries, homeless assistance providers, state and local government agencies, veteran's organizations, and the public. Finally, DLA Disposition Services manages the DOD surplus property sales program. Property that is no longer needed by the government may be acquired through public sales, if the property is appropriate and safe for sale to the general public. Major Recipients State and Local Governments If property cannot be reused or transferred to other federal agencies, it may be donated to state and local government programs. Each state has designated a "State Agency for Surplus Property Program," a local governing authority to receive and distribute all federal surplus property. The program authorizes "screeners" to handle the logistics, and the state agency may charge a fee for handling the transaction. Eligible recipients include, but are not limited to, organizations that promote public health, safety, education, recreation, conservation, and other public needs, including veterans groups and Native American organizations. Groups that qualify as a "service education activity" may have a slight priority in the screening process. Law Enforcement Support Office (LESO) and the 1033 Program The "1033 Program" was created by Congress in the National Defense Authorization Act for 1997. Section 1033 of the National Defense Authorization Act for FY1997 authorized the transfer of property from DOD to federal and state agencies that would be suitable for use by agencies in law enforcement activities, including counter-drug and counter terrorism activities. This property is considered excess to the needs of the Department of Defense. LESO administers 10 U.S.C. Section 2576a, which transfers excess DOD equipment to federal and state law enforcement agencies through the 1033 Program. DLA estimates that since 1990, more than $4.2 billion worth of property has been transferred; in FY2011 alone, a record $502 million worth of property was transferred to federal and state law enforcement agencies. It authorizes the Secretary of Defense to provide material support to authorized federal and state law enforcement agencies in the form of transfers of articles suitable for use in counter-drug and counter-terrorism activities. These are drawn from Department of Defense (DOD) stocks deemed excess to military needs. The current statute was preceded by a 1990 statute, Section 1208 of the National Defense Authorization Act for 1990 and 1991 ( P.L. 101-189 ), which temporarily authorized transfers of defense equipment to law enforcement agencies for counter-drug enforcement use. The 1997 act made the authority permanent and expanded it to include counter-terrorism activities. The statute requires the Secretary of Defense to consult with the Attorney General and the Director of National Drug Control Policy in carrying out its provisions. It also allows the Secretary to transfer property only if (1) it is drawn from existing DOD stocks, (2) the receiving agency accepts the material "as-is, where-is," (3) the transfer is made without expending DOD procurement funds, and (4) all subsequent costs are borne by the receiver. Nevertheless, the Secretary may transfer the property without charge to the recipient. Types of Equipment DLA has provided the following information in both conference call and email correspondence with CRS during August-September 2014. DLA states that all of the military equipment transferred through the LESO has a specific military specification, and that 88% of the equipment is considered non-tactical equipment. Such non-tactical equipment may include (but is not limited to) office equipment, chairs, boots, generators and tents. Approximately 12% of the equipment is considered tactical, and may include (but is not limited to) weapons, night vision equipment, and tactical vehicles. DLA states that all of the equipment requisitioned under the 1033 Program has either a commercial similarity or can be requested through a grant. In addition, the 1122 Program (FY1994 National Defense Authorization Act) authorizes state and local governments to purchase law enforcement equipment for counter-drug activities. Each state appoints a point of contact (POC) for this program. The POC may purchase items from any of the four inventory control points managed by DLA. To order items, applicants are to contact their State Agency for Surplus Property Program. Equipment Provided to Ferguson, MO and St. Louis County According to DLA, the Ferguson, MO and St. Louis County law enforcement programs were provided the following equipment. since July 2013, under the 1033 Program. Firefighting Support Program Title 10 U.S.C. 2576b authorizes the U.S. Department of Agriculture's Forest Service to manage the DOD firefighting property transfers. An interagency agreement between DOD and the Forest Service is under the authority of the Economy Act, 31 U.S.C. 1535. The Federal Excess Personal Property (FEPP) Program, administered through the Forest Service, provides equipment to state and territorial forestry programs for wild land and rural firefighting. Humanitarian Assistance Program Title 10 U.S.C. 2557 authorizes DOD to provide excess property for humanitarian relief, domestic emergency assistance, and homeless veterans' assistance, as coordinated through the Defense Security Cooperation Agency, Office of Humanitarian and Refugee Affairs. Public Sales Property not reused, transferred, or donated can be sold to the general public through public auctions and sealed bidding. Munitions, explosives, and strategic items are not sold. Veteran Groups There are at least two ways that veteran groups can qualify for eligibility for DOD surplus property. If property cannot be reused or transferred to other federal agencies, it may be donated to state and local government programs. Each state has designated a State Agency for Surplus Property Program, a local governing authority to receive and distribute all federal surplus property. The program authorizes "screeners" to handle the logistics, and the state agency may charge a fee for handling the transaction. Eligible recipients include, but are not limited to, organizations that promote public health, safety, education, recreation, conservation, and other public needs, including veteran's groups and Native American organizations. Groups that qualify as a "service education activity" may have a slight priority in the screening process. Property can also be acquired in accordance with Public Law 80-421, which authorizes the Secretaries of the Military Departments to donate or loan certain types of surplus military equipment to recognized, selected recipients. The DLA Disposition Services website lists the following organizations as authorized to acquire, through donation or loan, obsolete or condemned combat material, books, manuscripts, works of art, drawings, plans and models for historical, ceremonial, and display purposes: Veteran organizations; Soldiers Monument Associations; State Museums; Incorporated Museums; Municipal Museums, and Sons of Veterans Reserves. Other Programs There are other programs which may assist organizations which may fail to qualify for DLA Disposition Services property as a DOD, federal, or donation customer. Such programs include (but are not limited to) museums, educational institutions, National Guard and Senior Reserve Officer Training Corps units, and the Civil Air Patrol. Past Legislative Activity P.L. 112-239 ( H.R. 4310 , 112 th Congress) contained at least three provisions that my impact the policy governing the distribution of DOD surplus or excess property. Section 1051 expanded the Secretary of the Army's authority to loan or donate small firearms, determined to be excess, for use during funerals and other ceremonial purposes; Section 1053 granted the Secretary of Defense the authority to transfer mine-resistant, ambush-protected vehicles and spare parts, to nonprofit U.S. humanitarian, demining organizations for training purposes, and Section 1091 granted DOD the authority to transfer certain aircraft, with exceptions, to the Secretary of Agriculture and the Secretary of Homeland Security for use by the Forest Service and the U.S. Coast Guard. P.L. 112-81 ( H.R. 1540 , 112 th Congress) contained a provision (Section 361) that clarified a previously enacted provision (Section 346 of the Ike Skelton National Defense Authorization Act for FY2011, P.L. 111-383 ) which made available for sale any small arms ammunition and small ammunition components which were in excess of military requirements. Section 361 amended the conditions that would govern the commercial sale of small arms ammunition components and fired cartridge cases. H.Rept. 112-329 , the conference report that accompanied H.R. 1540 , offered the following clarification. The conferees note that the intent of Section 346 of P.L. 111-383 , as amended, is to clarify that the only fired cartridge cases (referred to as expended small arms cartridge cases) subject to the provision are intact expended small arms cartridge cases and that the provision does not apply outside the continental United States or overrides established Department of Defense (DOD) trade security controls or explosives safety controls. The conferees note that the DOD would be permitted to demilitarize and recycle expended small arms cartridge cases covered by the provision so long as there is not a significant decrease in intact expended small arms cartridge cases being made available for sale and there is no evidence that commercial demands are not generally being met. The conferees note that based on its current force structure and training requirements, the DOD currently makes approximately 6-8 million pounds of intact (non-demilitarized) expended small arms cartridge cases available each year for commercial sales. The conferees recognize that the amount made available may change as the DOD's force structure or training requirements change. The conferees note that the DOD would be responsible for assessing commercial demands for the purpose of implementing this requirement; the conferees understand that the DOD may choose to conduct market surveys or studies to assess commercial demands for this purpose. In the 111 th Congress, the Ike Skelton National Defense Authorization Act for FY2011 ( P.L. 111-383 , H.R. 6523 ) contained a provision (Section 1072) that amended Title 10 Section 2576a to broaden the categories of state and local organizations that would be eligible for surplus military equipment to include state and local law enforcement, firefighting, homeland security, and emergency management agencies. Also, the Affordable Reloaded Munitions Supply (ARMS) Act of 2009 ( H.R. 2193 ) was introduced in the House on April 30, 2009. The bill would have prohibited the Secretary of Defense from implementing any policy that prevents or places undue restriction on the sale of "intact spent military small arms ammunition casings" to certain domestic suppliers. The bill had 41 co-sponsors, and was referred to the House Armed Services Committee. For Additional Information The DLA Customer Contact Center is open 24 hours a day, 7 days a week, at [phone number scrubbed], or at [email address scrubbed] .For more information about DLA Disposition Services, see http://www.dispositionservices.dla.mil/index.shtml .

The effort to dispose of surplus military equipment dates back to the end of World War II when the federal government sought to reduce a massive inventory of surplus military equipment by making such equipment available to civilians. (The disposal of surplus real property, including land, buildings, commercial facilities, and equipment situated thereon, is assigned to the General Services Administration, Office of Property Disposal.) The Department of Defense (DOD) through a Defense Logistics Agency (DLA) component called DLA Disposition Services has a policy for disposing of government equipment and supplies considered surplus or deemed unnecessary, or excess to the agency's currently designated mission. DLA Disposition Services is responsible for property reuse (including resale), precious metal recovery, recycling, hazardous property disposal, and the demilitarization of military equipment. DLA Disposition Services manages the reutilization, transfer, donation and sale of surplus military property. The Reutilization/Transfer/Donation Program through DLA Disposition Services establishes a process for property considered no longer needed by DOD to be redistributed among various groups. Property considered surplus can be reused, transferred, donated, or sold; potential recipients may include law enforcement agencies, school systems, medical institutions, civic and community organizations, libraries, homeless assistance providers, state and local government agencies, veteran's organizations, and the public. Property that is no longer needed by the government may be acquired through public sales, if the property is appropriate and safe for sale to the general public. Recently, the Law Enforcement Support Program (LESO), also referred to as the 1033 Program, has been the subject of media reports. Some Members of Congress have expressed concern over the transfer of surplus weapons from federal programs including the 1033 Program, and the types of military equipment that can be made available to state and local law enforcement agencies, particularly in the aftermath of clashes between protesters and police over the August 2014 shooting death incident in Ferguson, MO. On September 9, 2014, the U.S. Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled "Oversight of Federal Programs Equipping State and Law Enforcement." This report focuses on the disposal of defense surplus property that is delegated to DOD from the General Services Administration. Law enforcement agencies are a recipient of defense surplus property, along with many other recipients. For further information on the 1033 Program, see CRS Report R43701, The "1033 Program," Department of Defense Support to Law Enforcement, by [author name scrubbed].

Introduction The nation's air, land, and marine transportation systems are designed for accessibility and efficiency, two characteristics that make them vulnerable to attack. The difficulty and cost of protecting the transportation sector from attack raises a core question for policymakers: how much effort and resources to put toward protecting potential targets versus pursuing and fighting terrorists. While hardening the transportation sector against terrorist attack is difficult, measures can be taken to deter terrorists. The focus of debate is how best to construct and finance a system of deterrence, protection, and response that effectively reduces the possibility and consequences of terrorist attacks without unduly interfering with travel, commerce, and civil liberties. For all modes of transportation, one can identify four principal policy objectives that would support a system of deterrence and protection: (1) ensuring the trustworthiness of the passengers and the cargo flowing through the system; (2) ensuring the trustworthiness of the transportation workers who operate and service the vehicles, assist the passengers, or handle the cargo; (3) ensuring the trustworthiness of the private companies that operate in the system, such as the carriers, shippers, agents, and brokers; and (4) establishing a perimeter of security around transportation facilities and vehicles in operation. The first three policy objectives are concerned with preventing an attack from within a transportation system, such as occurred on September 11, 2001. The concern is that attackers could once again disguise themselves as legitimate passengers (or shippers or workers) to get in position to launch an attack. The fourth policy objective is concerned with preventing an attack from outside a transportation system. For instance, terrorists could ram a bomb-laden speedboat into an oil tanker, as was done in October 2002 to the French oil tanker Limberg , or they could fire a shoulder-fired missile at an airplane taking off or landing, as was attempted in November 2002 against an Israeli charter jet in Mombasa, Kenya. Achieving all four of these objectives is difficult, at best, and in some modes, is practically impossible. Where limited options exist for preventing an attack, policymakers are left with evaluating options for minimizing the consequences from an attack, without imposing unduly burdensome requirements. Aviation Security1 Following the 9/11 terrorist attacks, Congress took swift action to create the Transportation Security Administration (TSA), federalizing all airline passenger and baggage screening functions and deploying significantly increased numbers of armed air marshals on commercial passenger flights. To this day, the federalization of airport screening remains controversial. For example, Representative Bill Shuster, chairman of the House Transportation and Infrastructure Committee, said in 2015 that, in hindsight, the decision to create TSA as a federal agency functionally responsible for passenger and baggage screening was a "big mistake," and that frontline screening responsibilities should have been left in the hands of private security companies. While airports have the option of opting out of federal screening, alternative private screening under TSA contracts has been limited to 21 airports out of approximately 450 commercial passenger airports where passenger screening is required. Congress has sought to ensure that optional private screening remains available for those airports that want to pursue this option, but proposals seeking more extensive reforms of passenger screening have not been extensively debated. Rather, aviation security legislation has largely focused on specific mandates to comprehensively screen for explosives and carry out background checks and threat assessments. Despite the extensive focus on aviation security for more than a decade, a number of challenges remain, including effectively screening passengers, baggage, and cargo for explosives threats; developing effective risk-based methods for screening passengers and others with access to aircraft and sensitive areas; exploiting available intelligence information and watchlists to identify individuals who pose potential threats to civil aviation; effectively responding to security threats at airports and screening checkpoints; developing effective strategies for addressing aircraft vulnerabilities to shoulder-fired missiles and other standoff weapons; and addressing the potential security implications of unmanned aircraft operations in domestic airspace. Explosives Screening Strategy for the Aviation Domain Prior to the 9/11 attacks, explosives screening in the aviation domain was limited in scope and focused on selective screening of checked baggage placed on international passenger flights. Immediately following the 9/11 attacks, the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ) mandated 100% screening of all checked baggage placed on domestic passenger flights and on international passenger flights to and from the United States. In addition, the Implementing the 9/11 Commission Recommendations Act of 2007 ( P.L. 110-53 ) mandated the physical screening of all cargo placed on passenger flights. Unlike passenger and checked baggage screening, TSA does not routinely perform physical inspections of air cargo. Rather, TSA satisfies this mandate through the Certified Cargo Screening Program. Under the program, manufacturers, warehouses, distributors, freight forwarders, and shippers carry out screening inspections using TSA-approved technologies and procedures both at airports and at off-airport facilities in concert with certified supply-chain security measures and chain of custody standards. Internationally, TSA works with other governments, international trade organizations, and industry to assure that all U.S.-bound and domestic cargo carried aboard passenger aircraft meets the requirements of the mandate. Additionally, TSA works closely with Customs and Border Protection (CBP) to carry out risk-based targeting of cargo shipments, including use of the CBP Advance Targeting System-Cargo (ATS-C), which assigns risk-based scores to inbound air cargo shipments to identify shipments of elevated risk. Originally designed to combat drug smuggling, ATS-C has evolved over the years, particularly in response to the October 2010 cargo aircraft bomb plot that originated in Yemen, to assess shipments for explosives threats or other terrorism-related activities. Given the focus on the threats to aviation posed by explosives, a significant focus of TSA acquisition efforts has been on explosives screening technologies. However, in 2014, Congress found that TSA had failed to meet key performance requirements set for explosives detection and had not consistently implemented Department of Homeland Security (DHS) policy and best practices for procurement. The Transportation Security Acquisition Reform Act ( P.L. 113-245 ) addressed these concerns by requiring a five-year technology investment plan, and increased accountability for acquisitions through formal justifications and certifications that technology investments are cost-beneficial. The act also required tighter inventory controls and processes to ensure efficient utilization of procured technologies, as well as improvements in setting and attaining goals for small-business contracting opportunities. A major thrust of TSA's acquisition and technology deployment strategy is improving the capability to detect concealed explosives and bomb-making components carried by airline passengers. The October 31, 2015, downing of a Russian passenger airliner departing Sharm el-Sheikh, Egypt, reportedly following the explosion of a bomb aboard the aircraft, has renewed concerns over capabilities to detect explosives in baggage and cargo and monitoring of airport workers with access to aircraft, particularly overseas. In response to a 2009 incident aboard a Northwest Airlines flight, the Obama Administration accelerated deployment of Advanced Imaging Technology (AIT) whole body imaging (WBI) screening devices and other technologies at passenger screening checkpoints. This deployment responded to the 9/11 Commission recommendation to improve the detection of explosives on passengers. In addition to AIT, next generation screening technologies for airport screening checkpoints include advanced technology X-ray systems for screening carry-on baggage, bottled liquids scanners, cast and prosthesis imagers, shoe scanning devices, and portable explosives trace detection equipment. The use of AIT has raised a number of policy questions. Privacy advocates have objected to the intrusiveness of AIT, particularly when used for primary screening. To allay privacy concerns, TSA eliminated the use of human analysis of AIT images and does not store imagery. In place of human image analysts, TSA has deployed automated threat detection capabilities using automated targeting recognition (ATR) software. Another concern raised about AIT centered on the potential medical risks posed by backscatter X-ray systems, but those systems are no longer in use for airport screening, and current millimeter wave systems emit nonionizing millimeter waves not considered harmful. More recently, the effectiveness of AIT and ATR has been brought into question. In 2015, the DHS Office of Inspector General completed covert testing of passenger screening checkpoint technologies and processes to evaluate the effectiveness of AIT and ATR. In testimony, DHS Inspector General John Roth revealed that the covert testing consistently found failures in technology and procedures coupled with human error that allowed prohibited items to pass into secure areas. Even prior to the revelations of weaknesses in passenger checkpoint screening technologies and procedures, the use of AIT was controversial. Past legislative proposals specifically sought to prohibit the use of WBI technology for primary screening (see, for example, H.R. 2200 , 111 th Congress). Primary screening using AIT is now commonplace at larger airports, but checkpoints at many smaller airports have not been furnished with AIT equipment and other advanced checkpoint detection technologies. This raises questions about TSA's long-range plans to expand AIT to ensure more uniform approaches to explosives screening across all categories of airports. Through FY2016, TSA deployed about 750 AIT units, roughly 86% of its projected full operating capability of 870 units. Full operating capability, once achieved, will still leave many smaller airports without this capability. TSA plans to manage this risk to a large extent through risk-based passenger screening measures, primarily through increased use of voluntary passenger background checks under the PreCheck trusted traveler program. However, this program, likewise, has not been rolled out at many smaller airports: currently, the program's incentive of expedited screening is offered at less than half of all commercial passenger airports. In addition to continued deployment and utilization of AIT, the FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) directed TSA to task the Aviation Security Advisory Committee, composed of industry experts on airport and airline security matters, to develop recommendations for more efficient and effective passenger screening. It also directed TSA to initiate a pilot program at three to six large airports to examine passenger checkpoint reconfigurations that increase efficiencies and reduce vulnerabilities, and a separate pilot program at three airports to develop and test next-generation screening system prototypes designed to expedite passenger handling. Risk-Based Passenger Screening TSA has initiated a number of risk-based screening initiatives to focus its resources and apply directed measures based on intelligence-driven assessments of security risk. These include PreCheck; modified screening procedures for children 12 and under; and a program for expedited screening of known flight crew and cabin crew members. Programs have also been developed for modified screening of elderly passengers similar to those procedures put in place for children. PreCheck is TSA's latest version of a trusted traveler program that has been modeled after CBP programs such as Global Entry, SENTRI, and NEXUS. Under the PreCheck program, participants vetted through a background check process are processed through expedited screening lanes where they can keep shoes on and keep liquids and laptops inside carry-on bags. As of December 2016, PreCheck expedited screening lanes were available at more than 180 airports. The cost of background checks under the PreCheck program is recovered through application fees of $85 per passenger for a five-year membership. TSA's goal is to process 50% of passengers through PreCheck expedited screening lanes, thus reducing the need for standard security screening lanes, but it has struggled to increase program membership. About 10 million individuals have enrolled in either PreCheck or other DHS trusted traveler programs, like Global Entry, that allow access to expedited screening lanes, but TSA would like to boost this number to 25 million. One concern raised over the PreCheck program is the lack of biometric authentication to verify participants at screening checkpoints. A predecessor test program, the Registered Traveler program, which used private vendors to issue and scan participants' biometric credentials, was scrapped by TSA in 2009 because it failed to show a demonstrable security benefit. In 2016, biometric identity authentication was reintroduced at 13 airports under a private trusted traveler program known as Clear. Participants in Clear, which is separate from PreCheck and not operated or funded by TSA, use an express lane to verify identity using a fingerprint or iris scan rather than interacting with a TSA document checker. Previously, the extensive use of a program called "managed inclusion" to route selected travelers not enrolled in PreCheck through designated PreCheck expedited screening lanes also raised objections. The Government Accountability Office (GAO) found that TSA had not fully tested its managed inclusion practices, and recommended that TSA take steps to ensure and document that testing of the program adheres to established evaluation design practices. TSA phased out the managed inclusion program in the fall of 2015. Since September 2015, TSA behavior detection officers (BDOs) and explosives trace detection personnel no longer direct passengers not enrolled in PreCheck to expedited screening lanes. Passenger evaluations by canine explosives detection teams continue at some airports, but TSA is moving toward offering expedited screening only to PreCheck program enrollees. Questions remain regarding whether PreCheck is fully effective in directing security resources to unknown or elevated-risk travelers. Nonetheless, it has improved screening efficiency, resulting in cost savings for TSA. TSA estimates annual savings in screener workforce costs totaling $110 million as a result of PreCheck and other risk-based initiatives. In addition to passenger screening, TSA, in coordination with participating airlines and labor organizations representing airline pilots, has developed a known crewmember program to expedite security screening of airline flight crews. In July 2012, TSA expanded the program to include flight attendants. TSA has also developed a passenger behavior detection program to identify potential threats based on observed behavioral characteristics. TSA initiated early tests of its Screening Passengers by Observational Techniques (SPOT) program in 2003. By FY2012, the program deployed almost 3,000 BDOs at 176 airports, at an annual cost of about $200 million. Questions remain regarding the effectiveness of the behavioral detection program, and privacy advocates have cautioned that it could devolve into racial or ethnic profiling. While some Members of Congress have sought to shutter the program, Congress has not moved to do so. For example, H.Amdt. 127 (113 th Congress), an amendment to the FY2014 DHS appropriations measure that sought to eliminate funding for the program, failed to pass a floor vote. Congress also has not taken specific action to revamp the program, despite the concerns raised by GAO and the DHS Office of Inspector General. P.L. 114-190 included language to expand capabilities of the TSA PreCheck program by involving private-sector entities in marketing PreCheck and enrolling applicants. The law mandates that PreCheck lanes be open and available during peak and high-volume travel times. The Use of Terrorist Watchlists in the Aviation Domain Airlines were formerly responsible for checking passenger names against terrorist watchlists maintained by the government. Following at least two instances in 2009 and 2010 in which such checks failed to identify individuals who may pose a threat to aviation, TSA modified security directives to require airlines to check passenger names against the no-fly list within 2 hours of being electronically notified of an urgent update, instead of allowing 24 hours to recheck the list. The event also accelerated the transfer of watchlist checks from the airlines to TSA under the Secure Flight program. In November 2010, DHS announced that 100% of passengers flying to or from U.S. airports are being vetted using the Secure Flight system. Secure Flight vets passenger name records against a subset of the Terrorist Screening Database (TSDB). On international flights, Secure Flight operates in coordination with the use of watchlists by CBP's National Targeting Center-Passenger, which relies on the Advance Passenger Information System (APIS) and other tools to vet both inbound and outbound passenger manifests. In addition to these systems, TSA conducts risk-based analysis of passenger data carried out by the airlines through use of the Computer-Assisted Passenger Prescreening System (CAPPS). In January 2015, TSA gave notification that it would start incorporating the results of CAPPS assessments, but not the underlying data used to make such assessments, into Secure Flight, along with each passenger's full name, date of birth, and PreCheck traveler number (if applicable). These data are used within the Secure Flight system to perform risk-based analyses to determine whether passengers receive expedited, standard, or enhanced screening at airport checkpoints. Central issues surrounding the use of terrorist watchlists in the aviation domain that may be considered during the 115 th Congress include the speed with which watchlists are updated as new intelligence information becomes available; the extent to which all information available to the federal government is exploited to assess possible threats among passengers and airline and airport workers; the ability to detect identity fraud or other attempts to circumvent terrorist watchlist checks; the adequacy of established protocols for providing redress to individuals improperly identified as potential threats; and the adequacy of coordination with international partners. In addition, there has been a growing interest in finding better ways to utilize watchlists to prevent terrorist travel, particularly travel of radicalized individuals seeking to join forces with foreign terrorist organizations such as the Islamic State of Iraq and Syria (ISIS). Language in P.L. 114-190 directed TSA to assess whether recurrent fingerprint-based criminal background checks could be carried out in a cost-effective manner to augment terrorist watchlist checks for PreCheck program participants. Additionally, the act directed TSA to expand criminal background checks for certain airport workers. Perimeter Security, Access Controls, and Worker Vetting Airport perimeter security, access controls, and credentialing of airport workers are generally responsibilities of airport operators. There is no common access credential for airport workers. Rather, each airport separately issues security credentials to airport workers. These credentials are often referred to as Security Identification Display Area (SIDA) badges, and they convey the level of access that an airport worker is granted. TSA requires access control points to be secured by measures such as posted security guards or electronically controlled locks. Additionally, airports must implement programs to train airport employees to look for proper identification and challenge anyone not displaying proper identification. Airports may also deploy surveillance technologies, access control measures, and security patrols to protect airport property from intrusion, including buildings and terminal areas. Such measures are paid for by the airport, but must be approved by TSA as part of an airport's overall security program. State and local law enforcement agencies with jurisdiction at the airport are generally responsible for patrols of airport property, including passenger terminals. They also may patrol adjacent properties to deter and detect other threats to aviation, such as shoulder-fired missiles (see " Mitigating the Threat of Shoulder-Fired Missiles to Civilian Aircraft "). TSA requires security background checks of airport workers with unescorted access privileges to secure areas at all commercial passenger airports and air cargo facilities. Background checks consist of a fingerprint-based criminal history records check and security threat assessment, which include checking employee names against terrorist database information. Certain criminal offenses committed within the past 10 years, including aviation-specific crimes, transportation-related crimes, and other felony offences, are disqualifying. Airports must collect applicant biographical information and fingerprints to submit to TSA to process background checks. Many airports use a service known as the Transportation Security Clearinghouse to coordinate the processing of background check applications. P.L. 114-190 directed TSA to update the eligibility criteria and disqualifying criminal offenses for SIDA access credentials based on other transportation vetting requirements and knowledge of insider threats to security. The law proposes that TSA expand the criminal history look-back period from the current 10 years to 15 years, and that individuals be disqualified if they have been released from prison within 5 years of their application. The statute directs TSA to establish a formal waiver process for individuals denied credentials. It also calls for full implementation of recurrent vetting of airport workers with SIDA access credentials using the Federal Bureau of Investigation's (FBI's) Rap Back services to identify disqualifying criminal offences. Language in P.L. 114-190 also directs TSA to conduct enhanced physical inspections of airport workers at SIDA access points and in SIDA areas. The inspections are to be random and unpredictable as well as data-driven and operationally dynamic. The law also directs TSA and the Department of Homeland Security Office of Inspector General to increase covert testing of access controls. Explosives Screening Technology and Canines Explosives screening technologies at passenger screening checkpoints primarily consist of whole body imaging systems known as Advanced Imaging Technology (AIT); advanced technology X-ray imagers for carry-on items; and explosives trace detection (ETD) systems used to test swab samples collected from individuals or carry-on items for explosives residue. In its FY2017 budget request, TSA indicated that it intends to procure AIT and ETD systems in small numbers, while it intends to acquire more than 300 advanced technology X-ray imagers for carry-on items, upgraded with multi-view capabilities or automated explosives detection capabilities. For checked baggage screening, TSA utilizes explosives detection system (EDS) and ETD technology. TSA deploys either high-speed (greater than 900 bags per hour), medium-speed (400 to 900 bags per hour), or reduced-size (100 to 400 bags per hour) EDS systems, depending on airport needs and configurations. The use of explosives detection technology was mandated by the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ) more than a decade ago. Consequently, present TSA checked-baggage explosives detection technology acquisition is primarily focused on replacing systems that have reached the end of their service lives. TSA is also funding the development of new algorithms to more reliably detect homemade explosives threats in checked baggage and reduce false positives. TSA pays for or reimburses airports for modifying baggage-handling facilities and installing new inspection systems to accommodate explosives detection technologies. The TSA's National Explosives Detection Canine Team Program trains and deploys canines and handlers at transportation facilities to detect explosives. The program includes approximately 320 TSA teams and 675 state and local law enforcement teams trained by TSA under partnership agreements. More than 180 of the TSA teams are dedicated to passenger screening at about 40 airports. Following airport bombings in Brussels, Belgium, and Istanbul, Turkey, in 2016, there has been interest in increasing deployments of canine teams in non-sterile areas of airport terminals. P.L. 114-190 included language authorizing TSA to provide training to foreign governments in airport security measures including the use of canine teams. The act also directed TSA to utilize canine teams along with other resources and technologies to minimize passenger wait times and maximize security effectiveness of checkpoint operations. Event Response in the Non-sterile Area Incident response at airports is primarily the responsibility of the airport operator and state or local law enforcement agencies, with TSA acting as a regulator in approving response plans as part of an airport's comprehensive security program. Federal law enforcement may also be involved in developing and reviewing these plans, but will typically not have a lead role in event response. However, federal law enforcement may assume a lead investigative role following a security incident, particularly if the event is determined to be an act of terrorism. The Brussels and Istanbul airport bombings increased concern over response to security incidents in non-sterile areas of airports prior to passenger screening checkpoints. Language in P.L. 114-190 establishes requirements for DHS to develop training exercises to enhance law enforcement and first responder preparedness for active shooter and mass casualty events at airports, mass transit systems, and other public locations. Security Response to Incidents at Screening Checkpoints On November 1, 2013, a lone gunman targeting TSA employees fired several shots at a screening checkpoint at Los Angeles International Airport (LAX), killing one TSA screener and injuring two other screeners and one airline passenger. In a detailed post-incident action report, TSA identified several proposed actions to improve checkpoint security, including enhanced active shooter incident training for screeners; better coordination and dissemination of information regarding incidents; expansion and routine testing of alert notification capabilities; and expanded law enforcement presence at checkpoints during peak times. TSA did not support proposals to arm certain TSA employees or provide screeners with bulletproof vests, and did not recommend mandatory law enforcement presence at checkpoints. The Gerardo Hernandez Airport Security Act of 2015 ( P.L. 114-50 ), named in honor of the TSA screener killed in the LAX incident and enacted in September 2015, requires airports to adopt plans for responding to security incidents. Such plans must include details on evacuation, unified incident command, testing and evaluation of communications, time frames for law enforcement response, and joint exercises and training at airports. Additionally, the act requires TSA to create a mechanism for sharing information among airports regarding best practices for airport security incident planning, management, and training. It also requires TSA to identify ways to expand the availability of funding for checkpoint screening law enforcement support through cost savings from improved efficiencies. Law enforcement response to incidents at passenger screening checkpoints allows for flexibility in the deployment of law enforcement support. While some airports station law enforcement officers at dedicated posts at or near passenger screening checkpoints, other airports allow officers to patrol other areas of the airport so long as a minimum response time to incidents at passenger screening checkpoints is maintained. TSA provides funding for law enforcement support at screening checkpoints through agreements that partially reimburse for law enforcement hours. Foreign Last Point of Departure Airports TSA regulates foreign air carriers that operate flights to the United States to enforce requirements regarding the acceptance and screening of passengers, baggage, and cargo carried on those aircraft. As part of this regulation, TSA inspects foreign airports from which commercial flights proceed directly to the United States. TSA officials known as Transportation Security Administration Representatives (TSARs) assess country compliance with international standards for aviation security, and plan and coordinate U.S. airport risk analysis and assessments of foreign airports. TSARs also administer and coordinate TSA response to terrorist incidents and threats to U.S. citizens and transportation assets and interests overseas. Fifteen foreign last point of departure airports (eight in Canada, two in the Bahamas, one in Bermuda, one in Aruba, two in Ireland, and one in Abu Dhabi) have Customs and Border Protection (CBP) preclearance facilities where passengers are admitted to the United States prior to departure. Passengers arriving on international flights from these preclearance airports deplane directly into the airport sterile area upon arrival at the U.S. airport of entry, where they can board connecting flights or leave the airport directly, rather than being routed to customs and immigration processing facilities. Assessing screening measures at preclearance airports is a particular priority for TSA. TSA is also working to increase checked baggage preclearance processing so checked baggage does not have to be rescreened by TSA at the airport of entry, which has been the practice. So far, four preclearance airports have been approved for checked baggage preclearance operations, and TSA has indicated that five more locations are expected to be approved soon. Language in P.L. 114-190 requires TSA to conduct security risk assessments at all last point of departure airports, and authorizes the donation of security screening equipment to such airports to mitigate security vulnerabilities that put U.S. citizens at risk. Mitigating the Threat of Shoulder-Fired Missiles to Civilian Aircraft The threat to civilian aircraft posed by shoulder-fired missiles or other standoff weapons capable of downing an airliner remains a vexing concern for aviation security specialists and policymakers. The State Department has estimated that, since the 1970s, over 40 civilian aircraft have been hit by shoulder-fired missiles, causing 25 crashes and more than 600 deaths. Most of these incidents involved small aircraft operated at low altitudes in areas of ongoing armed conflicts, although some larger jets have also been destroyed. On July 17, 2014, Malaysia Airlines Flight 17, a Boeing 777, was shot down over eastern Ukraine by a much larger surface-to-air missile. The terrorist threat posed by small man-portable shoulder-fired missiles was brought into the spotlight soon after the 9/11 terrorist attacks by the November 2002 attempted downing of a chartered Israeli airliner in Mombasa, Kenya, the first such event outside of a conflict zone. In 2003, then Secretary of State Colin Powell remarked that there was "no threat more serious to aviation." Since then, Department of State and military initiatives seeking bilateral cooperation and voluntary reductions of man-portable air defense systems (MANPADS) stockpiles had reduced worldwide inventories by nearly 33,000 missiles. Despite this progress, such weapons may still be in the hands of terrorist organizations. Conflicts in Libya and Syria have renewed concerns that large military stockpiles of these weapons may be proliferated to radical insurgent groups like Ansar al-Sharia in Libya, Al Qaeda in the Islamic Maghreb (AQIM), and the Islamic State in Iraq and Syria (ISIS). This threat, combined with the limited capability to improve security beyond airport perimeters and to modify flight paths, leaves civil aircraft vulnerable to missile attacks, particularly in and near conflict zones. The most visible DHS initiative to address the threat was the multiyear Counter-MANPADS program carried out by the DHS Science & Technology Directorate. The program concluded in 2009 with extensive operational and live-fire testing along with Federal Aviation Administration (FAA) certification of two systems capable of protecting airliners against heat-seeking missiles. The systems have not been deployed on commercial airliners in the United States, however, due largely to high acquisition and life-cycle costs. Although the units do not protect against the full range of potential weapons that pose a potential threat to civil airliners, they do appear to provide effective protection against what is likely the most menacing standoff threat: heat-seeking MANPADS. Nonetheless, airlines have not voluntarily invested in these systems for operational use, and argue that the costs for such systems should be borne, at least in part, by the federal government. Policy discussions have focused mostly on whether to fund the acquisition of limited numbers of the units for use by the Civil Reserve Aviation Fleet, civilian airliners that can be called up to transport troops and supplies for the military. Other approaches to protecting aircraft, including ground-based missile countermeasures and escort planes or drones equipped with antimissile technology, have been considered on a more limited basis, but these options face operational challenges that may limit their effectiveness. MANPADS are mainly seen as a security threat to civil aviation overseas, but a MANPADS attack in the United States could have a considerable impact on the airline industry. While major U.S. airports have conducted vulnerability studies, efforts to reduce vulnerabilities of flight paths to potential MANPADS attacks face significant challenges because of limited resources and large geographic areas where aircraft are vulnerable to attack. Any terrorist attempts to exploit those vulnerabilities could quickly escalate the threat of shoulder-fired missiles to a major national security priority. Security Issues Regarding the Operation of Unmanned Aircraft Provisions in the FAA Modernization and Reform Act of 2012 ( P.L. 112-95 ) required that FAA take steps by the end of FY2015 to accommodate routine operation of unmanned aircraft systems (UASs, widely referred to as "drones") in domestic airspace. Although this deadline was not met, FAA has taken a number of steps to accommodate flights by small UASs for both recreational and commercial purposes. The operation of civilian UASs in domestic airspace raises potential security risks, including the possibility that terrorists could use a drone to carry out an attack against a ground target. It is also possible that drones themselves could be targeted by terrorists or cybercriminals seeking to tap into sensor data transmissions or to cause mayhem by hacking or jamming command and control signals. Terrorists could potentially use drones to carry out small-scale attacks using explosives, or as platforms for chemical, biological, or radiological attacks. In September 2011, the FBI disrupted a homegrown terrorist plot to attack the Pentagon and the Capitol with large model aircraft packed with high explosives. The incident heightened concern about potential terrorist attacks using unmanned aircraft. Widely publicized drone incidents, including an unauthorized flight at a political rally in Dresden, Germany, in September 2013 that came in close proximity to German Chancellor Angela Merkel; a January 2015 crash of a small hobby drone on the White House lawn in Washington, DC; and a series of unidentified drone flights over landmarks and sensitive locations in Paris, France, in 2015, have raised additional concerns about security threats posed by small unmanned aircraft. Domestically, there have been numerous reports of drones flying in close proximity to airports and manned aircraft, in restricted airspace, and over stadiums and outdoor events. The payload capacities of small unmanned aircraft would limit the damage a terrorist attack using conventional explosives could inflict, but drone attacks using chemical, biological, or radiological weapons could be more serious. An FAA proposal for regulating small unmanned aircraft used for commercial purposes would require TSA to carry out threat assessments of certificated operators as it does for civilian pilots. However, this requirement would not apply to recreational users, who are already permitted to operate small drones at low altitudes. Moreover, while FAA has issued general guidance to law enforcement regarding unlawful UAS operations, it is not clear that law enforcement agencies have sufficient training or technical capacity to respond to this emerging threat. Technology may help manage security threats posed by unmanned aircraft. Integrating tracking mechanisms as well as incorporating "geo-fencing" capabilities, designed to prevent flights over sensitive locations or in excess of certain altitude limits, into unmanned aircraft systems may help curtail unauthorized flights. TSA has broad statutory authority over aviation security issues; it has not formally addressed the potential security concerns arising from unmanned aircraft operations in domestic airspace. While unmanned aircraft may pose security risks, they are also a potential asset for homeland security operations, particularly for CBP border surveillance. CBP currently employs a fleet of 10 modified Predator UASs, and has plans to acquire another 14, to augment its border-patrol capabilities. Operating within specially designated airspace, these unarmed UASs patrol the northern and southern land borders and the Gulf of Mexico to detect potential border violations and monitor suspected drug trafficking, with UAS operators cuing manned responses when appropriate. State and local governments have expressed interest in operating UASs for missions as diverse as traffic patrol, surveillance, and event security. A small but growing number of state and local agencies have acquired drones, some through federal grant programs, and have been issued special authorizations by FAA to fly them. However, many federal, state, and local agencies involved in law enforcement and homeland security appear to be awaiting more specific guidance from FAA regarding the routine operation of public-use unmanned aircraft in domestic airspace. The introduction of drones into domestic surveillance operations presents a host of novel legal issues related to an individual's fundamental privacy interest protected under the Fourth Amendment. To determine if certain government conduct constitutes a search or seizure under that amendment, courts apply an array of tests (depending on the nature of the government action), including the widely used reasonable expectation of privacy test. When applying these tests to drone surveillance, a reviewing court will likely examine the location of the search, the sophistication of the technology used, and society's conception of privacy. For instance, while individuals are accorded substantial protections against warrantless government intrusions into their homes, the Fourth Amendment offers fewer restrictions upon government surveillance occurring in public places, and even fewer at national borders. Likewise, drone surveillance conducted with relatively unsophisticated technology might be subjected to a lower level of judicial scrutiny than investigations conducted with advanced technologies such as thermal imaging or facial recognition. Several measures introduced in Congress would require government agents to obtain warrants before using drones for domestic surveillance, but would create exceptions for patrols of the national borders used to prevent or deter illegal entry and for investigations of credible terrorist threats. Language in P.L. 114-190 directs FAA to establish a pilot program to detect and mitigate unmanned aircraft operations in the vicinity of airports and other critical infrastructure. Additionally, the act directs FAA to develop an air traffic management system for small UASs that, in addition to addressing safety concerns, could include measures to detect and deter security threats posed by UASs. Aviation Cybersecurity There is growing concern over cybersecurity threats to aircraft, air traffic control systems, and airports. Executive Order 13636 provides broad guidance for DHS to work with the Federal Aviation Administration (FAA) to identify cybersecurity risks, establish voluntary cybersecurity measures, and share information on cybersecurity threats within the broader cybersecurity framework. Additionally, 49 U.S.C. §44912 specifically directs TSA to periodically review threats to civil aviation with a particular focus on specified threats including the potential disruption of civil aviation service resulting from a cyberattack. TSA has indicated that its approach to cybersecurity thus far has not been through regulation, but rather through voluntary collaboration with industry. Under this framework, TSA formed the Transportation Systems Sector Cybersecurity Working Group, which created a cybersecurity strategy for the transportation sector in 2012. Also, in coordination with the FBI and industry partners, TSA launched the Air Domain Intelligence Integration Center and an accompanying analysis center in 2014 to share information and conduct analysis of cyberthreats to civil aviation. In recognition of those threats, FAA has developed a software assurance policy for all FAA-owned and FAA-controlled information systems. However, according to an April 2015 GAO report, while FAA has taken steps to protect air traffic control systems from cyberthreats, it lacks a formal cybersecurity threat model. Moreover, GAO found that FAA faces continuing challenges in mitigating cyberthreats, particularly as it transforms air traffic control systems under its NextGen modernization initiative. For systems onboard aircraft, FAA requires security and integrity to be addressed in the airworthiness certification process. In other words, under the existing regulatory framework for aircraft certification, cybersecurity risks must be satisfactorily mitigated. Large commercial aircraft and aviation systems manufacturers now typically collaborate with software security companies in order to attain high levels of assurance for software embedded in avionics equipment, but these approaches are still evolving. Despite efforts to design aircraft systems to be resilient to cyberthreats, in April 2015, TSA and the FBI issued warnings that the increasing interconnectedness of these systems makes them vulnerable to unauthorized access and advised airlines to look out for individuals trying to tap into aircraft electronics and for any evidence of tampering or network intrusions. FAA separately addresses cybersecurity of government-owned air traffic control systems and certified aircraft systems. However, GAO has cautioned that FAA's current approach to cybersecurity does not adequately address the interdependencies between aircraft and air traffic systems, and consequently may hinder efforts to develop a comprehensive and coordinated strategy. While it identified no easy fix, GAO recommended that FAA develop a comprehensive cybersecurity threat model, better clarify cybersecurity roles and responsibilities, improve management security controls and contractor oversight, and fully incorporate National Institute of Standards and Technology information security guidance throughout the system life cycle. Language in P.L. 114-190 mandates development of a comprehensive strategic framework for reducing cybersecurity risks to the national airspace system, civilian aviation, and FAA information systems. The framework is to address cybersecurity risks associated with airspace modernization, aircraft automation, and in-flight entertainment systems. The act also directs FAA to assess the cost and schedule for developing and maintaining an agency-wide cybersecurity threat model as recommended by GAO, and produce a standards plan to implement security guidance for FAA data and information systems. Transit and Passenger Rail Security43 Bombings of and shootings on passenger trains in Europe and Asia have illustrated the vulnerability of passenger rail systems to terrorist attacks. Passenger rail systems—primarily subway systems—in the United States carry about five times as many passengers each day as do airlines, over many thousands of miles of track, serving stations that are designed primarily for easy access. The increased security efforts around air travel have led to concerns that terrorists may turn their attention to "softer" targets, such as transit or passenger rail. A key challenge Congress faces is balancing the desire for increased rail passenger security with the efficient functioning of transit systems, with the potential costs and damages of an attack, and with other federal priorities. The volume of ridership and number of access points make it impractical to subject all rail passengers to the type of screening all airline passengers undergo. Consequently, transit security measures tend to emphasize managing the consequences of an attack. Nevertheless, steps have been taken to try to reduce the risks, as well as the consequences, of an attack. These include vulnerability assessments; emergency planning; emergency response training and drilling of transit personnel (ideally in coordination with police, fire, and emergency medical personnel); increasing the number of transit security personnel; installing video surveillance equipment in vehicles and stations; and conducting random inspections of bags, platforms, and trains. The challenges of securing rail passengers are dwarfed by the challenge of securing bus passengers. There are some 76,000 buses carrying 19 million passengers each weekday in the United States. Some transit systems have installed video cameras on their buses, but the number and operating characteristics of transit buses make them all but impossible to secure. In contrast with the aviation sector, where TSA provides security directly, security in surface transportation is provided primarily by the transit and rail operators and local law enforcement agencies. TSA's role is one of oversight, coordination, intelligence sharing, training, and assistance, though it does provide some operational support through its Visible Intermodal Prevention and Response (VIPR) teams, which conduct operations with local law enforcement officials, including periodic patrols of transit and passenger rail systems to create "unpredictable visual deterrents." The Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ), passed by Congress on July 27, 2007, included provisions on passenger rail and transit security and authorized $3.5 billion for FY2008-FY2011 for grants for public transportation security. The act required public transportation agencies and railroads considered to be high-risk targets by DHS to have security plans approved by DHS (§1405 and §1512). Other provisions required DHS to conduct a name-based security background check and an immigration status check on all public transportation and railroad frontline employees (§1414 and §1522), and gave DHS the authority to regulate rail and transit employee security training standards (§1408 and §1517). In 2010 TSA completed a national threat assessment for transit and passenger rail, and in 2011 completed an updated transportation systems sector-specific plan, which established goals and objectives for a secure transportation system. The three primary objectives for reducing risk in transit are increase system resilience by protecting high-risk/high-consequence assets (i.e., critical tunnels, stations, and bridges); expand visible deterrence activities (i.e., canine teams, passenger screening teams, and antiterrorism teams); and engage the public and transit operators in the counterterrorism mission. TSA surface transportation security inspectors conduct assessments of transit systems (and other surface modes) through the agency's Baseline Assessment for Security Enhancement (BASE) program. The agency has also developed a security training and security exercise program for transit (I-STEP). The House Committee on Homeland Security's Subcommittee on Transportation Security held a hearing in May 2012 to examine the surface transportation security inspector program. The number of inspectors had increased from 175 in FY2008 to 404 in FY2011 (full-time equivalents). Issues considered at the hearing included the lack of surface transportation expertise among the inspectors, many of whom were promoted from screening passengers at airports; the administrative challenge of having the surface inspectors managed by federal security directors who are located at airports and who themselves typically have no surface transportation experience; and the security value of the tasks performed by surface inspectors. The number of surface inspectors decreased to 260 (full-time equivalent positions) in FY2016, in part reflecting a reduction in the number of VIPR surface inspectors and in part reflecting efficiencies achieved through focusing efforts on the basis of risk. GAO reported in 2014 that lack of guidance to TSA's surface inspectors resulted in inconsistent reporting of rail security incidents and that TSA had not consistently enforced the requirement that rail agencies report security incidents, resulting in poor data on the number and types of incidents. GAO also found that TSA did not have a systematic process for collecting and addressing feedback from surface transportation stakeholders regarding the effectiveness of its information-sharing effort. In a 2015 hearing, GAO testified that TSA has put processes in place to address these issues. DHS provides grants for security improvements for public transit, passenger rail, and occasionally other surface transportation modes under the Transit Security Grant Program. The vast majority of the funding goes to public transit providers. CRS estimates that, on an inflation-adjusted basis, funding for this program has declined 84% since 2009, when Congress allocated $150 million in the American Recovery and Reinvestment Act, in addition to routine appropriations (see Table 1 ). In a February 2012 report, GAO found potential for duplication among four DHS state and local security grant programs with similar goals, one of which was the public transportation security grant program. The Obama Administration has repeatedly proposed consolidating several of these programs in annual budget requests. This proposal has not been supported by Congress in the appropriations process to date, though appropriators have expressed concerns that grant programs have not focused on areas of highest risk and that significant amounts of previously appropriated funds have not yet been awarded to recipients. In P.L. 114-50 , Congress directed TSA to ensure that all passenger transportation providers it considers as having high-risk facilities have in place plans to respond to active shooters, acts of terrorism, or other security-related incidents that target passengers. Port and Maritime Security Issues51 The bulk of U.S. overseas trade is carried by ships and thus the economic consequences of a maritime terrorist attack could be significant. A key challenge for U.S. policymakers is prioritizing maritime security activities among a virtually unlimited number of potential attack scenarios. One priority is preventing the smuggling of a weapon of mass destruction in a shipping container. A less complicated attack scenario is ramming a passenger vessel with a bomb-laden speedboat. There are far more potential attack scenarios than likely ones, and far more than could be meaningfully addressed with limited counterterrorism resources. Not all terrorist groups have familiarity with the maritime environment. Two port security initiatives the 115 th Congress may continue to examine are the 100% container scanning requirement and the effectiveness of a port worker security card system. Cybersecurity is an emerging concern. Container Scanning Requirement Section 1701 of the Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) requires that all imported marine containers be scanned by nonintrusive imaging equipment and radiation detection equipment at a foreign loading port by July 1, 2012, unless DHS can demonstrate it is not feasible, in which case the deadline can be extended by two years on a port-by-port basis. DHS has sought a blanket extension for all ports, citing numerous challenges to implementing the 100% scanning requirement at overseas ports. In a letter requesting renewal of the two-year extension, DHS Secretary Jeh Johnson stated, I have personally reviewed our current port security and DHS's short term and long term ability to comply with 100% scanning requirement. Following this review, I must report, in all candor, that DHS's ability to fully comply with this unfunded mandate of 100% scanning, even in the long term, is highly improbable, hugely expensive, and in our judgment, not the best use of taxpayer resources to meet this country's port security and homeland security needs. In an October 2015 hearing, DHS officials reiterated their opposition to a 100% scanning strategy in favor of a risk-based and layered security strategy. Major U.S. trading partners also oppose 100% scanning. The European Commission has determined that 100% scanning is the wrong approach, favoring a multilayered risk management approach to inspecting cargo. CBP has tested the feasibility of scanning all U.S.-bound containers at several overseas ports and identified numerous operational, technical, logistical, financial, and diplomatic obstacles, including opposition from host government officials. In a July 2016 hearing, DHS officials restated their opposition to pursuing a 100% scanning strategy. One-hundred-percent scanning conflicts with DHS's general approach to risk management, which seeks to focus scarce inspection resources on the highest-risk containers. By scanning a smaller number of containers, DHS may be able to devote additional resources to each individual scan. This consideration is important because reviewing the scans is labor-intensive, and scanning fewer containers may allow DHS to subject individual scans to greater scrutiny, and to maintain a lower threshold for opening containers with questionable scanning images. If illicit cargo is estimated to be limited to less than 1% of incoming containers, as CBP believes to be the case, focusing enforcement on the likeliest containers may be the most effective enforcement strategy. This approach would emphasize risk-based scanning along with investment in CBP intelligence to improve targeting, and/or increase CBP personnel, which would allow ports to conduct a larger number of targeted special enforcement operations. Transportation Worker Identification Credential (TWIC) In January 2007, TSA and the Coast Guard issued a final rule implementing the Transportation Worker Identification Credential (TWIC) at U.S. ports. Longshoremen, port truck drivers, railroad workers, merchant mariners, and other workers at a port must apply for a TWIC card to obtain unescorted access to secure areas of port facilities or vessels. The card was authorized under the Maritime Transportation Security Act of 2002 (MTSA; §102 of P.L. 107-295 ). As of October 2015, the population of TWIC holders was approximately 2.1 million. The card must be renewed every five years. TSA conducts a security threat assessment of each worker before issuing a card. The security threat assessment uses the same procedures and standards established by TSA for truck drivers carrying hazardous materials, including examination of the applicant's criminal history, immigration status, and possible links to terrorist activity to determine whether a worker poses a security threat. A worker pays a fee of about $130 that is intended to cover the cost of administering the cards. The card uses biometric technology for positive identification. Terminal operators were to deploy card readers at the gates to their facilities, so that a worker's fingerprint template would be scanned each time he or she entered the port area and matched to the data on the card. Finding a card reader that worked reliably in a harsh marine environment proved difficult. On August 23, 2016, the Coast Guard issued a final rule requiring that only the highest-risk maritime facilities—generally, those handling dangerous cargoes in bulk or passenger vessels with space for more than 1,000 passengers—install card readers. This effectively required about 525 of the roughly 3,200 maritime facilities regulated under MTSA to have card readers. Other facilities, including those handling containerized cargo, would continue to use the TWIC as a "flash pass," but the biometric data on the card would not be used to positively identify the worker. Potential problems with this approach were highlighted by the February 2016 announcement that federal investigators uncovered a "document mill" producing fraudulent TWIC cards in Los Angeles. The final rule becomes effective on August 23, 2018. Currently, the Coast Guard performs spot checks with hand-held biometric readers while conducting port security inspections. GAO and Inspector General audits have been highly critical of how the TWIC has been implemented. A 2013 GAO audit found that the results of a pilot test of card readers should not be relied upon for developing regulations on card reader requirements because they were incomplete, inaccurate, and unreliable. This audit was discussed at a hearing by the House Subcommittee on Government Operations on May 9, 2013, and by the House Subcommittee on Border and Maritime Security on June 18, 2013. Another 2013 GAO audit examined TSA's Adjudication Center (which performs security threat assessments on TWIC applicants and other transportation workers), and recommended steps the agency could take to better measure the center's performance. A 2011 GAO audit found internal control weaknesses in the enrollment, background checking, and use of the TWIC card at ports, which were said to undermine the effectiveness of the credential in screening out unqualified individuals from obtaining access to port facilities. Similarly, a 2016 Inspector General audit found that TSA appeared to be more concerned with customer service matters such as issuing the cards in a timely manner than with careful scrutiny of applicants. It found that applicants believed to be providing fraudulent identification documents were nevertheless issued a TWIC. The 114 th Congress enacted the Essential Transportation Worker Identification Credential Assessment Act ( P.L. 114-278 ), which requires TSA to improve its vetting process, including fraud detection. The law also requires DHS to commission an outside organization to conduct a comprehensive assessment of the benefits and costs of the TWIC card. Maritime Cybersecurity In June 2015, the Coast Guard released a document that identifies the agency's plans for addressing cybersecurity in the maritime environment. Vessel and facility operators use potentially vulnerable technologies for navigation, communication, cargo handling, and other purposes. The strategy document states the Coast Guard will be developing guidance for vessels and ports to address vulnerabilities, and will incorporate cybersecurity into existing enforcement and compliance programs. The strategy also states the Coast Guard will incorporate cybersecurity training in the requirements for mariner licensing and for port security officer qualifications. According to this document, the Coast Guard will modify an existing port risk assessment tool (MSRAM-Maritime Security Risk Assessment Model) to incorporate cyber risks. MSRAM is the primary tool used to assess risk to national infrastructure in the maritime domain, and is used extensively at the local, regional, and national levels, according to the Coast Guard. In the 114 th Congress, House-passed H.R. 3878 sought to promote cybersecurity risk information sharing among maritime stakeholders and provide industry with risk assessment tools. House-passed H.R. 5077 would have required DHS to report on U.S. maritime cyber threats and vulnerabilities (§604). The Senate did not act on either bill.

The nation's air, land, and marine transportation systems are designed for accessibility and efficiency, two characteristics that make them highly vulnerable to terrorist attack. While hardening the transportation sector from terrorist attack is difficult, measures can be taken to deter terrorists. The dilemma facing Congress is how best to construct and finance a system of deterrence, protection, and response that effectively reduces the possibility and consequences of another terrorist attack without unduly interfering with travel, commerce, and civil liberties. Aviation security has been a major focus of transportation security policy since the terrorist attacks of September 11, 2001. In the aftermath of these attacks, the 107th Congress moved quickly to pass the Aviation and Transportation Security Act (ATSA; P.L. 107-71), creating the Transportation Security Administration (TSA) and mandating a federalized workforce of security screeners to inspect airline passengers and their baggage. The FAA Extension, Safety, and Security Act of 2016 (P.L. 114-190) included a number of aviation security provisions designed to expand the PreCheck program to expedite screening for known travelers, enhance background checks of airport workers and strengthen airport access controls, and improve passenger checkpoint efficiency and operational performance. Until recently, TSA applied relatively uniform methods to screen airline passengers, focusing primarily on advances in screening technology to improve security and efficiency. TSA has recently shifted away from this approach, which assumes a uniform level of risk among all airline travelers, to risk-based screening approaches that focus more intensely on passengers thought to pose elevated security risks. Despite the extensive focus on aviation security over the past decade, a number of challenges remain, including effectively screening passengers, baggage, and cargo for explosives threats; developing effective risk-based methods for screening passengers and airport workers with access to aircraft and sensitive areas; exploiting available intelligence information and watchlists to identify individuals who pose potential threats to civil aviation; effectively responding to security threats at airports and screening checkpoints; developing effective strategies for addressing aircraft vulnerabilities to shoulder-fired missiles and other standoff weapons; and addressing the potential security implications of unmanned aircraft operations. Bombings of passenger trains in Europe and Asia in the past few years illustrate the vulnerability of passenger rail systems to terrorist attacks. Passenger rail systems—primarily subway systems—in the United States carry about five times as many passengers each day as do airlines, over many thousands of miles of track, serving stations that are designed primarily for easy access. Transit security issues of recent interest to Congress include the quality of TSA's surface transportation inspector program and the slow rate at which transit and rail security grants have been expended. Existing law mandates the scanning of all U.S.-bound maritime containers with non-intrusive inspection equipment at overseas ports of loading by July 2012. This deadline was not met, and DHS is opposed to that strategy in favor of a risk-based, layered approach to security screening. Implementation of the Transportation Worker Identification Credential (TWIC) for port and maritime workers also appears to be experiencing continuing difficulties.

Most Recent Developments The Department of Defense and Full-Year Continuing Appropriations Act, 2011 ( P.L. 112-10 ) provides $4.54 billion for legislative branch activities for FY2011. This act continues funding and language contained in the FY2010 Legislative Branch Appropriations Act ( P.L. 111-68 ), unless otherwise specified, and includes an across-the-board rescission of 0.2%. From October 1, 2010, until the enactment of this legislation on April 11, 2011, the legislative branch operated on continuing resolutions. These continuing resolutions included P.L. 111-242 (through December 3, 2010), P.L. 111-290 (through December 18, 2010), P.L. 111-317 (through December 21, 2010), P.L. 111-322 (through March 4, 2011), P.L. 112-4 (through March 18, 2011) and P.L. 112-6 (through April 8, 2011). Some of these continuing resolutions contained language affecting the legislative branch or adjusting funding levels. These include the following: P.L. 112-6 : This law reduced the amount provided for "House of Representatives—Salaries and Expenses" by $1.5 million and the amount provided for "Library of Congress—Salaries and Expenses" by an additional $750,000. This funding had been provided in FY2010 for transfer to the Abraham Lincoln Bicentennial Commission. P.L. 112-4 : This law reduced the amount provided for "Library of Congress—Salaries and Expenses" by $200,000. This funding had been provided in FY2010 for a preservation and digitization project. P.L. 111-322 : This law contained language for the United States Capitol Police. Prior to the enactment of P.L. 112-10 , multiple proposals for funding the legislative branch for the remainder of FY2011 were considered. The House passed H.R. 1 on February 19, 2011. During House consideration of H.R. 1 , one amendment related to the House was adopted by voice vote ( H.Amdt. 68 on February 17, 2011). Subsequently, Section 1901 of the House-passed version of H.R. 1 states, "Notwithstanding section 1101, the level for `House of Representatives, Salaries and Expenses' shall be $1,288,299,072 (reduced by $1,500,000)." The Senate amendment to H.R. 1 , S.Amdt. 149 , was considered on March 9, 2011. No further action was taken. Additionally, both the House and Senate have adopted language in the 112 th Congress affecting spending within each chamber. H.Res. 22 , adopted by the House on January 6, 2011, reduces the authorized amounts for the Member's Representational Allowances, House leadership offices, and all committees except the Committee on Appropriations by 5%, with a 9% reduction for the Committee on Appropriations. An amendment ( S.Amdt. 182 ) offered by Senator Nelson to S. 493 , the SBIR/STTR Reauthorization Act of 2011, stated, "It is the sense of the Senate, that it should lead by example and reduce the budget of the Senate by at least 5 percent." The amendment was adopted on March 16, 2011. No further action on this bill occurred as of the date of this report. The FY2011 legislative branch budget request, which was submitted to Congress on February 1, 2010, contains $5.12 billion in new budget authority, an approximately 10% increase over the FY2010 enacted level. The House and Senate Appropriations Committees Subcommittees on the Legislative Branch each held hearings during which the agency requests were examined. Previously, the FY2010 Legislative Branch Appropriations Act provided $4.656 billion for FY2010 legislative branch operations, and the FY2009 Omnibus Appropriations Act provided $4.4 billion. In FY2009, an additional $25 million was provided for the Government Accountability Office (GAO) in the American Recovery and Reinvestment Act of 2009. P.L. 111-32 , the FY2009 Supplemental Appropriations Act, also contained funding for the police radio system ($71.6 million) and Congressional Budget Office ($2 million). House Subcommittee Action in 2010 On July 1, 2010, the House Appropriations Committee, Subcommittee on the Legislative Branch, held a markup of the FY2011 bill. The subcommittee mark contained $3.65 billion, not including Senate items. This level is approximately $7 million below the FY2010 enacted level and $337 million less than requested for these accounts. The largest increase would be provided to the Capitol Police ($8.9 million over the FY2010 enacted level, or 2.7%). The largest decrease would be for the Open World Leadership Program, which would have its budget reduced by $3 million, or 25%. Senate Committee Action in 2010 The Senate Appropriations Committee held a markup on September 16, 2010, and reported an original bill for legislative branch appropriations. The Senate bill ( S. 3799 ) contained $3.136 billion, not including House items. This is the same amount provided for FY2010 and $435.6 million less than requested. FY2010 Supplemental Appropriations On April 5, 2010, the President submitted a request from the Capitol Police for $15.956 million in FY2010 supplemental appropriations. Both the House- and Senate-passed versions of H.R. 4899 contained $174,000 for a payment to widows and heirs of deceased Members of Congress. The Senate version also contained $12.96 million for the Capitol Police for completion of the indoor coverage portion of the new radio system, to remain available until September 30, 2012. The FY2010 Supplemental Appropriations Act ( P.L. 111-212 , enacted July 29, 2010) contained funding for both items. Legislative Branch Appropriations Bill Structure Since FY2003, the annual legislative branch appropriations bill has usually contained two titles. Appropriations for legislative branch agencies are contained in Title I. These entities, as they have appeared in the annual appropriations bill, are the Senate; House of Representatives; Joint Items; Capitol Police; Office of Compliance; Congressional Budget Office; Architect of the Capitol, including the Capitol Visitor Center; Library of Congress, including the Congressional Research Service; Government Printing Office; Government Accountability Office; and Open World Leadership Program. Title II often contains general administrative provisions. For example, Title II of the FY2010 act ( P.L. 111-68 ) contained language (1) prohibiting the use of funds for the maintenance or care of private vehicles; (2) limiting funds provided in the act to FY2010 unless otherwise specified; (3) addressing the rate of compensation of staff; (4) making contracts for consulting services a matter of public record and available for public inspection, with certain exceptions; (5) providing funds for awards and settlements under the Congressional Accountability Act of 1995; (6) addressing cost-sharing for the Legislative Branch Financial Managers Council (LBFMC); (7) providing for landscape maintenance by the Architect of the Capitol; (8) limiting transfers except as provided by law; and (9) prohibiting the use of funds to restrict guided tours of the Capitol led by House and Senate staff and interns, except for temporary suspensions with the direction or approval of the Capitol Police Board. On occasion the bill may contain a third title for other provisions. For example, Title III of the FY2006 legislative branch appropriations act, P.L. 109-55 , contained language providing for the continuity of representation in the House of Representatives in "extraordinary circumstances." Prior to enactment of the FY2003 bill, and effective in FY1978, the legislative branch appropriations bill was structured differently. Title I, Congressional Operations, contained budget authority for activities directly serving Congress. Title II, Related Agencies, contained budget authority for activities considered by the Committee on Appropriations not directly supporting Congress. Occasionally, from FY1978 through FY2002, the annual legislative appropriations bill contained additional titles for such purposes as capital improvements and special one-time functions. Subcommittee Structure Since the 110 th Congress, and prior to the 109 th Congress, both the House and Senate Appropriations Committees established Legislative Branch Subcommittees. The House subcommittee did not exist in the 109 th Congress, and the full House committee considered the legislative branch bill. In the 109 th Congress, the Senate continued its practice of having a Legislative Branch Subcommittee. Previously, both the House and Senate Appropriations Committees generally had a separate Legislative Branch Subcommittee dating back at least to the Legislative Reorganization Act of 1946, with the exception of the 83 rd Congress (1953-1954), during which the House and Senate Appropriations Committees established a subcommittee to consider both legislative and judiciary matters. The two chambers subsequently returned to the former practice of a separate Legislative Subcommittee beginning in the 84 th Congress (1955). Status of FY2011 Appropriations Action on the FY2011 Legislative Branch Appropriations Bill Submission of FY2011 Budget Request on February 1, 2010, and FY2010 Supplemental Request Submitted April 5, 2010 The FY2011 U.S. Budget submitted on February 1, 2010, contained a request for $5.10 billion in new budget authority for legislative branch activities, an increase of approximately 9.6% from the FY2010 enacted level. A substantial portion of the increase requested by legislative branch entities was to meet (1) mandatory expenses, which include funding for annual salary adjustments required by law and related personnel expenses, such as increased government contributions to retirement based on increased pay, and (2) expenses related to increases in the costs of goods and services due to inflation. On April 5, 2010, an additional $15.956 million was requested by the Capitol Police "to purchase and install and implement the indoor coverage portion of the new radio system for the Capitol Police." Senate and House Hearings on the FY2011 Budget Table 3 lists the dates of hearings of the Legislative Branch Subcommittees in 2010. House Appropriations Committee Subcommittee Markup As stated above, the House Appropriations Committee, Subcommittee on the Legislative Branch, held a markup of the FY2011 bill on July 1, 2010. Senate Appropriations Committee Markup and Report The Senate Appropriations Committee held a markup on September 16, 2010. The committee ordered reported an original bill, S. 3397 . FY2011 Legislative Branch Funding Issues Senate Overall Funding The Senate received $914.15 million in FY2011 appropriations. The Senate had requested $1.04 billion for its internal operations, an increase of $115.76 million, or 12.5%, over the FY2010 level of $926.16 million. The FY2010 level represented a 3.5% increase over FY2009. FY2011 requests and FY2010 funding levels for headings within the Senate account are presented in Table 5 . Senate Committee Funding Appropriations for Senate committees are contained in two accounts: The inquiries and investigations account contains funds for all Senate committees except Appropriations. The Senate had requested $164.57 million for inquiries and investigations, an increase of 17.1% from the $140.50 million provided in FY2010. P.L. 112-10 provided funding at the FY2010 level. The Committee on Appropriations account contains funds for the Senate Appropriations Committee. The Senate had requested $15.84 million, an amount equal to the FY2010 level. P.L. 112-10 provided funding at the FY2010 level. Senators' Official Personnel and Office Expense Account The Senators' Official Personnel and Office Expense Account provides each Senator with funds to administer an office. It consists of an administrative and clerical assistance allowance, a legislative assistance allowance, and an official office expense allowance. The funds may be used for any category of expenses, subject to limitations on official mail. A total of $458.62 million was requested, an increase of $36.62 million (8.7%) over the $422.00 million provided in FY2010. P.L. 112-10 reduced the Senators' Official Personnel and Office Expense Account by $12.0 million from the FY2010 level. The act also provided that "each Senator's official personnel and office expense allowance (including the allowance for administrative and clerical assistance, the salaries allowance for legislative assistance to Senators, as authorized by the Legislative Branch Appropriation Act, 1978 (Public Law 95-94), and the office expense allowance for each Senator's office for each State) in effect immediately before the date of enactment of this section shall be reduced by 5 percent." House of Representatives Overall Funding P.L. 112-10 provides $1.31 billion in new budget authority for the House. The House requested $1.42 billion in new budget authority for its internal operations, an increase of 3.6% ($49.95 million) over the $1.37 billion provided in the FY2010 Legislative Branch Appropriations Act. FY2011 requests and FY2010 funding levels for headings in the House of Representatives account are presented in Table 6 . House Committee Funding17 Funding for House committees is contained in the appropriation heading "committee employees," which comprises two subheadings. The first subheading contains funds for personnel and nonpersonnel expenses of House committees, except the Appropriations Committee, as authorized by the House in a committee expense resolution. The FY2011 request contains $157.06 million, a 12.3% increase over the $139.88 million provided in FY2010. P.L. 112-10 provides $134.5 million, a decrease of $5.3 million. The second subheading contains funds for the personnel and nonpersonnel expenses of the Committee on Appropriations. The House has requested $32.30 million, an increase of 3.2% ($1 million) over the FY2010 level. P.L. 112-10 provides $28.5 million, a decrease of $2.8 million. Members' Representational Allowance18 The Members' Representational Allowance (MRA) is available to support Members in their official and representational duties. A total of $671.07 million was requested for FY2011, which represents $11.07 million (1.7%) over the $660.0 million provided in FY2010. P.L. 112-10 provides $613.05 million, a decrease of $46.95 million. Green the Capitol Initiative19 The Green the Capitol Initiative was created in March 2007, when Speaker Nancy Pelosi, Majority Leader Steny Hoyer, and the chair of the Committee on House Administration, the late Representative Juanita Millender-McDonald, asked the Chief Administrative Officer (CAO) of the House, Daniel Beard, to provide an "environmentally responsible and healthy working environment for employees." For FY2008, $3.27 million was requested to implement the Green the Capitol Initiative, which included $100,000 in the Architect of the Capitol's House office buildings account for new light bulbs and $500,000 in the Capitol Grounds section of the report for an E-85 gasoline pump. The FY2008 Consolidated Appropriations Act provided $3.9 million for new "green" initiatives, including $100,000 for the House Office Buildings account, $500,000 for the Capitol Grounds account, and $3.27 million for the Capitol Power Plant. In addition, the FY2008 Consolidated Appropriations Act included an amendment to 2 U.S.C. § 117m(b), which governs the operation of the House Services Revolving Fund, allowing the CAO to use the revolving fund for environmental activities, including energy and water conservation, in buildings, facilities, and grounds under his jurisdiction. For FY2009, the CAO requested $2 million for the Green the Capitol Initiative. Although not specifically addressed in P.L. 111-8 or the explanatory statement, the program received $1 million according to the House Committee on Appropriations press release. The FY2010 request contained $10 million for energy demonstration projects. The House-passed bill and the FY2010 law provided $2.5 million, a level continued in P.L. 112-10. The FY2011 request contained $500,000. Support Agency Funding U.S. Capitol Police The U.S. Capitol Police are responsible for the security of the Capitol Complex including the U.S. Capitol, the House and Senate office buildings, the U.S. Botanic Garden, and the Library of Congress buildings and adjacent grounds. P.L. 112-10 provided $340.14 million for the Capitol Police (USCP) for FY2011. The USCP had requested $376.02 million. The FY2010 law provided $328.3 million and P.L. 111-212 provided an additional $12.96 million. The USCP had requested $15.956 million in FY2010 supplemental appropriations. The USCP FY2011 and FY2010 funding levels are also presented in Table 7 . Appropriations for the police are contained in two accounts—a salaries account and a general expenses account. The salaries account contains funds for the salaries of employees; overtime pay; hazardous duty pay differential; and government contributions for employee health, retirement, Social Security, professional liability insurance, and other benefit programs. The general expenses account contains funds for expenses of vehicles; communications equipment; security equipment and its installation; dignitary protection; intelligence analysis; hazardous material response; uniforms; weapons; training programs; medical, forensic, and communications services; travel; relocation of instructors for the Federal Law Enforcement Training Center; and other administrative and technical support, among other expenses. P.L. 112-10 provided $277.13 million for salaries and $63.00 million for expenses. The Capitol Police had requested $280.33 million for salaries and $95.69 million for general expenses. Another appropriation relating to the Capitol Police appears within the Architect of the Capitol account for Capitol Police buildings and grounds. P.L. 112-10 provides $26.98 million. The FY2011 request of $39.52 million represented an increase of 46.3% from the $27.01 million provided in FY2010. The FY2010 level was an increase of 42.2% from the nearly $19 million provided in FY2009, and the FY2009 level was a 27.2% increase over the $14.9 million provided in FY2008. Highlights of the House and Senate Hearings on the FY2011 Budget of the U.S. Capitol Police Hearings in both the Senate (March 4, 2010) and House (March 24, 2010) subcommittees focused on the U.S. Capitol Police budget shortfall and pending budget amendment. Chief Phillip D. Morse discussed the salary miscalculation related to night differential pay and holiday and overtime pay, and the subcommittees noted that the Capitol Police inspector general would be examining the issue. The subcommittees also discussed continued difficulties in predicting overtime costs. The House also raised the possibility of placing responsibility for the police budget in another legislative branch agency. Architect of the Capitol The Architect of the Capitol (AOC) is responsible for the maintenance, operation, development, and preservation of the United States Capitol Complex, which includes the Capitol and its grounds, House and Senate office buildings, Library of Congress buildings and grounds, Capitol Power Plant, Botanic Garden, Capitol Visitor Center, and Capitol Police buildings and grounds. The Architect is responsible for the Supreme Court buildings and grounds, but appropriations for their expenses are not contained in the legislative branch appropriations bill. Overall Funding Levels Operations of the Architect are funded in the following 10 accounts: general administration, Capitol building, Capitol grounds, Senate office buildings, House office buildings, Capitol power plant, Library buildings and grounds, Capitol Police buildings and grounds, Capitol Visitor Center, and Botanic Garden. P.L. 112-10 provides $585.77 million, including a $14.6 million rescission for the Capitol Visitor Center. The Architect had requested $754.81 million, an increase of $153.22 million (25.5%) over the $601.6 million provided in FY2010. Previously, in FY2010, a 21.7% increase (or $644.6 million) was requested and a 13.6% increase was provided ($601.6 million). In FY2009, a 55.4% increase ($642.7 million) was requested and a 28% increase ($529.6 million) was provided. The FY2008 budget authority represented a decrease of 8.1% from the $449.9 million (including supplemental appropriations) provided in FY2007. The FY2011 request and FY2010 funding level for each of the AOC accounts is presented in Table 8 . Capitol Power Plant Utility Tunnels29 The condition of the Capitol Power Plant utility tunnels, and the funds necessary to repair them, have been discussed during appropriations hearings in recent fiscal years. The funding for repairs follows a complaint issued February 28, 2006, by the Office of Compliance regarding health and safety violations in the tunnels. The Office of Compliance had previously issued a citation due to the condition of the tunnels on December 7, 2000. On November 16, 2006, the Government Accountability Office (GAO) wrote a letter to the chair and ranking minority Members of the Senate Committee on Appropriations, Subcommittee on the Legislative Branch, and the House Committee on Appropriations, examining the conditions of the tunnels, plans for improving conditions, and efforts to address workers' concerns. Potential hazards identified by the Office of Compliance and GAO include excessive heat, asbestos, falling concrete, lack of adequate egress, and insufficient communication systems. In May 2007, the Architect of the Capitol and the Office of Compliance announced a settlement agreement for the complaint and citations. Steps necessary to remedy the situation, as well as the actions and roles of the Architect of the Capitol and the Office of Compliance, have been discussed at multiple hearings of the House and Senate Appropriations Committees since 2006. Other committees have also expressed concern about the utility tunnels and allegations of unsafe working conditions. For example, the Senate Committee on Health, Education, Labor and Pensions, Subcommittee on Employment and Workplace Safety, heard testimony on tunnel safety during a March 1, 2007, hearing on the effects of asbestos. Following the complaint by the Office of Compliance, Congress provided $27.6 million in FY2006 emergency supplemental appropriations to the Architect of the Capitol for Capitol Power Plant repairs, and an additional $50 million was provided in emergency supplemental appropriations for FY2007. The Architect of the Capitol had requested $24.77 million for FY2008. This request, which was submitted prior to the provision of funds in the May 2007 emergency supplemental appropriations act, was not supported by either the House or Senate Appropriations Committee. According to the explanatory statement produced by the Committee on Appropriations, the FY2009 Omnibus provides $56.4 million for the utility tunnel project. The Architect had requested $126.65 million to meet the terms of the settlement agreement. AOC indicated in its budget justification that "the bulk of this work will begin in early calendar year 2009, and will extend through the spring of 2011." The FY2010 budget request contained $45.77 million for the tunnel program. During the House hearing on April 23, 2009, however, the Acting Architect testified that the utility tunnel abatement project is ahead of schedule and under budget. The House-passed bill contained $16.85 million. The Senate also provided this total, stating the following: To date, $134,000,000 has been appropriated to abate these hazards. While AOC originally requested $45,770,000 for fiscal year 2010 to continue the tunnel program, it has reassessed its plans for repairs. AOC was able to decrease the fiscal year 2010 estimate to $16,850,000 with a modified plan that will still meet the Office of Compliance settlement agreement. The revised total cost of the utility tunnel project is now $176,130,000. The Committee commends these efforts and requires that the AOC continue to evaluate assessments and immediately report any changes to current and projected costs. The Committee's firm expectation is that the AOC will meet the June 2012 commitment to abate safety and health hazards within the tunnels. The FY2010 act contained the $16.85 million provided in the House and Senate versions of the bill. The FY2011 request contains $13.95 million. Administrative Provisions P.L. 112-10 did not contain the AOC's requested administrative provisions. These provisions would 1. establish an Architect of the Capitol Senior Executive Service, and 2. allow the Architect to use Federal Acquisition Streamlining Act procedures for procurement. The employment provision was previously requested in FY2009 and FY2010, and the Senate report on the FY2010 legislative branch appropriations bill directed GAO to conduct a study of AOC senior employment. This authority was subsequently addressed with the introduction of a bill ( H.R. 6399 ) on November 15, 2010. The bill was passed by the House the next day and agreed to in the Senate by unanimous consent on December 4, 2010. It became P.L. 111-316 on December 18, 2010. The act contains language allowing the Architect to fix the salary of up to 32 positions at a rate not to exceed the highest rate for the Senior Executive Service (SES) and made AOC appropriations for the Capitol Police available for the acquisition of property. Administrative language regarding acquisitions also was requested in FY2010. Highlights of the House and Senate Hearings on the FY2011 Budget of the Architect of the Capitol Both the House and Senate Legislative Branch Subcommittees discussed the Architect's prioritization of projects, including the balance between short- and long-term needs, the number of deferred maintenance projects, and the role of the Office of Compliance. They also both addressed the Architect's renewed request for additional employment authorities for senior staff. During the House hearing on March 17, 2010, the Legislative Branch Subcommittee also discussed renovations to the Cannon House Office Building, recycling, energy audits, and numerous items related to the CVC, including shuttle buses for visitors, signs, and staff requests. Among the other topics addressed at the Senate subcommittee hearing on March 18, 2010, were the potential impact of a flat budget, repairs in the Capitol Power Plant utility tunnels, the final cost of the CVC, and staffing levels. The subcommittee also discussed the preliminary findings of a blue ribbon panel examining a proposed fire enclosure of the Russell Senate Office Building staircases. The issue had been previously discussed by the subcommittee during consideration of the FY2010 bill. See also, " Office of Compliance ." The subcommittees also noted that Steven Ayers, who has served as Acting Architect of the Capitol since February 4, 2007, was nominated to a 10-year term by President Barack Obama on February 24, 2010. The nomination was referred to the Senate Committee on Rules and Administration, which held a hearing on April 15, 2010. The nomination also followed passage in the House on February 3, 2010, of H.R. 2843 , the Architect of the Capitol Appointment Act of 2010. The bill would alter the AOC appointment process and require the appointment to be made by the leadership of Congress rather than the President. Congressional Budget Office (CBO) CBO is a nonpartisan congressional agency created to provide objective economic and budgetary analysis to Congress. CBO cost estimates are required for any measure reported by a regular or conference committee that may vary revenues or expenditures. P.L. 112-10 provides $46.77 million for CBO. CBO had requested $47.29 million (a $2.12 million, or 4.7%, increase) over the $45.17 million provided in FY2010. The FY2010 level represented a 2.5% increase from the $44.1 million provided in the FY2009 Omnibus Appropriations Act. In FY2009, CBO also received $2.0 million, to remain available through FY2010, in the FY2009 Supplemental Appropriations Act ( P.L. 111-32 ). Highlights of the House Hearing on the FY2011 Budget of the CBO The House subcommittee hearing on March 17, 2010, addressed a requested increase in full-time-equivalent (FTE) staff from 254 to 258, the ideal staff size for CBO, and related issues including space within the Ford House Office Building. Dr. Douglas Elmendorf, Director of the Congressional Budget Office, also responded to questions related to diversity at CBO, the hiring cycle, coordination of work related to healthcare with other legislative support agencies to minimize overlap, and efforts to ensure responsiveness to majority and minority requests for budget scores. Library of Congress (LOC) The Library of Congress provides research support for Congress through a wide range of services, from research on public policy issues to general information. Among its major programs are acquisitions, preservation, legal research for Congress and other federal entities, administration of U.S. copyright laws by the Copyright Office, research and analysis of policy issues by the Congressional Research Service, and administration of a national program to provide reading material to the blind and physically handicapped. The Library also maintains a number of collections and provides a range of services to libraries in the United States and abroad. P.L. 112-10 provides $628.60 million for the Library of Congress. The Library had requested $674.79 million for FY2011, an increase of 4.9% over the $643.3 million provided in FY2010. The FY2010 level represented an increase of 6.0% over the FY2009 level of $607.1 million, and the FY2009 level represented an increase of approximately 7.8% over the $563 million provided in the FY2008 Consolidated Appropriations Act. These figures do not include additional authority to spend receipts. The FY2011 budget contains the following headings: Salaries and expenses—P.L. 112-10 provides $431.76 million. The Library had requested $460.92 million, a 4.8% increase ($21.12 million) over the $439.80 million provided for FY2010. This amount does not include $6.35 million in authority to spend receipts. Copyright Office—P.L. 112-10 provides $17.76 million. The Library had requested $22.40 million (not including $34.39 million in authority to spend receipts), a 7.3% increase ($1.53 million) over the $20.86 million (not including $34.61 million in authority to spend receipts) provided for FY2010. Congressional Research Service—P.L. 112-10 provides $111.02 million. The Library had requested $119.92 million, a 6.6% increase ($7.43 million) over the $112.49 million provided for FY2010. Books for the Blind and Physically Handicapped—P.L. 112-10 provides $68.05 million. The Library had requested $71.55 million, a 1.9% increase ($1.37 million) over the $70.18 million provided for FY2010. The Architect's budget also contains funds for the Library buildings and grounds. P.L. 112-10 provides $45.70 million. The Library had requested $101.20 million, a 121% increase ($55.41 million) from the $45.80 million provided for Library buildings and grounds in FY2010. The requested increase would support multi-year projects related to fire and life safety and for a new storage module in Fort Meade, MD. The FY2010 level represented an increase of 17.1% from the FY2009 enacted level of $39.1 million. Administrative Provisions The Library requested a number of administrative provisions for FY2011, which would 1. provide authority to obligate funds for reimbursable and revolving fund activities (also contained in the FY2010 Legislative Branch Act); 2. provide transfer authority among Library of Congress headings (also contained in the FY2010 Legislative Branch Act); 3. make amounts appropriated for "Library of Congress - Salaries and Expenses" available for repayment of student loans for Library employees without regard to the appropriation or fund that pays the employee's salary; 4. make available balances of expired Library of Congress appropriations available for the purposes of making payments for employees of the Library of Congress under Section 8147 of Title 5, United States Code (relating to workers compensation payments); and, 5. authorize the Librarian of Congress to dispose of surplus or obsolete personal property of the Library of Congress, with amounts received credited to funds available for the operations of the Library of Congress and available for the costs of acquiring similar property. Government Accountability Office (GAO) GAO works for Congress by responding to requests for studies of federal government programs and expenditures. GAO may also initiate its own work. Formerly the General Accounting Office, the agency was renamed the Government Accountability Office effective July 7, 2004. P.L. 112-10 provides $546.22 million. GAO had requested $601.12 million (not including $19.44 million in offsetting collections), a 7.9% increase ($44.27 million) from the $556.85 million (not including $15.22 million in offsetting collections) provided in FY2010. GAO received $531.0 million, not including offsetting collections, in the FY2009 Omnibus Appropriations Act and an additional $25 million in P.L. 111-5 to cover responsibilities under the American Recovery and Reinvestment Act of 2009. Highlights of House Hearing on the FY2011 Budget of the GAO The House subcommittee held its hearing on GAO's request on March 17, 2010. Gene Dodaro, Acting Comptroller of the United States, discussed GAO's (1) staffing level and a requested increase of 140 FTEs, (2) staff diversity, (3) recurring mandates under the American Recovery and Reinvestment Act of 2009, (4) technology assessments, (5) work with the Capitol Police on budgetary issues, (6) ability to obtain information from the intelligence community, and (7) studies on Iraq and Afghanistan. Government Printing Office (GPO)49 P.L. 112-10 provides $135.07 million. GPO had requested $166.56 million, a 13.0% increase ($19.10 million) from the $147.46 million provided for FY2010. The FY2010 level represented an increase of 4.9% over the $140.6 million provided in the FY2009 Omnibus Appropriations Act. The FY2009 level represented an increase of 12.7% over the $124.7 million provided in the FY2008 Consolidated Appropriations Act. GPO's budget authority is contained in three accounts: (1) congressional printing and binding, (2) Office of Superintendent of Documents (salaries and expenses), and (3) the revolving fund. FY2009 levels for these accounts are as follows: Congressional printing and binding—P.L. 112-10 provides $93.58 million. GPO had requested $96.65 million, a 3.1% increase ($2.88 million) over the $93.77 million provided for FY2010. Office of Superintendent of Documents (salaries and expenses)—P.L. 112-10 provides $39.83 million. GPO requested $44.21 million, an 8.1% increase ($3.297 million) over the $40.91 million provided for FY2010. Revolving fund—The revolving fund supports the operation and maintenance of the Government Printing Office. P.L. 112-10 provides $1.66 million. GPO had requested $25.70 million, a 101.1% increase ($12.92 million) over the $12.78 million provided for FY2010. The request included "$11,000,000 for information technology development, including $6,000,000 to continue developing FDsys; $7,250,000 for facilities repairs and related projects, including $2,000,000 for continued elevator repairs; $4,200,000 for continuity of operations (COOP) projects ... and $3,250,000 for workforce retraining and development programs." The congressional printing and binding account pays for expenses of printing and binding required for congressional use, and for statutorily authorized printing, binding, and distribution of government publications for specified recipients at no charge. Included within these publications are the Congressional Record ; Congressional Directory ; Senate and House Journals; memorial addresses of Members; nominations; U.S. Code and supplements; serial sets; publications printed without a document or report number, for example, laws and treaties; envelopes provided to Members of Congress for the mailing of documents; House and Senate business and committee calendars; bills, resolutions, and amendments; committee reports and prints; committee hearings; and other documents. The Office of Superintendent of Documents account funds the mailing of government documents for Members of Congress and federal agencies, as statutorily authorized; the compilation of catalogs and indexes of government publications; and the cataloging, indexing, and distribution of government publications to the Federal Depository and International Exchange libraries, and to other individuals and entities, as authorized by law. Office of Compliance The Office of Compliance is an independent and nonpartisan agency within the legislative branch. It was established to administer and enforce the Congressional Accountability Act, which was enacted in 1995. The act applies various employment and workplace safety laws to Congress and certain legislative branch entities. P.L. 112-10 provides $4.08 million. The initial budget request contained $4.858 million for FY2011, an increase of 11.0% ($481,057) from the $4.377 million provided in FY2010. In her testimony before the House subcommittee on March 17, 2010, Tamara E. Chrisler, Executive Director of the Office of Compliance, stated the office was requesting a revised figure "of $4,675,491, a $298,491 or 6.82% increase." The FY2010 level represented an increase of 7.5% from the $4.1 million provided in the FY2009 Omnibus, which was an increase of 21.8% over the FY2008 level of $3.3 million. Highlights of House and Senate Hearings on the FY2011 Budget of the Office of Compliance The House subcommittee hearing on March 17, 2010, addressed issues including (1) the prioritization of fire and life safety issues, (2) staff salary increases, (3) office space issues, and (4) the most common types of hazards and cooperation from the House offices to reduce them. At its March 18, 2010, hearing, the Senate subcommittee asked for an update of a review required in the FY2010 conference report of standards used by the Office of Compliance for historic buildings and a comparison of these standards to the executive branch. The subcommittee also addressed the decrease in the number of hazards counted by the Office of Compliance. Open World Leadership Center The Open World Leadership Center administers a program that supports democratic changes in other countries by inviting their leaders to observe democracy and free enterprise in the United States. The first program was authorized by Congress in 1999 to support the relationship between Russia and the United States. The program encouraged young federal and local Russian leaders to visit the United States and observe its government and society. Established at the Library of Congress as the Center for Russian Leadership Development in 2000, the center was renamed the Open World Leadership Center in 2003, when the program was expanded to include specified additional countries. In 2004, Congress further extended the program's eligibility to other countries designated by the center's board of trustees, subject to congressional consideration. The center is housed in the Library and receives services from the Library through an inter-agency agreement. P.L. 112-10 provides $11.38 million. Open World had requested $14.0 million, a $2.0 million (16.7%) increase over the $12.0 million provided for FY2010. The FY2010 level represented a decrease of 13.7% from the $13.90 million provided in the FY2009 Omnibus. In FY2008, Open World received $8.98 million in budget authority, a decrease of 35% from the $13.86 million provided in FY2007 and FY2006. Ongoing Discussion of Location of Open World The location of Open World at the Library of Congress, as well as its inclusion in the legislative branch budget, has been a topic of discussion at appropriations hearings in recent fiscal years. The FY2010 House Appropriations Committee report states that "the Legislative Branch Subcommittee has been clear that it expects the Open World program to become financially independent of funding in this bill as soon as possible." This sentiment was also expressed in the conference report, which stated the following: The conferees are fully supportive of expanded efforts of the Open World Center to raise private funding and expect this effort to reduce the requirements for funding from the Legislative Branch appropriations bill in future years. The Committees look forward to a report of progress being made by the Center's fundraising program prior to hearings on its fiscal year 2011 budget request. Previously, during a hearing on the FY2009 budget, Ambassador John O'Keefe, the executive director of Open World, testified that the program may attract different participants if associated with the executive branch rather than the Library of Congress. The FY2009 explanatory statement directed the Open World Leadership Center Board of Trustees to work with the State Department and the judiciary to establish a shared funding mechanism. The subcommittee also had discussed this issue during the FY2008 appropriations cycle, and language was included in the FY2008 Consolidated Appropriations Act requiring Open World to prepare a report by March 31, 2008, on "potential options for transfer of the Open World Leadership Center to a department or agency in the executive branch, establishment of the Center as an independent agency in the executive branch, or other appropriate options." John C. Stennis Center for Public Service Training and Development The center was created by Congress in 1988 to encourage public service by congressional staff through training and development programs. In FY2011, $430,000 was requested for the Stennis Center, the same level provided in FY2010 and FY2009. P.L. 112-10 provided $429,140. Technology Assessments for Congress65 Since the closure of the Office of Technology Assessment (OTA), which was a legislative branch agency established in 1972 and last funded in FY1996, congressional appropriators have periodically reexamined funding for scientific studies by the legislative branch. In recent Congresses, some Members have expressed support for the refunding of OTA through the distribution of "Dear Colleague" letters and the introduction of legislation. Other Members have suggested that technology assessments may be conducted more cost-effectively by existing legislative branch agencies. The FY2008 Consolidated Appropriations Act provided $2.5 million to GAO for technology assessments. The FY2009 explanatory statement indicates that funding continues to be provided for these studies. On May 5, 2009, the House subcommittee invited Members and public witnesses to testify on their interests for FY2010. Representative Rush Holt asked the subcommittee to provide $35 million for the re-funding of the OTA. The subcommittee discussed the possibility of other legislative branch agencies—including CRS and GAO—conducting these studies, with the dialogue including the methodologies used by these agencies; the relative costs of expanding one agency versus reestablishing OTA; timeliness of OTA's analysis; and the ability of Congress to obtain technology assessments from outside entities. The FY2010 House report indicated that funding was provided "at the fiscal year 2009 level for GAO to conduct technology assessment studies." During the February 24, 2010, subcommittee hearing for Members and public witnesses, Representative Rush Holt again asked for the restoration of funding for OTA. Dr. Francesca Grifo, director of the Scientific Integrity Program of the Union of Concerned Scientists, also requested the reestablishment of OTA. Issues discussed during the hearing included whether or not the authorizing statutes for OTA (2 U.S.C. 471 et seq. ) would have to be updated prior to any reestablishment and ensuring that any research resources could be accessible to all Members of Congress. The subcommittee also discussed whether these assessments can be conducted more cost-effectively in existing agencies. For Additional Reading CRS Reports CRS Report R40617, Legislative Branch: FY2010 Appropriations , by [author name scrubbed] CRS Report RL34490, Legislative Branch: FY2009 Appropriations , by [author name scrubbed] CRS Report RL34031, Legislative Branch: FY2008 Appropriations , by [author name scrubbed] Selected Websites These sites contain information on the FY2011 and FY2010 legislative branch appropriations requests and legislation, and the appropriations process. House Committee on Appropriations http://appropriations.house.gov/ Senate Committee on Appropriations http://appropriations.senate.gov/ CRS Appropriations Products Guide http://apps.crs.gov/cli/cli.aspx?PRDS_CLI_ITEM_ID=615&from=1&fromId=73 Congressional Budget Office http://www.cbo.gov Government Accountability Office http://www.gao.gov Office of Management & Budget http://www.whitehouse.gov/omb/

The legislative branch operated on continuing resolutions from October 1, 2010 (P.L. 111-242, P.L. 111-290, P.L. 111-317, P.L. 111-322, P.L. 112-4, and P.L. 112-6) until the enactment of P.L. 112-10 on April 11, 2011. P.L. 112-10 provides $4.54 billion for legislative branch activities. The legislative branch appropriations bill provides funding for the Senate; House of Representatives; Joint Items; Capitol Police; Office of Compliance; Congressional Budget Office; Architect of the Capitol, including the Capitol Visitor Center; Library of Congress, including the Congressional Research Service; Government Printing Office; Government Accountability Office; and Open World Leadership Program. Approximately $5.12 billion was requested for legislative branch operations in FY2011, an increase of 10% over the FY2010 level of $4.656 billion, which was provided in P.L. 111-68 (enacted October 1, 2009). The FY2010 Supplemental Appropriations Act (P.L. 111-212) provided an additional $12.96 million for the Capitol Police. The Subcommittees on the Legislative Branch of the House and Senate Appropriations Committees both held hearings during which Members considered the legislative branch requests. Among issues that have been considered during hearings are the following: the Capitol Police salary miscalculation related to night differential pay and holiday and overtime pay; the Capitol Police radio project, including timing and infrastructure support by the Architect of the Capitol; deferred maintenance issues around the Capitol Complex; technology assessments; staffing issues related to recruitment and retention, requests for additional full-time-equivalents (FTE), diversity, and space; and the potential impact of a flat budget on agency priorities and missions. Previously, the FY2009 Omnibus Appropriations Act (P.L. 111-8, enacted on March 11, 2009) provided $4.4 billion for legislative branch activities. This represents an approximately 11% increase over the nearly $4 billion approved by Congress for FY2008. In FY2009, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) provided an additional $25 million for the Government Accountability Office. The FY2009 Supplemental Appropriations Act (P.L. 111-32) provided $71.6 million for the new U.S. Capitol Police radio system and $2 million for the Congressional Budget Office.

Why a U.S.-Australia Free Trade Agreement? The USAFTA is one among a number of bilateral and regional free trade agreements the BushAdministration has negotiated In the last few years, it has negotiated and entered into free tradeagreements with Jordan, Singapore, and Chile. Along with the USAFTA, the Bush Administrationcompleted negotiations and has signed the Central American Free Trade Agreement (CAFTA) withfive countries in the region, an agreement with the Dominican Republic, and an agreement withMorocco. It has also launched or intends to launch FTA negotiations with even more tradingpartners in various regions of the world all as part of its strategy of "competitive liberalization." That strategy aims to use greater access to U.S. markets as a incentive for trading partners to lowertheir trade and investment barriers. U.S. and Australian political leaders have also viewed the USAFTA as a mechanism to deepen economic ties beyond the bilateral relationship as they pursue similar goals in the Doha DevelopmentAgenda round of the World Trade Organization (WTO). (2) It has also been argued that since theevents of September 11, 2001, the Bush Administration has employed trade policy in general, andFTAs in particular, to reward those countries that have allied themselves with the United States inthe war on terrorism and the war in Iraq. Australia fits that model. (3) The USAFTA builds on theU.S.-Singapore FTA in establishing an institutionalized U.S. economic presence in the Asia-Pacificregion. Overview of U.S.-Australian Trade and Investment Relations The United States and Australia have a strong bilateral economic relationship. The twocountries share similar economic and trade goals. Both are strong supporters of achieving significanttrade liberalization in agriculture and services in the current round of multilateral negotiations in theWTO, while at the same time, both are pursuing market access through regional and bilateral freetrade agreements. The economic relationship is also built upon increasing flows of trade in goods and services andof capital in various forms of investment in a wide range of sectors. Both countries anticipate thatthe USAFTA will facilitate trade and investment flows. Trade According to U.S. data, Australia was the 14th largest destination for U.S. exports of goods ($13.1 billion) and the 30th largest source of U.S. imports of goods ($6.1 billion) in 2003 (see Table1 ). The United States has consistently realized surpluses in its trade with Australia, one of fewcountries in the world where that is the case. Table 1. U.S. Merchandise Trade with Australia: 1998-2003 ($ millions) Source: U.S. Census Bureau. Major U.S. exports to Australia include aircraft and parts, road vehicles, and specialized machinery. Major U.S. imports include meats and beverages (mostly wine) (see Table 2 ). (4) Table 2. Major U.S.-Australian Trade Commodities: 2002-2003 ($ millions) Source: U.S. International Trade Commission (USITC) DataWeb. The United States and Australia conduct a moderate amount of trade in services. In 2003 (preliminary data), U.S. exports of services to Australia totaled $5.9 billion consisting mostly oftravel services ($1.5 billion) and other private services ($2.6 billion). In 2003, the United Statesimported $3.2 billion in services from Australia with travel ($1.0 billion) and other private services($1.1 billion) accounting for the bulk of them. The United States experienced a surplus in servicestrade with Australia of $2.7 billion. In 2003, U.S. residents received $6.3 billion in income frominvestments in Australia, while Australian residents received $2.1 billion in income frominvestments in the United States. Table 3. U.S.-Australian Trade in Services, 1998-2003 ($ million) Source: U.S. Department of Commerce. Bureau of Economic Analysis. Trade in goods and services, plus investment income and unilateral transfers make up the current account, the most comprehensive measure of foreign trade flows. In 2003, the United Statesran a current account trade surplus with Australia totaling $13.0 billion. (5) Foreign Investment The cumulative U.S. foreign direct investment (FDI) in Australia , valued on an historical-cost basis, totaled $36.3 billion through 2002. The level has not varied much over the last four years. In 1999, U.S. FDI was at $35.4 billion, $34.8 billion in 2000, and $32.6 billion in 2001. Roughlyhalf of U.S. FDI in Australia in 2002 was in manufacturing ($10.8 billion) and mining ($8.2billion). While not insignificant, the level of U.S. FDI in Australia is dwarfed by U.S. investmentsin other industrialized countries, for example, the United Kingdom ($255.4 billion), the Netherlands($145.5 billion), Japan ($65.7 billion), and Germany ($64.7 billion). However, the United States isthe largest source of foreign direct investment in Australia. (All figures are for 2002.) (6) Australian FDI in the United States is lower than U.S. investment in Australia but has been increasingly sharply. In 2002, Australian FDI totaled $24.5 billion, having increased from $15.6billion in 1999. That investment is distributed across various sectors including manufacturing ($3.5billion), real estate ($2.8 billion), and other industries ($2.7 billion). (7) Overview of the Negotiations Australian Prime Minister John Howard had approached President Bush early in 2001 with aproposal to form an FTA. While not completely dismissing the idea, the Bush Administration at firstappeared to give it lower priority than other trade matters. But, on November 13, 2002, USTRZoellick notified congressional leaders that the Administration would begin negotiations withAustralia. The negotiations proved unexpectedly difficult. President Bush and Australian PrimeMinister Howard had committed to completing the negotiations by the end of 2003, but differencesover agriculture and other sensitive issues caused the deadline to slip. The first of five rounds ofnegotiations took place in Canberra March 17-21, 2003. The fifth, last, and longest round took placein Washington, December 1, 2003 and February 8, 2004. Although the negotiations took longerthan expected, they were completed in less time than the FTA negotiations with Chile andSingapore. The USAFTA negotiations over manufactured goods proceeded smoothly. Tariffs on bilateral trade in most manufactured goods are already low. The average applied Australianmost-favored-nation (MFN) tariff is 4.3%, and its average tariff on agriculture imports is 1.2%. (8) Theaverage applied U.S. MFN tariff is 5.1% and its average MFN tariff on agricultural products is10.0%. (9) Issues pertaining to trade in agriculturalgoods proved the most difficult and forced thenegotiations into overtime. In the end, both countries were determined to complete the agreement. To do so, each side acceded to very sensitive areas of the other in order to bring the negotiations to a conclusion. Thismeant that Australia acceded to the U.S. objective not to liberalize trade in sugar and to only gradualopening of dairy and beef. It meant that the United States acceded to Australia's position onpreserving its pharmaceutical subsidy program and on maintaining monopolies for the export ofwheat, barley, and rice. The United States also largely conceded to Australia the right to restrict foreign content of television programs and advertising and to preserve its sanitary and phytosanitaryregime. The negotiations resulted in an agreement to substantially free manufactured goods trade substantially from duties, and to eliminate or reduce tariffs and other barriers on most agriculturalproducts (with the notable exception of sugar). The agreement commits both countries to remove,or at least reduce, barriers to trade in services and to foreign investment. Major Provisions of the Agreement The USAFTA covers virtually all aspects of the U.S.-Australian economic relationship fromtraditional trade in goods to leading-edge trade in e-commerce. The agreement also commits the twocountries to ensure mutual access in foreign investment and government procurement and to protectthe rights of intellectual property owners in each other's territory. A more detailed discussion of theprovisions follows. Market Access for Goods Chapter 2 of the USAFTA covers bilateral trade in goods, one the least controversial areas during the negotiations. The USAFTA will result in immediate duty-free treatment for 99% of U.S.exports of manufactured goods to Australia when the agreement goes into effect. Among theremaining 1% of U.S. exports, Australian duties will still be applied to such items as textiles andwearing apparel and some footwear, but these duties will be reduced and eventually eliminated overtime. At the same time, 97% of Australian exports of manufactured goods to the United States willbe duty-free when the agreement goes into effect. Australian duties still in place on the date theagreement goes into effect will be phased out over four, eight or ten years. (Tariffs and otherrestrictions on imports of textiles and apparel and some agricultural products will be eliminatedunder separate schedules discussed below.) By 2015, tariffs on all manufactured goods tradebetween the United States and Australia will be eliminated. (10) During the negotiations, the United States highlighted the importance of obtaining immediate duty-free access for U.S. exports of autos and auto parts; chemicals, plastics, and soda ash;construction equipment; electrical equipment and appliances; fabricated metal products; furnitureand fixtures; information technology products; medical and scientific equipment; non-electricalmachinery; and paper and wood products. (11) Australia highlighted the importance to its exporters of immediate duty-free access for its exports of autos, metals, minerals, seafood, paper, and chemicals. Of particular importance to Australia was the immediate removal of the 25% tariff on Australianexports to the United States of light commercial vehicles (pick-up trucks) and the 35% tariff oncanned tuna. (12) The USAFTA permits the duty-free entry of goods from one party to the agreement into the other for repair, for use as commercial samples, or in the performance of business activities. Theagreement will also establish a Committee on Trade in Goods consisting of governmentrepresentatives from Australia and the United States to address bilateral trade issues that arise ontariffs, non-tariff barriers, rules of origin and customs administration. (13) Exceptions The USAFTA (Annex-2A) contains exceptions to the general "national treatment" principle. Notably, the United States is allowed to maintain restrictions on the export of logs and on importsof foreign-made vessels under the Jones Act. (14) Australia will be allowed to retain controls onexports of certain forestry products and restrictions on imports of second-hand cars, and to retain the"single-desk" arrangements for marketing wheat, barley, rice, and sugar and the export arrangementsfor horticulture and livestock. (See section below on agriculture products for more details on theirtreatment under the USAFTA.) Rules of Origin Rules of origin (Chapter 5) are used to determine which goods are "originating goods" and, therefore, should qualify for the preferential treatment under the agreement. Such products are onesthat are: (1) wholly obtained (raw materials) or produced in either Australia or the United States; (2)are produced in either country from materials originating from either country; or (3) are producedpartially from materials that have originated from a non-FTA country but pass a rules of origin test. In general, that test is that the final product must have involved sufficient processing in a FTAcountry as to be in a different tariff classification from the material from the non-FTA-country. Thetariff classification changes that must take place to qualify are product-specific and are listed inAnnex 5-A of the agreement. For some products, such as automotive products, an additional testthat will substitute for or help support the tariff-classification test is the regional value content test. According to that test, the sum of the value of the inputs from either Australia or the United Statesmust equal or exceed a certain percentage (the percentage depending on the product) of the totalvalue of the final product. (Special rules of origin criteria apply to textiles and apparel and arediscussed below.) Safeguards The USAFTA (Chapter 9) provides for safeguard measures for trade in goods between the United States and Australia. (In addition to these safeguard measures, the agreement provides forspecial safeguard measures for textiles and apparel and for specific agricultural products. The specialmeasures are discussed in sections devoted to those products.) (15) The FTA provides that during the transition period (the period during which duties on a product are being eliminated), an importing country may suspend the elimination of duties orincrease the duties on the import of a product from the other trading partner if, as a result of thereduction in duties, imports increase in absolute terms or relative to domestic production, as to bea substantial cause of serious injury, or threat thereof, to the domestic industry producing a likeproduct. (16) The increased duty that may be applied will not exceed the lesser of: the most-favored-nation (MFN) duty rate in effect at the time the safeguard measure was taken or the MFN duty rate in effectpreceding the date the USAFTA entered into force. The trade remedy can be applied only after aninvestigation has been conducted to determine cause and injury. The trade remedy measures canonly be applied for two years, but may be extended for another two years if a determination is madethat conditions causing serious injury still exist. Furthermore, while a safeguards measure is inplace, the country applying the measure must compensate the other country by making concessionsin other sectors that are equivalent in value to the additional duties. These measures can be used byeither partner on both manufactured and agricultural goods. Pharmaceuticals The Australian Pharmaceutical Benefits Scheme (PBS) is a 55-year-old program under which the Australian government subsidizes the costs for pharmaceuticals. To be eligible for the subsidy,the drug must be approved beforehand and appear on a list of subsidy-eligible drugs. If there are twoor more brands of the same drug, the PBS will subsidize the cheapest brand. The United States hasasserted that the methods that the Australian government uses to determine which brands tosubsidize do not take into account the benefits of newer, innovative drugs, many of which areproduced in the United States, and that cost more than older drugs. These pharmaceuticals are,therefore, at a disadvantage in the Australian market. During the negotiations, the United States pressed Australian negotiators to make the procedures for selecting eligible drugs more transparent and to make the benefits of innovative drugsa factor in determining which brands will be subsidized. Under Annex-2C, Australia agreed toestablish procedures for reviewing product listings and to make more transparent the process bywhich the amount of reimbursement for pharmaceuticals is set. The United States and Australia alsoagreed to establish a Medicines Working Group consisting of federal officials from each countrywho are responsible for federal healthcare programs. These officials will work together on emerginghealth policy issues, including the importance of innovative drugs. The two countries also agreedto strengthen the cooperation between the U.S. Food and Drug Administration and the AustralianTherapeutic Goods Administration to make innovative drugs available more quickly to nationals ineach country. In an exchange of letters accompanying the agreement, Australia agreed to provide U.S. pharmaceutical manufacturers the opportunities: to consult with officials of the AustralianPharmaceuticals Benefits Advisory Committee (PBAC) prior to submitting an application to thatbody for PBS approval for a subsidy, to respond to reports and evaluations prepared for technicalsubcommittees to the PBAC regarding the consideration of their products, to appear before a hearingof the PBAC regarding the application, and to obtain reasons for the final determination of thePBAC. In addition, Australia agreed to expedite the process as much as possible and to provideopportunities for the reimbursement amount to be readjusted. Next to agriculture, the PBS proved to be the most controversial issue in the negotiations. The issue exposed fundamental differences between the U.S. and Australian healthcare systems and howeach treats costs of pharmaceuticals borne by their citizens. It is an issue that may be more widelydebated when the Congress considers the agreement. During congressional consideration of the agreement and the implementing legislation, some Members of Congress expressed concerns about the impact of Chapter 17.9.4 of the agreement andits potential impact on the reimportation of U.S.-brand pharmaceuticals into the United States. (Chapter 17 pertains to intellectual property rights protection.) That provision reads as follows: Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patentedprocess, without the consent of the patent owner shall not be limited by the sale or distribution ofthat product outside its territory, at least where the patentee has placed restrictions on importationby contract or other means. The concerns centered on whether this provision would prohibit the U.S. Congress, if it so chooses, to pass a law that would permit the reimportation of U.S. patented drugs into the UnitedStates. USTR Zoellick argued that the provision provides no new legal rights to U.S. patent holdersand that such rights as stated the provision are already in U.S. law. In addition, he argued, that notrade agreement can prevent the U.S. Congress from changing U.S. law by passing another law. (17) Nevertheless, the issue may arise as the United States negotiates FTAs with other trading partnersand implementing legislation for the agreements are considered by the Congress. Agricultural Products Agricultural issues were the greatest challenge in the bilateral FTA negotiations, as many trade experts had anticipated. Agricultural products accounted for only 4.7% of U.S. exports to Australiabut for 34.5% of U.S. imports from Australia in 2003. As major agricultural exporting countries,the United States and Australia are, for the most part, allies in multilateral negotiations onagricultural issues. They share similar positions in the difficult negotiations now taking place in theDoha Development Agenda (DDA) round in the World Trade Organization (WTO) to reduce oreliminate barriers to trade in agricultural goods. However, the movement towards a tighter economicrelationship under an FTA exposed important sensitivities that threatened to undermine the entirenegotiations. Under the USAFTA (Chapter 3 and related annexes), U.S. tariffs on around 20% of the agriculture imports from Australia will be eliminated immediately. The United States will alsophase out the tariff-rate quota (TRQ) on beef during the tariff elimination period to begin when U.S.exports of beef reach their 2003 level (to allow U.S. beef producers to recover from the effects ofthe "mad cow" incident), or three years after the agreement goes into effect, whichever is earlier. (18) U.S. tariffs on beef imports within the quota will be eliminated immediately and tariffs on importsabove the quota will be eliminated in stages over the 18-year period. The U.S. TRQ on dairy product imports from Australia will be increased and phased out over an 18-year period under the USAFTA. Tariffs on within-quota imports will be eliminatedimmediately, while the tariffs on above-quota imports will remain unchanged. The U.S. dairy quotas will apply to Australian exports of such products as certain cheeses, butter, milk, cream, ice-creamproducts, and whole milk powder. U.S. quotas on imports of Australian peanuts, tobacco, cotton,and avocados will also be eliminated over time. U.S. duties on Australian wines will be eliminatedover an 11-year period. Among the most controversial issues was the U.S. tariff-rate quota on sugar. The United States refused to change the sugar quota and it remains unchanged under the USAFTA. Australian exports of wheat, rice, barley, and sugar are monopolies of state-sanctioned commodity boards, or "single desk arrangements." During the negotiations, the United Statesasserted that these boards distort trade and targeted them as negotiating objectives during the FTAnegotiations. As a result of the negotiations, however, Australia will maintain the single-deskarrangements but agreed to work with the United States in the WTO to eliminate restrictions on theright of private entities, who are apart from the commodity boards, to export agricultural products. The USAFTA will provide for special "safeguard" provisions for U.S. imports of Australian beef and horticulture products (e.g., tomatoes, pears, apricots, onions, and peaches). Aquantity-based trigger mechanism will apply to imports of Australian beef during the first 18-yearsof the agreement, and a price-based trigger mechanism will apply beginning in year 19 of theagreement. A price-trigger mechanism will apply during the tariff elimination transition period forU.S. imports of Australian horticulture products. Under the USAFTA, Australian tariffs on imports of U.S. agricultural products will be eliminated immediately. These provisions are expected to benefit particularly U.S. exports ofprocessed foods, soybeans, fresh and processed fruits, vegetables and nuts, and exports of alcoholicbeverages. (19) The U.S. government asserted that Australia's sanitary and phytosanitary (SPS) measures are excessively restrictive. The restrictions affect U.S. exports of Florida citrus, stone fruit, chicken,pork, apples, pears, and corn. (20) Australia assertedthat these requirements are necessary to protectthe health of its citizens and to protect Australian produce from disease. The two partners agreedto a compromise under the USAFTA whereby they will establish mechanisms to resolve bilateraldisputes over SPS regulations and to develop science-based measures to protect health and safetythat are trade-related. Textiles and Apparel Textiles and apparel represent a very small portion of U.S.-Australian bilateral trade. In 2003, U.S. exports of these products totaled $121.6 million or just under 1% of total U.S. exports toAustralia, and U.S. imports of textiles and apparel totaled $253.6 million or about 4% of total U.S.imports from Australia. The USAFTA (Chapter 4 and Annex-4A) provides for special safeguardmeasures to dampen the adverse effects of surges in textile and apparel imports in U.S.-Australianbilateral trade. If either Australia or the United States determines that imports of textile or apparelproducts from the other are increasing at such a rate as to be a substantial cause of serious injury,or a threat thereof, to the domestic industry, then it can apply a trade remedy in the form of a higherduty to allow the domestic industry to adjust. The safeguard measures are similar to, but differentfrom, the general safeguard measures (described earlier) in the USAFTA. One important differenceis that compensation to the country that is the target of the safeguard measure must be in the formof concessions on textile and apparel, unless the two countries otherwise agree. The USAFTA contains rules of origin that specifically apply to textiles and apparel. The agreement applies the "yarn forward" principle, that is, fabrics produced for export must be formedentirely from yarns formed in either the United States or Australia and apparel for export must beproduced entirely from fabrics produced in either Australia or the United States from yarns entirelyformed in either of the two countries. In addition, the apparel must be cut or knit to shape orassembled in either Australia or the United States. There are a number of exceptions to this principlethat are product-specific and outlined in Annex 4-A of the agreement. In addition to the safeguard measures and rules of origin, the USAFTA provides that tariffs on textiles and apparel are to be eliminated more gradually than tariffs on other manufactured goods. For example, whereas 100% of U.S. imports of non-textile and apparel manufactured goods fromAustralia will become duty-free immediately when the USAFTA enters into force, only 7% of U.S.imports of textiles and apparel from Australia will become duty-free immediately. Around 86% ofthose imports will not become entirely duty-free until the agreement has been in force 10 years. (21) Trade in Non-Financial Services The USAFTA (Chapter 10) covers the sale, production, distribution, marketing, and delivery of services, and also payment for services. The obligations under the USAFTA mirror closely, andin some cases exceed, those that the United States and Australia have undertaken in the WTO underthe General Agreement on Trade in Services (GATS). The USAFTA covers service transactions delivered in any of three ways: from the territory of one FTA-country to the territory of the other; in the territory of one FTA-country by a national ofthat country to a national from the second FTA-country; and by a national of one FTA-country in theterritory of the second. The agreement requires the United States and Australia to accordnon-discriminatory treatment, both most-favored- nation treatment and national treatment, to servicesoriginating in each other's territory. The agreement prohibits the Australian and U.S. governmentsfrom imposing restrictions on: the number of service providers; the total value of service transactionsthat can be provided; the total number of service operations or the total quantity of services output;or the total number of natural persons that can be employed in a services operation. In addition, thetwo governments could not require a service provider from the other FTA-country to have apresence in its territory in order to provide services. There are exceptions to this coverage that arelisted in chapter 10. As is the case with the GATS, the USAFTA allows the United States and Australia to make exceptions (non-conforming measures) to the national treatment, MFN, market access, and localpresence restrictions. The exceptions apply to any existing non-conforming measure at the federalor regional levels of government and that are specifically identified in eitherAnnex I or Annex IIof the agreement and to all non-conforming measures maintained by local governments. Thenonconforming measures listed in Annex I cannot be made more restrictive, and if made lessrestrictive are then "bound." Those listed in Annex II can be made more restrictive and are not"bound" if made less restrictive. The USAFTA adopts the "negative list" approach to the coverageof services; that is, the countries are obligated to cover all service sectors except those specificallylisted in the annexes. In contrast, under the GATS, no service sector is covered unless specifically identified. The USAFTA's coverage is, therefore, more comprehensive in terms of U.S.-Australianbilateral services trade. The Australian government has used the non-conforming measures provisions to preserve local content requirements in audiovisual and broadcasting media . The Australian governmentrestricts foreign content of programming and advertising on over-the-air television broadcasting. Between 6:00PM and 12 Midnight, 55% of the programming must be of Australian origin, and 80%of the advertising must be Australian advertisements. The United States wanted the restrictionschanged to permit more foreign access to these markets. Australia insisted that the restrictions arenecessary to preserve Australian culture, and the exception is listed in Annex I. In addition, theAustralian government has reserved the right, as listed in Annex II, to impose new requirementsregarding multi-channel broadcast television programs, expenditure requirements for subscriptiontelevision, tax preferences for investment in Australian film and television productions, amongothers. Annex II also contains an Australian exception to allow it to maintain existing co-productionarrangements and to create new ones. The United States listed excepted nonconforming measures in its schedules to Annex I and Annex II. Among the most notable was the preservation of many restrictions under section 27 ofthe Merchant Marine Act of 1920 (The Jones Act). Among other things, that law limits shippingwithin the United States to vessels owned, built, and operated by U.S. citizens, and registered in theUnited States. The USAFTA obligates the United States and Australia in other aspects of their bilateral trade in services. It requires that any procedures that either government employs to authorize the supplyof services be transparent, that an application for authorization must be handled in a timely manner, that the applicant be informed of the status of the application, and that the eligibility requirementsfor authorization not constitute unnecessary barriers to trade in services. Furthermore, the FTArequires that the regulations that govern trade in services be developed and applied in a transparentmanner. It also addresses the issue of government-imposed qualifying requirements (education,experience, certification, licenses, etc.) for providers of professional services obtained in one countryand recognized as valid by the other. Also, the United States and Australia agree to at least maintainthe current level of market openness in providing express delivery services and to ensure thatrevenues earned from a monopoly postal service (for example Australia Post) are not used to providea competitive advantage to its express delivery service. Financial Services USAFTA (Chapter 13) specifically addresses bilateral trade and investment in financial services. The agreement defines financial services to "include all insurance and insurance-relatedservices, and all banking and other financial services, as well as services incidental or auxiliary toa service of a financial nature." The obligations that the United States and Australia agree toundertake closely mirror those found in non-financial services: national treatment; MFN treatment;prohibition on limits to the number of financial institutions, the total value of service transactions,the quantity of output, or the number of natural persons that may be employed in a particular firm;prohibition on requirements that senior management or board of directors consists of individuals ofa particular nationality; prohibition on requirement that the board of directors consist of a majorityof nationals from the country where the financial provider is located; and a requirement forregulatory transparency. As in the case with non-financial services, the agreement allows each FTA country to make exceptions to the coverage of the agreement. These exceptions are listed in Annex III (existingnon-conforming measures that cannot be made more restrictive) and Annex IV (sectors andsubsectors on which existing non-conforming measures can be maintained or tightened and on whichnew non-conforming measures can be applied). The United States and Australia undertake obligations that are specific to financial services. For example, the agreement allows financial service providers from one partner country to sell anew financial service in the other's market without additional legislation, if local financial serviceproviders are allowed to provide the same service; however, the provider of the new service could be required to obtain authorization and to provide the new service in a particular institutional orjuridical form. The USAFTA permits an FTA-country to recognize as valid the prudential measuresof non-FTA countries without automatically recognizing the validity of the other partner's measures,but it must give the other FTA-partner the opportunity to show why its prudential measures shouldbe so recognized. The USAFTA also requires the establishment of a Financial Services Committeeto consider ways that the financial services sectors of the two countries can be more closelyintegrated. Telecommunications Under the USAFTA (Chapter 12), the United States and Australia agree to ensure that enterprises from each other's territory have nondiscriminatory access to public telecommunicationsservices. (The chapter specifically does not apply to broadcast or cable distribution of radio ortelevision programming, except that enterprises operating broadcast stations and cable systems haveaccess to telecommunications services.) For example, both countries will ensure that suppliers oftelecommunications services who dominate the market do not engage in anti-competitive practices. They also ensure that public telecommunications suppliers provide enterprises based in the otherFTA-partner with interconnection, number portability, dialing parity, and access to underwater cablesystems. Government Procurement The USAFTA (Chapter 15) opens up the vast markets of procurement in goods and services by the two governments to suppliers from other country. This chapter is closely modeled on theWTO Government Procurement Agreement (GPA), a so-called plurilateral agreement that the UnitedStates has signed, but Australia has not signed. (22) The WTO Agreement requires its signatories toallow goods and services providers from the other signatory countries to bid on contracts valuedabove a threshold level on an equal, nondiscriminating basis with domestic suppliers, thus waivingany "buy national" requirements. For example, the U.S. "Buy America Act" gives preferentialtreatment to U.S. domestic suppliers vis-a-vis non-GPA signatories. The USAFTA will giveAustralian suppliers of goods and services equal status in the U.S. government procurement marketwith providers from the other countries that have signed the GPA or from other countries with whichthe United States has similar agreements. To ensure non-discrimination, both the GPA and the USAFTA require participating governments to follow rules that call for transparency and timeliness in tendering bids, such as opentendering and publication of tender opportunities. Coverage of both agreements is limited to thosefederal and regional entities that the participating countries have listed in annexes and to contractsthat are above a threshold value. Foreign Investment The USAFTA (Chapter 11) covers foreign investment activities on the territories of the two countries by nationals from the other partner-country. The agreement applies to all forms ofinvestment, including direct investments (controlling investments in enterprises, plant andequipment, real estate, etc.) and portfolio investments (stocks, bonds, intellectual property rights,etc.). The agreement will require the United States and Australia to afford non-discriminatorytreatment, most-favored-nation and national treatment, to the establishment, acquisition, expansion,management, conduct, operation, and sale or other disposition of an investment. The agreement willprohibit, with limited exceptions, either of the governments from imposing performancerequirements on the operation of a foreign investment in its territory. (23) The USAFTA will prohibitboth governments from requiring a foreign-owned enterprise hire individuals of a particularnationality in a senior management position. It will permit the governments to require that a majorityor fewer of the board of directors be of a nationality or resident of its territory provided that such arequirement does not impair the ability of the foreign investor from maintaining control over theinvestment. The agreement will place limits on the right of each government to expropriate theassets of a foreign investor who is a national of the other FTA country. As with the case of services, the USAFTA will allow each partner to list exemptions from the provisions on foreign investment, and these non-conforming measures are listed in Annex I andAnnex II (the same annexes for services) of the agreement. Australia has used Annexes I and II topreserve its right to screen foreign investments. All foreign investments in Australia are subject togovernment screening and approval. While this process has apparently not stopped U.S. investorsfrom establishing successful operations in Australia, representatives of the U.S. business communityinsisted that the process does not conform to the principle of "national treatment," that is, treating foreign investors no less favorably than domestic investors. The United States has used its right toexceptions, among other things, to preserve programs to encourage minority-owned businesses. At the outset of the negotiations, USTR Zoellick stated that he wanted the Australian government to eliminate or reduce trade distorting investment measures. (24) The Australiangovernment had indicated that changing the process might be difficult. (25) However, in a compromise,the United States has allowed Australia to maintain its screening process. Australia agreed toeliminate screening of U.S. investment in new entities ("greenfield investments"). It also agreed toincrease the threshold value from $A50 million to $A800 million above which U.S. acquisitions ofestablished entities in Australia will have to be screened. (26) The threshold on U.S. investments insome sensitive sectors, such as telecommunications, transportation, and defense-related areas, willremain at $A50million. U.S. acquisitions of Australian financial institutions will also remainrestricted. (27) During the negotiations, the United States insisted that a special investor-state dispute mechanism be established under the USAFTA. Australia argued that such a mechanism will not be necessary because U.S. and Australian legal traditions regarding investment were very similar, andU.S. investors will receive fair treatment in Australian courts. The United States agreed to keep themechanism out of the agreement, but the agreement contains a provision that will allow theestablishment of an investor-state dispute mechanism, if changed circumstances warrant it. Other Issues The USAFTA contains provisions covering other relatively non-controversial, but nevertheless important, aspects of U.S.-Australian trade and investment. The provisions on labor (Chapter18)and environment (Chapter 19) are structurally similar. Because the Australian and U.S.economiesare both modern and industrialized and are at similar levels of development, with similar averagewage levels and environmental standards, labor and environment issues have not been a cause ofbilateral trade friction. Nevertheless, the USAFTA commits the two countries to enforce their respective labor rights laws, that is those laws that are directly related to the internationallyrecognized labor principles and rights, and to enforce laws to protect the environment. If eithergovernment ascertains that the other FTA partner is not adhering to these provisions, it will be ableto raise the issue through the USAFTA's dispute settlement mechanism (described below). The USAFTA (Chapter 8) will also commit Australia and the United States to prevent government standards and technical regulations from unnecessarily inhibiting bilateral trade. Governments use these regulations to ensure that the goods sold in their territory do not impair thehealth and safety of their residents. The agreement will also commit the two countries to worktoward mutual recognition of each other's technical regulations as equivalent to their own. Theobjective will be to facilitate trade by eliminating duplicative testing and other technical procedures. The USAFTA devotes a separate chapter (Chapter 16) to electronic commerce (e-commerce) . Among other things, the agreement commits the United States and Australia not to impose customsduties on any digital product. A digital product is defined as the "digitized form, or encoding of,computer programs, text, video, images, sound recordings, and other products, regardless of whetherthey are fixed on a carrier medium [e.g., CD] or transmitted electronically [online]." In addition, thetwo countries agree to accord no less favorable (non-discriminatory) treatment to digital productsthat originate in the other USAFTA-country or in a non-FTA country, than it accords digital productsthat originate in its territory. Exceptions to this principle are those that the FTA partners have listedunder the foreign investment chapter and the services chapter. Furthermore, if a governmentpractice, action, or regulation presents a conflict between this principle and the provisions of theUSAFTA pertaining to intellectual property rights protection (Chapter 17), the latter will prevail. Under the USAFTA (Chapter 17), the United States and Australia reaffirm their obligations to a number of international treaties on intellectual property rights, including the WTO Agreementon Trade-Related Aspects of Intellectual Property Rights (TRIPS). Furthermore, the USAFTAcommit the two countries to ratify and accede to the World Intellectual Property Organization(WIPO) Treaty on Performances and Phonograms and the Treaty on Copyrights. The United Stateshas ratified the two treaties, while Australia has not. Other key provisions would: protect the rights of holders of copyrights, including programs carried over encrypted satellite signals; protect the rights of patent holders, with flexibility to exclude from patent ability the methods of treatment and regulations that re used to protect public order and morality; protect the rights of holders of trademarks, including geographical designations; require Australia to extend the duration of copyright protection to coincide with U.S. protection -- from the life of the author plus 50 years to the life of the author plus 70 years;and protect internet domain holders from "cybersquatting." The USAFTA (Chapter 21) provides for a mechanism for the two countries to resolve disputes that arise over interpretation of the agreement. The agreement requires the formation of a JointCommittee of representatives from each FTA country that will meet annually to review the operationof the agreement to consider and to discuss possible disputes or changes that one or the other countrywishes to make to the agreement. The agreement places a premium on resolving throughconsultation, but if that means fails, it provides for the establishment of a panel to arbitrate thedispute and assign compensation if warranted. Reactions to the Agreement With some notable exceptions, the reactions to the USAFTA of representatives from affectedsectors of the U.S. economy have been positive, although the reaction of any specific industry orsector is largely a function how it will be affected by the agreement. The Advisory Committee forTrade Policy and Negotiations (ACTPN) was established by the Congress to provide private sectoradvice to the President on trade agreements before he signs them. The ACTPN's membership cutsacross virtually all sectors of the economy, including manufacturing, agriculture, labor, services, andthe environment. With the exception of one member (see below), the ACTPN has endorsed theU.S.-Australia Free Trade Agreement. The vast majority of the committee's membership concludedthat the agreement fulfills U.S. trade objectives that Congress set down in the Trade Act of 2002, andthe membership supports the trade liberalizing measures to which the agreement commits the UnitedStates and Australia. (28) Although, endorsing the agreement, the majority of the ACTPN expressed some concerns: that some issues regarding Australia's sanitary and phytosanitary (SPS) regime still needed to be resolved before U.S. agricultural exporters will be able to take full advantage ofthe agreement; that the agreement does not include an investor-state dispute provision and calls for the U.S. government to ensure that such a provision be added if it proves warranted;and that the environmental provisions in the agreement are adequate for Australia, since Australia has a strong record on environmental protection, but they should not be considereda model for other U.S. FTA agreements where the partners' records on the environmental protectionis not so strong. (29) The ACTPN member representing labor, James P. Hoffa, Jr., General President of the International Brotherhood of Teamsters, filed the lone dissenting view against approval of theagreement. He argued that the agreement's labor provisions only require Australia to enforce itslabor laws. Hoffa claims, "While Australia is a developed country with a relatively high standardof living and a vibrant, independent labor movement, it has an imbalanced, inadequate system oflabor laws that fail to fully protect workers' rights." (30) The agricultural negotiations were the most difficult and the results somewhat ambiguous. The reactions of agricultural and food producers reflect the ambiguity. U.S. sugar producers wererelieved that the agreement did not include liberalization of sugar imports, while sugar-usingprocessors were critical. U.S. wheat exporters oppose the agreement because Australia will bepermitted to retain its single-desk monopoly on wheat exports. Pork producers have indicated thatthey will not support the agreement until Australia implements a final risk assessment on U.S. porkfor import into Australia and U.S. pork exports to that market begin to increase. The reaction of beefproducers has been mixed. They are disappointed that greater access to the U.S. market forAustralian exporters was not matched by openings in other foreign markets for U.S. beef exportersthrough the WTO negotiations. They are pleased that the U.S. beef market will be opened graduallyto Australian exporters over an 18-year period. The American Farm Bureau supports the USAFTAas long as the SPS issues and other issues that affect U.S. agricultural exports are resolved beforethe Congress votes on the agreement. (31) U.S. manufacturers strongly support the USAFTA, calling for immediate congressional approval. National Association of Manufacturers (NAM) Vice-President Frank Vargo has labeledthe USAFTA "the manufacturers agreement." (32) Congress and the USAFTA United States Trade Representative Robert Zoellick and Australian Trade Minister Mark Vailesigned the agreement on May 18, 2004, in Washington. Within 60 days after signing the agreement,the President must submit a preliminary list of U.S. laws that will have to be changed in order tocomply with the agreement. After entering into the agreement, but within no specific time frame,the President then can submit a draft of the agreement, the implementing legislation, and statementof administrative action to both Houses of Congress. The three documents must be submitted ondays in which both Houses are in session. The Congress then has a total of 90 legislative days inwhich to act: The House Committees with jurisdiction over the agreement have 45 legislative daysduring which to review and report out the agreement followed by 15 legislative days for floor action. The Senate Committees of jurisdiction have an additional 15 legislative days to consider and reportout the implementing legislation followed by an additional 15 legislative days for floor action. Under trade promotion authority the amount of time for debate on the agreement in both Housesis limited and the vote is strictly yea or nay (no amendments). (33) On June 23, 2004, the House Ways and Means Committee and the Senate Finance Committee each held a "mock mark-up" of implementing legislation. The Ways and Means Committeeapproved by voice vote the "legislation" on June 23 without amendment. On a largely party-linevote, the Finance Committee approved an amendment that will require the USTR to obtain approvalfrom the Ways and Means and Finance Committees before he could waive requirement to implementa safeguard measure against imports Australian beef. On June 24, Senate Finance reported thelegislation out unfavorably (7-14). The Bush Administration was expected to submit implementinglegislation based on the House Ways and Means Committee version. On July 6, 2004, the President formally submitted legislation to implement the agreement. On July 8, the House Ways and Means Committee favorably reported out the implementing bill, H.R. 4759 , by voice vote, and the full House approved the measure (314-109) on July15. On July 15, the Senate Finance Committee reported out bill, and the full Senate approved themeasure (80-16) on July 16. The bill was sent to the President for his signature. President Bushsigned the U.S.-Australia Free Trade Agreement Implementation Act on August 3, 2004( P.L.108-286 ). The Australian parliament approved implementing legislation on August 13, 2004, but with two amendments insisted on the by opposition Labour Party, whose support the government needed inorder to get sufficient support to get it passed by the Senate. The amendments stipulate thatpharmaceutical companies that hold drug patents must certify that any legal action they seek to blockcheaper generic drugs from entering the Australian market must have been done in good faith. Thecompanies would be subject to monetary penalties if they violate the certification. The USTR mustcertify to the President that the amendments comply with the FTA as signed by the two countriesbefore the agreement goes into effect. On November 17, 2004, USTR Zoellick and Trade MinisterVaile exchanged diplomatic notes certifying acceptance of each other's implementing legislation butonly after Australia assured the United States that the implementing legislation would be changedto address U.S. concerns. The FTA entered into force on January 1, 2005. Impact of the USAFTA The USAFTA will have implications for the U.S.-Australia economic relationship and possiblyfor U.S. trade and trade policy as a whole. Because tariffs on most manufactured goods and manyagricultural products were already low, one can conclude that the removal of the tariffs and otherrestrictions will not result in major shifts in trade patterns, in large increases in the total volume oftrade, or in significant trade diversion. An analysis of the potential economic effects of the USAFTAconducted by the United States International Trade Commission concluded that the largestpercentage increases in U.S. exports to Australia will occur in coal, oil, gas, and other mineralproducts; textiles, apparel, and leather products; and other processed food and tobacco products,although these increases will occur from small bases. The largest value increases in U.S. exports toAustralia will occur in other machinery and equipment and motor vehicles and parts. The largestpercentage increases in U.S. imports from Australia will occur in textile, apparel, and leatherproducts; meat products; and other processed food and tobacco products. The greatest increase invalue of U.S. imports from Australia will occur in meat products. The report estimated that U.S.consumers will realize a net welfare benefit increase of $438 million to $639.4 million if theagreement is fully implemented. (34) Under the USAFTA, the United States and Australia addressed the few significant irritants in their bilateral economic relationship. Accordingly, the agreement could further solidify an alreadystrong relationship. For Australia, those irritants include U.S. restrictions on beef and dairyproducts. For the United States they include Australian local content requirements in televisionprogramming, sanitary and phytosanitary (SPS) measures, state-sanctioned monopolies in exportsof wheat and other grains, and screening of foreign investments. In some cases, such as U.S.restrictions on beef and dairy and Australian investment screening, the two sides agreed to loosenrestrictions. In the case others, such as the Australian SPS measures and state-sanctionedmonopolies, they agreed to establish mechanisms for further discussion. However, in the case ofsome irritants, such as U.S. import controls on sugar, the two countries agreed no change waspossible. The agreement may have implications for U.S. trade policy and strategy as a whole. Enactment of the agreement will build on the increased U.S. use of FTAs, especially by the BushAdministration, as a trade liberalization tool. For some observers, FTAs act as building blocks toglobal trade liberalization, especially at a time when the multilateral negotiations in the WTO areproceeding slowly at best. Others have argued that FTAs undermine multilateral trade liberalizationefforts and create a confusing web of intertwining economic relationships. If approved by Congress, the USAFTA may also set precedents for other FTAs the United States might form. For example, the steps that Australia agreed to take to make the PharmaceuticalBenefits System more transparent may be a model for the United States in future FTAs withcountries that have similar government- subsidized drug programs. Some observers have alsosuggested that the exclusion of U.S. sugar import restrictions from the USAFTA will encourageother trading partners to exclude politically-sensitive products from agreements with the UnitedStates or encourage other U.S. import-sensitive industries to push for exclusion in future tradeagreements.

After more than a year of negotiations, U.S. and Australian trade officials concluded a bilateral free trade agreement (FTA) on February 8, 2004. The negotiations proved unexpectedly difficult. President Bush and Australian Prime Minister Howard had committed to completing the negotiationsby the end of 2003, but differences over agriculture, especially sugar, and other sensitive issuescaused the deadline to slip. The U.S.-Australia FTA (USAFTA) is a comprehensive agreement. It commits the United States and Australia not only to eliminate tariffs on most of their bilateral trade in goods, but alsoto ensure nondiscriminatory treatment in most areas of bilateral trade in services, governmentprocurement, in foreign investment as well as improved protection of intellectual property rights. Under the USAFTA, the United States and Australia addressed the few significant irritants in their bilateral economic relationship. In so doing, the agreement could further solidify an alreadystrong relationship. For Australia, those irritants include U.S. restrictions on beef and dairyproducts. For the United States they include Australian local content requirements in televisionprogramming, sanitary and phytosanitary (SPS) measures, state-sanctioned monopolies in exportsof wheat and other grains, and screening of foreign investments. In some cases, such as U.S.restrictions on beef and dairy and Australian investment screening, the two sides agreed to loosenrestrictions. In the case others, such as the Australian SPS measures and state-sanctionedmonopolies, they agreed to establish mechanisms for further discussion. However, in the case ofsome irritants, such as U.S. import controls on sugar, the two countries agreed no change waspossible. United States Trade Representative Robert Zoellick and Australian Trade Minister Mark Vaile signed the agreement on May 18, 2004, in Washington. On July 6, 2004, the President submittedlegislation to implement the agreement. On July 8, the House Ways and Means Committee reportedout the implementing bill, H.R. 4759 , by voice vote, and on July 15, the full Housepassed the measure (314-109) in a largely bipartisan vote. On July 15, reported the Senate FinanceCommittee reported out the companion bill, and on July 16 the full Senate passed the measure(80-16), and it was sent to the President for his signature. President Bush signed the U.S.-AustraliaFree Trade Agreement Implementation Act on August 3, 2004 ( P.L. 108-286 ). On November 17,2004, trade officials from each country exchanged diplomatic notes indicating that implementinglegislation passed by the other country met the requirements of the FTA. However, this occurredonly after discussions were held to resolve U.S. concerns over provisions contained in the Australianimplementing legislation pertaining to pharmaceutical patents. The FTA is entered into forceJanuary 1, 2005.

Historical Background The current dispute began in 1981, when letters from Members of Congress and a petition from the U.S. lumber industry asked the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to investigate lumber imports from Canada for a possible CVD. The ITC found preliminary evidence of injury to the U.S. industry, but in 1983, the DOC determined that the subsidies were de minimis (less than 0.5%), ending the CVD investigation. In 1986, the U.S. lumber industry filed a petition for another CVD investigation. A 1985 court ruling on a DOC determination of countervailable benefits on certain imports from Mexico was seen as a favorable precedent for reversing the DOC finding on Canadian lumber subsidies. In addition, numerous Senators made it clear to the President that action on lumber imports was necessary for legislative approval of fast-track authority for a United States-Canada free trade agreement. The ITC again found preliminary evidence of injury to the U.S. industry, and the DOC reversed its 1983 determination, with a preliminary finding that Canadian producers received a subsidy of 15% ad valorem (i.e., 15% of lumber market prices). On December 30, 1986, the day before the final DOC subsidy determination was to be issued, the United States and Canada signed a memorandum of understanding (MOU) with Canada imposing a 15% tax on lumber exported to the United States, to be replaced by higher stumpage fees within five years. The U.S. industry then withdrew its petition. In September 1991, the Canadian government announced that it would withdraw from the MOU because most of the provinces had increased their stumpage fees. The U.S. Trade Representative (USTR) responded by beginning a Section 301 investigation, pending completion of a new CVD investigation by the DOC and the ITC. In March 1992, the DOC issued a preliminary subsidy finding of 14.48% ad valorem, with a final determination in May establishing a 6.51% ad valorem subsidy leading to a 6.51% ad valorem duty. In July 1992, the ITC issued a final determination that the U.S. industry had been materially injured by Canadian lumber imports. The Canadian federal government appealed both the DOC and the ITC final determinations to binational review panels established under Chapter 19 of the United States-Canada Free Trade Agreement (FTA), which had entered into force on January 1, 1989. In May 1993, the binational panel reviewing the subsidy determination remanded the DOC finding for further analysis, and in September, the DOC revised its finding to 11.54% ad valorem. In December, the binational subsidy panel again remanded the DOC finding and ordered the DOC to find no subsidies. In January 1994, the DOC complied with the order. Using a provision of the FTA, the USTR requested an Extraordinary Challenge Committee (ECC) to review the binational panel decisions, but the ECC was dismissed in August 1994 for failing to meet FTA standards. The DOC then revoked the CVD, and in October, the USTR announced that it would terminate the Section 301 action. Two events in September of 1994 induced Canada to negotiate restrictions on its lumber exports to the United States. First, the U.S. lumber industry filed a lawsuit challenging the constitutionality of the binational panel review process, now contained in the North American Free Trade Agreement (NAFTA). Second, the President submitted implementing legislation for the GATT Uruguay Round agreements, which explicitly approved the President's Statement of Administrative Action (SAA) accompanying the proposed legislation, the document containing language indicating that because of Canadian practices, lumber imports from Canada could be subject to a CVD. In February 1996, the two nations announced an agreement-in-principle—a fee on Canadian lumber exports to the United States in excess of a specified quota for five years—with the final U.S.-Canada Softwood Lumber Agreement (1996 SLA) signed in May and retroactive to April 1, 1996. The 1996 SLA was effective through March 31, 2001. Industry Analysis: Subsidies and Injury Annual Canadian lumber imports have risen from less than 3 billion board feet (BBF), about 7% of the U.S. market, in the early 1950s to more than 18 BBF, more than a third of the U.S. market, since the late 1990s. U.S. lumber producers argue that subsidies to Canadian producers give them an unfair advantage in supplying the U.S. market and that this has injured U.S. producers. These two issues—subsidies and injury—are the basis in U.S. trade law for determining whether a CVD is warranted. In addition, critical circumstances , which allow for retroactive duties, are deemed to exist if imports rise significantly after ending import restrictions. Finally, dumping—selling imports at less than the cost of their production—can lead to additional duties. Subsidies: Canadian Stumpage Fees The U.S. lumber industry has argued that the stumpage fees charged by the Canadian provinces are less than the market price of the timber would be and are therefore a subsidy to Canadian producers. About 90% of the timberlands in the 10 provinces are owned by the provinces. The provinces require management plans for forested areas and allocate the timber harvests through a variety of agreements or leases, often for five or more years with renewal options. Stumpage fees for the timber are determined administratively, often with adjustments to reflect changes in market prices for lumber. This contrasts with the U.S. situation, where 42% of the forests are publicly owned and where public timber is typically sold in competitive auctions; thus, much of the timber in the United States is sold by public and private landowners at market prices. The use of administered fees in Canada opens the possibility that the Canadian system results in transfers to the private sector at less than their fair market value, as the U.S. lumber industry has charged. However, comparisons of U.S. and Canadian stumpage fees are often disputed, because of: differences in measurement systems and the imprecision of converting Canadian cubic meters of logs to U.S. board feet of lumber; differences in the diameter, height, quality, and species mix of U.S. and Canadian forests; differences in management responsibilities imposed on timber buyers (e.g., road construction, reforestation); differences in environmental conditions and policies; and other factors. Subsidies: Export Restrictions In its 1992 CVD investigation, the DOC identified export restrictions by British Columbia (BC) as a subsidy to BC softwood lumber manufacturers. The DOC found that the BC export scheme constituted indirect government action having the effect of lowering the price of logs sold in the BC domestic market and as a result conferring a benefit on the BC manufacturers by reducing their production costs. BC generally prohibits the export of logs from Crown (provincial) lands to ensure domestic production, provide jobs, and encourage economic development. Export restrictions on public timber in the United States indicate substantially higher prices for export logs than for comparable logs sold domestically. Most economists would consider restrictions that reduce domestic prices below the world market price to be subsidies, and the General Agreement on Tariffs and Trade (GATT) generally prohibits export restrictions. The DOC affirmed its earlier position on the countervailability of export restraints in implementing the Uruguay Round Agreement on Subsidies and Countervailing Measures (SCM). Canada later challenged this approach in a World Trade Organization dispute settlement proceeding, arguing that treating export restraints in this way violated the SCM Agreement. The case is discussed under " WTO Challenges ," below. Injury to the U.S. Lumber Industry Proving injury or threat of injury to U.S. lumber producers is also essential to establishing a CVD. The share of the U.S. softwood lumber market provided by Canadian lumber has grown substantially during the past 50 years. In 1952, lumber imports from Canada were less than 3 BBF and Canada's market share was less than 7%. Beginning in 1998, Canadian lumber imports have been more than 18 BBF, rising to 22 BBF in 2005, and Canada's market share has fluctuated between 33% and 35% since 1995. These facts are cited by U.S. producers as evidence that Canadian imports have come at the expense of normal domestic growth in industrial lumber production. U.S. homebuilders and other lumber users counter that Canadian lumber is essential to meeting domestic demand, and argue for unrestricted imports. Despite consistent ITC findings of injury, indisputable proof of injury to U.S. producers is difficult to establish. The 2001-2002 Antidumping and Countervailing Duty Investigations Immediately following the expiration of the 1996 SLA on March 31, 2001, the U.S. Coalition for Fair Lumber Imports filed antidumping and countervailing duty petitions with the Department of Commerce. The DOC announced the initiation of investigations on April 24, 2001, finding that petitioners had standing and had shown adequate industry support. On May 16, 2001, ITC issued its preliminary determination of threat of material injury, which permitted the investigations to continue. On August 17, the DOC published its preliminary determination of Canadian subsidies of 19.31% ad valorem and established a preliminary duty at that level. The DOC also preliminarily found that critical circumstances existed, potentially allowing for retroactive application of the duty. On November 6, 2001, the DOC published its preliminary determination that Canadian firms were dumping lumber, with margins ranging from 5.94% to 19.24% (12.58% for most firms). The DOC also aligned, and postponed until March 25, 2002, final determinations in the CVD and AD cases. Negotiations were undertaken to forestall final determinations of injury, subsidy, and dumping. The negotiations collapsed on March 21, 2002, and on March 22, the DOC issued final determinations that, as later amended, found Canadian subsidies of 18.79% ad valorem and dumping margins ranging from 2.18% to 12.44% for individually investigated companies and a margin of 8.43% for all other firms. The DOC did not find critical circumstances, however, in its final subsidy determination. On May 2, 2002, by a 4-0 vote of the commissioners, the ITC issued a final determination of threat of material injury. Duties averaging 27% went into effect May 22, 2002, when the DOC published the final duty notice in the Federal Register . The United States immediately began collecting duty deposits at this rate. Canada's NAFTA and WTO Challenges Seeking revocation of the antidumping and countervailing duty orders and return of the estimated duties deposited by importers on softwood lumber entries, Canada challenged DOC and ITC determinations in the softwood antidumping and CVD investigations before binational panels established under Chapter 19 of the North American Free Trade Agreement (NAFTA) and in dispute settlement proceedings initiated in the World Trade Organization (WTO). Canadian producers also filed claims against the U.S. government under the investor-state dispute settlement provisions of NAFTA, arguing that the imposition of the AD and CVD duties had caused the United States to breach obligations owed Canadian investors in the United States under NAFTA Chapter 11. In addition, Canada and Canadian producers filed suits in the U.S. Court of International Trade challenging agency actions in the softwood investigations, as well as related actions under other statutes, including the Continued Dumping and Subsidy Offset Act (CDSOA), which required the distribution of collected antidumping and countervailing duties to U.S. firms. Although Canada had generally prevailed in its NAFTA and WTO cases, the United States continued to collect estimated duties on softwood entries. In particular, the United States used a WTO-related ITC affirmative threat of injury determination to maintain the AD and CVD orders, even though Canada had earlier obtained a negative threat determination a result of its NAFTA case. Although Canada had obtained a court order in its favor in the suit challenging the application of the CDSOA to Canadian imports, for the most part, domestic and international litigation directly affecting the AD and CV duty orders was not fully resolved at the time the April 2006 framework agreement was reached. Overview of NAFTA and WTO Dispute Settlement Procedures Carrying forward the process first established in the U.S.-Canada Free Trade Agreement, NAFTA Chapter 19 provides for binational panel review of a final agency determination in an antidumping or countervailing duty investigation in lieu of judicial review in the country in which the determination is issued. Panel review may be requested by a NAFTA country on its own or on behalf of a firm that would otherwise be entitled to seek judicial review of the final determination in the country of issuance. The binational panel determines whether the challenged determination is in accordance with the antidumping or countervailing duty law of the country involved and, if the panel finds that it is not, directs the issuing agency to issue a new determination in accord with the panel decision within a prescribed time frame. Either party to the dispute may appeal a panel decision to an Extraordinary Challenge Committee (ECC) for review on a limited range of issues. NAFTA-implementing legislation requires that the International Trade Commission or the Department of Commerce, as the case may be, "take action not inconsistent with" a NAFTA or ECC panel decision within the time period set out by the panel. Multiple remands to an agency may occur if the reviewing panel is not satisfied with the agency determination issued in response to the panel's directions. WTO dispute settlement, a government-to-government process set out in the WTO Dispute Settlement Understanding (DSU), involves a three-stage process consisting of consultations, panel and possibly Appellate Body review, and, if needed, implementation. In contrast to NAFTA Chapter 19, a WTO panel reviews a challenged measure to determine whether it is consistent with international obligations contained in one or more WTO agreements. The WTO process also permits a longer, and possibly open-ended, implementation phase. Rather than permitting the panel or the Appellate Body to prescribe a deadline for complying with an adverse WTO decision, the DSU allows the disputing parties to agree on a deadline themselves or, if they cannot do so, to have the period be determined by arbitration. The WTO cannot compel a WTO Member to comply with a decision; instead, if the defending Member does not implement the decision within the established period, the complaining Member may seek compensation from the defending party or request authorization from the WTO to impose a retaliatory measure, usually a tariff increase on selected products, until compliance is achieved. In addition, any party to the dispute may ask that a compliance panel be established to determine whether the defending party has abided by the WTO decision rendered in the case. In practice, such a proceeding, which may involve an appeal, is usually completed before the request to retaliate is placed before the WTO for final approval. In contrast to NAFTA-implementing legislation, the Uruguay Round Agreements Act (URAA) provides the executive branch with discretion to determine how to respond to an adverse WTO decision involving an agency determination in an AD or CVD investigation. Although Section 129 of the URAA authorizes the DOC and ITC to issue new determinations in response to adverse WTO decisions, it does not authorize the agencies to do so on their own initiative, but instead allows the United States Trade Representative (USTR) to decide whether to request the agency involved to do so in a given case. Section 129 determinations that are implemented under this section apply prospectively, that is, to unliquidated entries entered on or after the date the USTR directs the Commerce Department to revoke an AD or CVD order or to implement a new determination, as the case may be. Unlike the government-to-government process set out in NAFTA Chapter 19 and the WTO Dispute Settlement Understanding, investor-state dispute settlement contained in NAFTA Chapter 11 allows a private person—in this case, an investor of a NAFTA party—to file an arbitral claim directly against the government of another NAFTA party. Claims may be made for a breach of a NAFTA investment obligation that has resulted in loss or damage to the investor. Each NAFTA party has consented to the establishment of such panels in NAFTA, and thus ad hoc consent by the party is not needed once a claim is filed. If the investor prevails in the dispute, the arbitral panel may award monetary damages to the investor. The panel may not order the NAFTA party to remove the offending measure, however, or to pay punitive damages. NAFTA Challenges: Chapter 19 Cases Canada and Canadian lumber producers sought binational panel review of DOC and ITC final determinations, as well as review of other agency actions, in both the AD and CVD cases. As a result of the challenges to the final determinations, Canada obtained a significantly reduced subsidy rate from the DOC and a negative threat of injury determination from the ITC. Although the DOC originally lowered AD rates for individually investigated companies, it raised dumping rates in a subsequent remand redetermination. Because of the negative ITC threat determination, Canada sought eventual revocation of the AD and CVD orders and return of more than $4 billion in duty deposits. The U.S. position had been that even were the orders to be revoked, duties would not be refunded absent a negotiated settlement. In September 2005, shortly after NAFTA review of the ITC injury determination concluded in Canada's favor, the U.S. industry group Coalition for Fair Lumber Imports Executive Committee filed a constitutional challenge to the binational panel process in the U.S. Court of Appeals for the District of Columbia Circuit, as provided for in § 516A(g)(4) of the Tariff Act of 1930, 19 U.S.C. § 1516a(g)(4). The case, which was pending at the time the April 2006 framework agreement was reached, is one of the legal proceedings that the United States and Canada agreed would be terminated as part of the SLA litigation settlement. Annex 2A of the SLA, as amended, requires the United States and Canada to "seek to dismiss" the case, and a motion to dismiss for lack of jurisdiction was filed October 12, 2006, the effective date of the agreement. The case was dismissed on December 12, 2006. DOC Final Dumping Determination In a report issued in July 2003, the binational panel unanimously affirmed the DOC final dumping determination in part and remanded in part, directing the DOC to publish revised dumping margins in light of the panel's instructions, which focused in part on the DOC's product comparisons. In October 2003, the DOC submitted its new determination to the panel, which resulted in lower AD duty rates for all but one individually investigated producer (Slocan), as well as a slightly reduced "all others" rate. The panel's decision on the remand, issued in March 2004, found the DOC determinations to be inconsistent with U.S. law and ordered new determinations for three Canadian exporters (Tembec, Slocan, and West Fraser). In its April 2004 redetermination, the DOC lowered the dumping margin slightly for two producers, found a de minimis (negligible) margin for the third (West Fraser), and recalculated the "all others" rate to 8.85%, slightly greater than the rate in the original AD order. The panel remanded the dumping determination in June 2005, with instructions to the DOC to revoke the AD order with respect to West Fraser. In addition, the panel directed the DOC to recalculate dumping margins without using zeroing —a practice that involves assigning a zero value to transactions in which the export price or constructed export price exceeds normal value (i.e., where there is no dumping), and as a result not using the higher export prices in these transactions to offset the lower export prices in other sales. The NAFTA panel cited the earlier adopted WTO decision (discussed below) in which DOC's use of zeroing in the final softwood dumping determination was found to be inconsistent with the WTO Antidumping Agreement. In its July 2005 remand redetermination, the DOC took the approach that it had employed in responding to the earlier adverse WTO decision on its softwood dumping determination; namely, it used the transaction-to-transaction method of price comparison (a methodology not involved in the WTO case), applied zeroing in comparing prices under this method, and calculated dumping margins that exceed those in its original 2002 determination, specifically an average of 10.06% for individually investigated producers and a 10.52% "all others" rate. Moreover, citing the need to apply the same methodology to all producers, the DOC calculated a rate of 3.21% for West Fraser, a margin that is no longer de minimis. The DOC also asked that the panel reconsider its WTO-related analysis and its seeming approval of using the legally discredited zeroing methodology for West Fraser. The panel had not issued a decision at the time of the April 2006 framework agreement. The 2006 SLA, as amended, provides that on the effective date of the agreement, Canada and the United States will seek to dismiss this action. DOC Final Subsidy Determination In August 2003, the binational panel upheld the DOC's treatment of provincial stumpage programs as subsidies and the DOC finding that the programs are "specific" to an industry (a necessary element of a domestic subsidy finding). At the same time, it found as contrary to U.S. law the DOC's use of cross-border market comparisons to calculate the subsidy, the blanket refusal of the DOC to exclude from the scope of the CVD order reprocessed Maritime-origin softwood lumber, and other aspects of the DOC determination related to the exclusion of products. The DOC submitted its new determination in January 2004, lowering the duty rate from 18.79% to 13.23%. As described in a DOC press release, the recalculated rate was based on a revised methodology using a benchmark "constructed on the basis of Canadian log prices and import value of logs, adjusting for harvesting costs." The DOC also excluded certain Maritime-origin lumber and old lumber, including used railroad ties, from the scope of the CVD order. In a June 2004 decision, the binational panel granted the DOC's request for a remand "to reconsider certain limited implementation issues" and additionally remanded to DOC with instructions to recalculate various provincial benchmark prices, to reconsider the adjustment for profit with respect to the benchmarks for all Canadian provinces, and to make two other recalculations. The panel remanded to DOC three additional times. The DOC, which continued to take issue with the panel's rationale for calculating the benefit of the subsidy, issued its fifth remand determination on November 22, 2005, lowering the subsidy rate to 0.80%, a de minimis rate that does not permit the imposition of duties. The panel upheld the determination on March 17, 2006. On April 27, 2006, the United States requested an Extraordinary Challenge Committee (ECC) to review the panel decision but immediately suspended its request in light of the framework agreement reached by United States and Canada to settle the softwood lumber dispute. Both countries subsequently notified interested parties in the proceeding that they had jointly agreed that the proceedings be suspended. A suit filed by Canadian industry groups in the Court of International Trade seeking a court order compelling the USTR to appoint a member to the ECC was dismissed on August 2, 2006. The 2006 SLA, as amended, provides that on the effective date of the agreement, the United States will withdraw its request for the ECC. ITC Final Threat of Injury Determination In September 2003, the binational panel affirmed parts of the ITC threat of injury determination but also remanded the determination to the ITC, directing it to examine, among other things, whether certain factors other than dumped or subsidized imports may have contributed to the threat of injury, to reexamine one of its like product determinations, and to reconsider its interpretation of a statute which, in the ITC's view, allowed it to cross-cumulate dumped and subsidized imports in the context of its threat determination. In response, the ITC issued a new affirmative threat of injury determination, which was also remanded and followed by a third ITC affirmative threat determination. Instead of remanding for a third time, the binational panel in August 2004 directed the ITC to issue a "no threat" determination within 10 days. With the chairman dissenting, the ITC did so under protest on September 10, 2004. The panel affirmed the new determination on October 12, 2004, and directed the NAFTA Secretariat to issue a Notice of Final Panel Action on October 25, 2004. On November 24, 2004, the United States requested an Extraordinary Challenge Committee (ECC) to review the underlying NAFTA panel decisions. The ECC unanimously affirmed the panel decisions August 10, 2005. While Canada maintained that the NAFTA results required the United States to remove the AD and CVD orders in question, the United States claimed that the affirmative threat determination issued by the ITC on November 24, 2004, in response to the 2004 adverse WTO decision on the same issue, superseded the earlier NAFTA-related determination and legally supported the continued imposition of duties. Canada, along with Canadian producers and provincial governments, successfully challenged implementation of the November 2004 ITC determination in the U.S. Court of International Trade (USCIT), which on July 21, 2006, ruled that the USTR's order to the DOC to implement the WTO-related determination was ultra vires. The court later ruled that all softwood lumber entries for which liquidation (i.e., the final computation of duties) was suspended were to be liquidated in accordance with the final negative NAFTA panel decision. As a result, duty deposits on these entries were to be returned. For further discussion of the USCIT and WTO cases, both of which are part of the litigation settlement in the 2006 SLA, see " Investigation of the International Trade Commission in Softwood Lumber from Canada (DS277) ," under " WTO Challenges ," below. Other U.S. Administrative Actions Three binational panels requested in 2005 involved the review of further U.S. administrative actions in the softwood AD and CVD investigations. At issue were the final results of DOC's first administrative review of the CVD order, implementation of the affirmative ITC determination on threat of injury issued in response to the WTO ruling on the ITC's final threat determination, and the DOC dumping determination issued in response to a separate WTO ruling. The binational panel on the ITC injury determination was stayed as of March 22, 2005, pending the outcome of the NAFTA ECC proceeding, described above. At the time the April 2006 framework agreement was reached, the proceeding had not been reactivated, nor had panel decisions been issued in the other two cases. The 2006 SLA, as amended, provides that "as promptly as possible" after the effective date of the agreement, Canada and the United States will file joint motions to dismiss on the grounds of mootness the panel involving the first administrative review of the CVD order. The two referenced WTO proceedings (DS277 and DS264) are discussed under " WTO Challenges ," below. In addition, Canadian producers filed panel requests in 2006 concerning the results of DOC's second administrative review of the AD order, DOC's second administrative review of the CVD order (also filed by Canada),  and a March 2006 ruling by the DOC that certain products entering under a particular tariff item (HTSUS 4409.10.05) fell within the scope of the CVD order. These three cases were also pending at the time the April 2006 framework agreement was reached. NAFTA Challenges: Chapter 11 Investment Claims Three Canadian lumber companies—Canfor Corporation, Tembec Inc., and Terminal Forest Products Ltd.—filed arbitral claims against the United States under the investment chapter of the NAFTA, arguing that the United States breached various NAFTA investment obligations by virtue of final agency determinations in the softwood lumber investigations. After the cases were consolidated, the arbitral panel ruled on June 6, 2006, that it did not have jurisdiction over the parties' AD and CVD claims, finding that Article 1901(3) of NAFTA, which provides that parties' AD and CVD obligations under NAFTA are with one exception limited to those set out in Chapter 19, rendered the claims non-justiciable before a Chapter 11 panel. At the same time, the panel concluded that it was not barred from adjudicating claims relating to the Continued Dumping and Subsidy Offset Act. The 2006 SLA, as amended, provides that on the effective date of the agreement, Canfor Corporation will withdraw its claim against the United States in the consolidated Chapter 11 arbitration. WTO Challenges Along with the NAFTA proceedings, Canada also initiated a number of WTO cases related to or directly involving the softwood antidumping and CVD investigations. Canada's WTO challenge of the Continued Dumping and Subsidy Offset Act is discussed in a separate section below. Although the WTO cases had produced mixed outcomes for the parties, Canada prevailed to some degree in each of its complaints involving the final U.S. subsidy, dumping, and injury determinations. Both the DOC and the ITC issued new determinations under § 129 of the Uruguay Round Agreements Act (Section 129 determinations), which resulted in a subsidy rate substantially the same as the original rate, higher dumping margins, and reconfirmation of a threat of material injury from dumped and subsidized Canadian imports. These determinations were later challenged by Canada in WTO compliance proceedings. The six WTO cases directly involving the AD and CVD investigations have been settled as part of the 2006 SLA. Export Restraints as Subsidies (DS194) As noted earlier, the DOC recognized the countervailability of export restrictions in its 1992 determination that Canadian softwood lumber was subsidized. The subsequent Uruguay Round Agreement on Subsidies and Countervailing Measures (SCM Agreement) set out a definition of the term "subsidy," stating that a subsidy will be deemed to exist if there is a financial contribution by a government and a benefit is conferred thereby. Under the agreement, a financial contribution may consist of government provision of goods and services other than general infrastructure and includes a situation where the government entrusts or directs a private body to carry out the financial contribution involved. In the Statement of Administrative Action accompanying the 1994 Uruguay Round Agreements Act, and in the Federal Register explanation of the DOC's subsequent implementing rule for countervailing duties, the executive branch made clear that U.S. law and the SCM Agreement recognized that an indirect subsidy could be provided through an export restraint scheme, the DOC stating that although export restraints "may be imposed to limit parties' ability to export, they can also, in certain circumstances lead those parties to provide the restrained good to domestic purchasers for less than adequate remuneration." The DOC also confirmed that were it again to investigate situations and facts similar to those in the 1992 softwood case, U.S. trade law would continue to permit it to reach the same conclusion. In May 2000, Canada challenged this policy in the WTO, alleging that the U.S. interpretation, as set forth in the above-cited documents, was inconsistent with U.S. obligations under the SCM Agreement. Focusing on the requirement that there be a governmental financial contribution, Canada argued that the language in the SAA and the Federal Register required the United States to interpret the U.S. countervailing duty statute "to treat an export restraint as a subsidy, if it has a price effect beneficial to users of the restricted product in the restricted market," while in fact there would be no such contribution for purposes of the SCM Agreement. The WTO panel agreed with Canada that an export restraint "cannot constitute government-entrusted or government-directed provision of goods" and thus does not constitute a financial contribution from the government as contemplated by the agreement's definition of "subsidy." At the same time, the panel found that the U.S. statute read in light of the interpretative documents does not require that export restraints be treated as financial contributions, and thus recommended no remedial action. The panel report was adopted by the WTO Dispute Settlement Body (DSB) on August 23, 2001. Section 129(c)(1) of the Uruguay Round Agreements Act (DS221) In apparent anticipation of possible U.S. AD and CVD investigations of Canadian softwood lumber imports, Canada filed a WTO complaint against the United States in January 2001, challenging § 129(c)(1) of the URAA, 19 U.S.C. § 3538(c)(1), which provides that a Section 129 determination that is implemented applies to unliquidated entries of the subject merchandise that are entered on or after the following dates: in the case of an ITC determination, the date on which the USTR directs the DOC to revoke an antidumping or countervailing duty order pursuant to that determination; in the case of a DOC determination, the date on which the USTR directs the DOC to implement the determination, which sets forth procedures for administrative compliance with adverse WTO panel reports involving U.S. AD or CVD determinations. Were AD and CVD duties to be applied to softwood lumber entries, liquidation—that is, the final computation of duties—of the subject entries would initially be suspended because of the retrospective nature of the U.S. system. Were the agency determination to be challenged, the suspension would be extended until the litigation were settled. Thus Canada was concerned that even were it to succeed in having a duty order revoked or amended in its favor as a result of a WTO challenge, duties deposited on goods entered before the date set out in § 129(c)(1) would not be returned and, moreover, might be made available to domestic producers under the Continued Dumping and Subsidy Offset Act, discussed below. Canada thus alleged in its WTO case that § 129(c)(1), being prospective, effectively prohibited the United States from refunding estimated antidumping or countervailing duties deposited with Customs and Border Protection where a determination in the underlying investigation had been found to be inconsistent with WTO obligations. In Canada's view, the statute, by mandating this outcome, violated portions of the WTO Dispute Settlement Understanding and various WTO antidumping and CVD duty obligations. In response, the United States maintained that § 129(c)(1) only addresses the treatment of imports entered after the implementation date and does not govern the treatment of prior entries for which final duties have not yet been calculated, referred to in the dispute as "prior unliquidated entries." The United States further argued that, as such, the statute does not mandate any particular treatment of prior unliquidated entries and that the United States has other legal options for dealing with these entries, including establishing a new dumping or subsidy margin by using a WTO-consistent methodology in an administrative review of the entries or, in the event the duty order or orders were revoked as a result of the WTO proceeding, revising the duty rate in response to a domestic court decision involving the earlier entries. The July 2002 panel report concluded that Canada failed to establish that the statute either required WTO-inconsistent action on the part of the United States or precluded the United States from taking action in accordance with its WTO obligations. The panel report was adopted by the DSB August 30, 2002. Preliminary Softwood CVD Determinations (DS236) In August 2001, Canada challenged the DOC's preliminary subsidy and critical circumstances determinations in the softwood lumber CVD proceeding, arguing that the determinations violated the SCM Agreement and the GATT 1994. As noted earlier, the SCM Agreement provides that a subsidy will be deemed to exist if there is a financial contribution by a government and a benefit is conferred thereby. A financial contribution may consist of government provision of goods and services other than general infrastructure. Domestic subsidies are countervailable if they are specific to an industry. The WTO panel upheld the U.S. determination that provincial stumpage programs constitute a financial contribution to the industry but faulted the methodology used by the DOC in determining whether a benefit was conferred on Canadian lumber producers, citing the DOC's use of cross-border price comparisons and the Department's failure to examine whether a subsidy had passed through an unrelated upstream supplier to a downstream user of lumber inputs. Although the panel also found that DOC's preliminary critical circumstances determination (allowing retroactive duties) was improper, the DOC did not find critical circumstances in its final CVD determination, an outcome requiring it to terminate the retroactive suspension of liquidation that it had ordered after the preliminary affirmative determination and to release any bond or security and to refund any cash deposits made with respect to the entries covered by the retroactive suspension. Finally, the panel upheld U.S. laws and regulations regarding expedited and administrative reviews in CVD cases, finding that they did not require the executive branch to act inconsistently with WTO obligations. Neither party pursued an appeal and the panel report was adopted November 1, 2002. The United States later reported to the WTO that it did not need to take any action to comply with the panel report on the ground that the preliminary duties were no longer in effect and the provisional cash deposits at issue had been refunded to Canada before the panel report was circulated. Issues raised in this case were further pursued by Canada in its WTO challenge of the final DOC CVD determination (DS257), discussed below. Provisional Softwood Antidumping Measure (DS247) On March 6, 2002, Canada requested consultations with the United States on the provisional AD measure imposed on Canadian lumber after the DOC's affirmative preliminary dumping determination October 31, 2001 (i.e., the suspension of liquidation of all entries and the requirement for a cash deposit or posting of a bond equal to the preliminary dumping margin). Canada argued that neither the initiation of the AD investigation nor the preliminary determination was in accord with the WTO Antidumping Agreement. Canada did not request a panel in this case. Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada (DS257) Canada challenged the DOC's final affirmative subsidy determination in the softwood lumber CVD investigation as violating the WTO SCM Agreement and the GATT 1994. Like the panel report in DS236, discussed above, the panel report on the final DOC determination upheld the DOC finding that provincial stumpage programs were financial contributions by the government and that the subsidies were specific, but faulted the DOC's use of cross-border price comparisons and the Department's determination that the subsidy from the stumpage program passed through to downstream users. The report was appealed by both the United States and Canada. In a January 2004 decision, the WTO Appellate Body upheld the panel's stumpage determination but reversed the panel on its finding that cross-border comparisons could not be used in determining a benefit and on its consequential finding that the U.S. determination of the existence and amount of the benefit violated WTO rules. Because of insufficient information, however, the Appellate Body could not complete the analysis as to whether the benchmark that the United States did use was proper and consequently whether the U.S. benefit finding and ultimately its imposition of countervailing duties based on that determination comported with WTO obligations. Regarding downstream users, the issue before the Appellate Body concerned situations where harvesting and processing were not carried out by vertically integrated enterprises, thus requiring an examination of "whether the subsidy conferred on products of certain enterprises in the production chain was 'passed through,' in arm's length transactions, to other enterprises producing the countervailed product." The Appellate Body upheld the panel's finding that United States had violated WTO obligations when the DOC failed to conduct a pass-through analysis regarding arm's-length sales of logs by tenured harvesters/sawmills to unrelated sawmills, but reversed the panel on its finding that the DOC acted inconsistently with WTO obligations when it failed to conduct a pass-through analysis regarding arm's-length sales of primary lumber by such sellers to unrelated remanufacturers. The appellate and modified panel reports were adopted by the DSB in February 2004, and the United States and Canada later agreed on a compliance deadline ending December 17 of that year. The DOC issued a revised CVD determination pursuant to § 129 of the URAA on December 10, 2004, and instructed Customs to collect estimated CVDs of 18.62% on goods entered for consumption or withdrawn from warehouse after that date, a reduction of 0.17% from the original net subsidy rate. At Canada's request, a compliance panel reviewed the new DOC determination, as well as U.S. action in the first administrative review of the CVD order. The review, which covered 2002-2003 imports, reduced the net subsidy rate to 16.37% ad valorem. Canada also sought to impose retaliatory measures against the United States; the request was automatically sent to arbitration upon U.S. objection, but under an agreement between the two parties, the arbitration was suspended until completion of the compliance panel process. In an August 2005 report, the compliance panel found that the DOC had not carried out the necessary pass-though analysis regarding non-arm's-length sales of logs by tenured timber harvesters to unrelated lumber producers and concluded that, in both the Section 129 determination and the first administrative review, the DOC had made its calculations using transactions for which it had not demonstrated that the benefits of subsidized log inputs had passed through to the processed product. The United States appealed, arguing that the first administrative review was outside the scope of the panel's jurisdiction. In a report issued December 5, 2005, the AB upheld the panel's conclusion that the first administrative review fell within its mandate to the extent that the pass-though analysis was involved and ruled that the panel had acted within the scope of its authority in making its making its legal conclusions regarding U.S. actions in the review. The panel and AB reports were adopted by the DSB on December 20, 2005. Neither the Canada nor the United States asked that arbitration of Canada's retaliation request be resumed, an option available to them under their bilateral procedural agreement. Final Dumping Determination on Softwood Lumber from Canada (DS264) In September 2002, Canada requested consultations with the United States regarding the DOC's final affirmative softwood dumping determination, claiming various violations of the WTO Antidumping Agreement and the GATT. Canada argued that the DOC had improperly initiated the case; improperly applied a number of methodologies, resulting in artificial or inflated dumping margins; not established a correct product scope for its investigation; and failed to adhere to various WTO requirements involving procedural matters in the investigation. The panel report, issued April 13, 2004, generally rejected Canada's claims, though (with one dissent) it faulted the United States for calculating dumping margins with the use of zeroing , under which the DOC assigns a zero value to non-dumped sales. The United States appealed the panel report on this issue. On August 11, 2004, the Appellate Body upheld the panel's conclusions on zeroing and, regarding an issue appealed by Canada, reversed the panel's finding that the United States had not infringed various Antidumping Agreement provisions in calculating financial expenses for softwood lumber for one company under investigation (Abitibi). Because the reversal focused only on the panel's interpretation of the legal standard that the panel used to evaluate the Commerce Department's approach, the Appellate Body did not make any findings as to whether the United States in fact acted consistently or inconsistently with the provisions involved. The reports were adopted by the DSB August 31, 2004. On January 31, 2005, the DOC issued a preliminary Section 129 determination in which it continued to find dumping and moreover increased dumping margins. The DOC compared prices on a transaction-to-transaction basis, rather than on the weighted-average-to-weighted-average basis used in its original determination. The DOC maintained that the WTO ruling applied only to the use of zeroing in the methodology involved in the case and did not apply to other modes of price comparison that the DOC has discretion to use in dumping investigations. With a May 2, 2005, compliance deadline in place, the DOC published a final Section 129 determination in the May 2 Federal Register in which it used the same methodology that it had used in the preliminary determination and again posted higher dumping margins. The margins ranged from 3.93% to 16.35% for individually investigated producers and an "all others" rate of 11.54%, approximately three percentage points higher than the original rate. At Canada's request, the new determination was referred to a WTO compliance panel on June 1, 2005. Canada also sought authorization to suspend concessions in the amount of C$400 million for 2005 and, for each subsequent year, in an amount that equaled "the portion of the total antidumping duties illegally collected and not refunded for that year as a result of the United States non-compliance." On U.S. objection, the request was sent to arbitration. Under an agreement between the United States and Canada, the arbitration was suspended pending completion of the compliance proceedings. In a decision circulated April 3, 2006, the compliance panel found that the use of zeroing in transaction-to-transaction comparisons was consistent with U.S. obligations under the Antidumping Agreement and that the United States had thus implemented the WTO ruling in the case. On appeal by Canada, the Appellate Body reversed the panel, finding that the Antidumping Agreement does not permit the use of zeroing in the transaction-to-transaction methodology and recommending that the DSB request the United States to bring its measure into compliance with its obligations under the agreement. The Appellate Body report and the panel report, as reversed by the Appellate Body, were adopted on September 1, 2006. Investigation of the International Trade Commission in Softwood Lumber from Canada (DS277) On December 20, 2002, Canada requested consultations with the United States regarding the ITC's May 2002 final threat of injury determination. Canada claimed violations of the GATT, the Antidumping Agreement, and the SCM Agreement, alleging, among other things, that the ITC based its threat of injury determination "on allegation, conjecture and remote possibility" and that it failed to consider properly a number of relevant factors in its determination. A final panel report faulting the ITC's threat determination and its causal analysis was publicly circulated March 22, 2004. Although the panel recommended that the United States bring its measures into conformity with the WTO Antidumping and SCM Agreements, it declined to recommend any ways for the United States to do so. The United States took issue with the panel's negative findings but chose not to appeal; the report was adopted on April 26, 2004. The United States told the WTO Dispute Settlement Body that it intended to comply, and the United States and Canada subsequently agreed on a nine-month compliance period ending January 26, 2005. On November 24, 2004, ITC issued a Section 129 determination in which, with one dissent, it affirmed its earlier threat of injury determination. In making its determination, the ITC reopened the administrative record and took into account additional evidence, an action foreclosed to it in the NAFTA binational panel review of the threat determination. The USTR later requested the DOC to implement the new ITC determination, which it did by amending the AD and CVD orders to reflect its issuance and implementation. In February 2005, Canada requested the establishment of a compliance panel and authorization to impose approximately C$4.25 billion in sanctions, an amount it stated represents the total amount of CVD and AD duty cash deposits collected and not refunded as a result of the United States' failure to revoke the May 22, 2002, CVD and antidumping orders, which Canada viewed as proper implementation of the WTO rulings in the case. As is it did in the other softwood disputes, the United States objected to the retaliation request, sending it to arbitration. Under an agreement between the parties, the arbitration was suspended until the rulings in the compliance procedure were adopted, with either party able to request that arbitration be resumed if the rulings were ultimately adverse to the United States. In a report issued November 15, 2005, the compliance panel found that the ITC determination was consistent with U.S. obligations under the Antidumping and SCM Agreements. In describing its standard of review, the panel noted, inter alia, that unless evidence and arguments detracting from the agency's conclusions "demonstrate that an unbiased and objective investigating authority could not reach a particular conclusion, we are obliged to sustain the investigating authorities' judgment, even if we would not have reached that conclusion ourselves." In an appeal by Canada, the WTO Appellate Body on April 13, 2006, reversed the compliance panel, ruling that it had applied an improper standard of review and had not examined the ITC determination with an adequate level of scrutiny. The Appellate Body did not itself examine the WTO-consistency of the ITC determination, however, and thus did not recommend that the United States take any action regarding the determination. As noted above, the United States maintained that the Section 129 determination issued in response to the WTO ruling legally supported the continued imposition of AD and CVD duties on Canadian softwood lumber, notwithstanding ITC's "no threat" determination issued in September 2004 at the direction of the NAFTA binational panel, as subsequently upheld by the NAFTA Extraordinary Challenge Committee. In January 2005, Canada and Canadian producers, in three separate actions, challenged implementation of the Section 129 determination in the U.S. Court of International Trade on the ground that the USTR's order to the DOC to implement the new determination was ultra vires, that is, beyond the scope of USTR's authority under the statute. Plaintiffs argued that § 129 only authorizes the USTR to order the revocation of an AD or CVD order in response to a new negative ITC determination and thus where a new determination does not legally undermine an existing order no further administrative action is authorized. The court later stayed the proceedings temporarily pending the outcome of the NAFTA Extraordinary Challenge Committee proceeding and in September 2005 consolidated the three cases in one action, Tembec, Inc. v. United States . On July 21, 2006, the court ruled that the USTR was not authorized to issue the order to the DOC and that as a result the May 2002 antidumping and countervailing duty orders were not supported by an affirmative finding of injury or threat thereof. The court also directed the parties to respond to various questions relating to whether federal law required that cash deposits on softwood entries whose liquidation had been suspended before November 2004, in this case the bulk of the softwood duties, be returned to the importers of record. Liquidation of most of the softwood lumber entries—that is, the final computation of duties—had been suspended since the ITC's final threat of injury was published in May 2002; the suspension was continued under § 516A(g)(5)(C) of the Tariff Act of 1930, 19 U.S.C. § 1516a(g)(5)(C), a provision that may be invoked in the event of certain NAFTA panel reviews. On October 13, 2006, the court ruled that liquidation of all entries subject to a suspension of liquidation under the cited provision is to occur in accordance with a NAFTA panel's final determination. As a result, all unliquidated softwood entries were to be liquidated in accordance with the final negative decision of the NAFTA injury panel and thus without the imposition of antidumping and countervailing duties. Accordingly, these deposits were to be refunded as well. The United States had retroactively revoked the antidumping and countervailing duty orders on October 12, 2006, the effective date of the SLA, the same day that Canada had stipulated to the dismissal of its complaint in the USCIT proceeding and the United States filed a motion to dismiss on the ground that retroactive revocation and liquidation in accordance with the revocation rendered the action moot. The United States subsequently asked the court to vacate its October 13 decision; Canada and Canadian producers have opposed the granting of this later motion. DOC Reviews of Countervailing Duty on Softwood Lumber (DS311) On April 14, 2004, Canada requested consultations with the United States regarding the CVD case, arguing that the United States had violated the SCM Agreement and the GATT by failing to provide expedited and administrative reviews to establish individual CVD rates for specific exporters who had requested them. No panel request was made in this case. Softwood Lumber Imports and the Continued Dumping and Subsidy Offset Act ("Byrd Amendment") As evident from several of the legal proceedings discussed above, Canada was concerned that in cases where Canadian firms were subsequently excluded from an AD or CVD order, or were the orders to be eventually revoked, duty deposits would not be returned to importers. Moreover, were these duties not refunded, they might eventually be available for distribution to U.S. lumber firms under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), also known as the "Byrd Amendment," 19 U.S.C. §1765c, which mandated the annual disbursement of AD and CVD duties to petitioners and interested parties in the underlying trade remedy proceedings for a variety of qualifying expenditures. Although Congress repealed the CDSOA in February 2006, it also required the continued distribution of duties collected on entries of goods made and filed before October 1, 2007. As discussed below, however, the U.S. Court of International Trade, in a suit filed by Canada and Canadian producers, ruled that the CDSOA does not apply to Canadian imports. Prior to Canada's federal court suit, Canada and 10 other WTO Members had successfully challenged the CDSOA in a WTO dispute proceeding. The WTO panel and Appellate Body ruled that the statute violated provisions in the Antidumping and SCM Agreements prohibiting WTO Members from maintaining a "specific action against" dumping or subsidization except as provided in WTO agreements. Canada was one of eight complainants who requested and received authorization to retaliate against the United States for its failure to repeal or modify the law by December 27, 2003, the end of the compliance period in the case. An arbitral panel ruled that each could retaliate in an amount equal to 72% of the annual CDSOA disbursements relating to duties paid on imports from that country. Having identified a current annual retaliation level of $14 million, Canada began to impose a 15% surcharge on imports of U.S. live swine, cigarettes, oysters, and certain specialty fish as of May 1, 2005. Although the United States now considers that with repeal of the CDSOA it has fulfilled its WTO obligations, Canada and other complainants have expressed concerns that the continued payments authorized under the legislation prevent the United States from fully complying with the WTO decision in the case. In April 2005, Canada and Canadian industry groups challenged CDSOA distributions based on Canadian imports in a suit in the U.S. Court of International Trade, arguing that, because of a provision in the NAFTA Implementation Act stating that any amendment to U.S. AD and CVD laws enacted after the NAFTA entered into force "shall apply to goods from an NAFTA country only to the extent specified in the amendment, the CDSOA, in not expressly referring to Canada, does not apply to imports of Canadian products. On April 7, 2006, the court held that due to the cited statutory requirement, the U.S. Bureau of Customs and Border Protection (CBP) does not have authority under the CDSOA to distribute AD or CVD duties collected on Canadian or Mexican imports. On July 14, 2006, the court permanently enjoined CBP from making any CDSOA payments to the extent they derive from antidumping or countervailing duties imposed on softwood lumber and two other Canadian products. Although other WTO Members have continued their retaliatory measures in the WTO case, Canada did not renew its tariff surcharge, which expired April 30, 2006. The 2006 U.S.-Canada Softwood Lumber Agreement On April 26, 2006, the United States and Canada announced a tentative agreement to terminate the AD and CVD duties and related litigation. An early version of the agreement was signed on July 1, 2006, with a finalized version signed September 12, 2006. Amendments to the September 12 text were subsequently agreed upon, and, on October 12, 2006, the Softwood Lumber Agreement Between the Government of Canada and the Government of the United States of America (SLA 2006) entered into force. Under the agreement, the United States has revoked the CVD and AD orders on Canadian lumber. In exchange, and as discussed earlier, the parties have agreed to terminate, or in some cases to seek to dismiss, NAFTA, WTO, and domestic court cases filed by Canada and Canadian producers, as well as the U.S. court case filed by U.S. industry challenging the constitutionality of the NAFTA binational panel system (described above). The Canadians are imposing export charges when the Random Lengths' Framing Lumber Composite Price falls below US$355 per thousand board feet (MBF), with the rate charged varying with how far the composite price falls. The export charges can be significantly reduced if the Canadian producing region also agrees to volume restraints, which become increasingly restrictive as the average price falls. Lumber prices have been falling in 2006, falling below the trigger in May and to the maximum rate of 15% (or less with restrictive volume restraints) for July through September. There are several additional provisions relating to export charges and volumes. There is a third country trigger, allowing export charge refunds if, for consecutive quarters, the third country share of U.S. lumber consumption grows, the U.S. share increases, and the Canadian share decreases. A surge mechanism generally provides for substantially greater export charges if a Canadian region's exports exceed 110% of its allocated share of total Canadian exports. For high-value products—those valued at more than C$500 per MBF—the export charges are calculated at C$500 per MBF. Canada and the United States have agreed to make "best efforts" to define "policy exits" from the export charges for each province within 18 months of the final agreement. Also, the export measures would not apply to lumber products from timber harvested in the Atlantic Provinces, the Yukon, Northwest Territories, or Nunavut, or for the companies excluded from the CVD order. SLA 2006 is for seven years and may be renewed for two additional years. Once the agreement has been in force for 18 months, however, it may be terminated by either party upon six-month notice. In addition, the United States may immediately terminate the agreement if Canada fails to apply the export measures agreed to in the SLA; likewise, Canada may immediately terminate the agreement if the United States breaches its commitments not to undertake trade remedy investigations involving softwood lumber while the SLA is in effect. The SLA precludes new cases, investigations and petitions, and actions to circumvent the commitments in the agreement. In addition, U.S. producers who are participating in the SLA have agreed that, in the event the SLA expires under its own terms or the United States exercises its option to terminate the agreement after it is in effect for 18 months, they will not file AD or CVD petitions or request a Section 301 investigation involving Canadian softwood lumber, and will oppose the initiation of any such investigations, for a period of 12 months after the termination. Finally, on the issue of the roughly $5 billion deposited under the CVD and AD orders, the funds have been allocated to importers of record and other recipients. The greater of $4 billion or 80% of the deposits, plus interest, are being returned to the importers of record. The remaining $1 billion is being split between the members of the U.S. Coalition for Fair Lumber Imports ($500 million), a proposed bilateral industry council charged with improving North American lumber markets ($50 million), and jointly agreed "meritorious initiatives," including assistance for timber-reliant communities, low-income housing and disaster relief (such as aid to victims of Hurricane Katrina), and promotion of sustainable forest management practices ($450 million). On October 12, 2006, the USTR announced that the three meritorious initiatives would be the United States Endowment for Forestry and Communities, Inc. ($200 million), Habitat for Humanity International ($100 million), and the American Forest Foundation ($150 million). Additional Reading Benjamin Cashore, Flights of the Phoenix: Explaining the Durability of the Canada-US Softwood Lumber Dispute (Orono, ME: Canada-American Center, December 1997). Brink Lindsay, Mark A. Groombridge, and Prakash Lougani, Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry (Washington, DC: Cato Institute, 2000). John A. Ragosta, Harry L. Clark, Carloandrea Meacci, and Gregory I. Hume, Canadian Governments Should End Lumber Subsidies and Adopt Competitive Timber Systems: Comments Submitted to the Office of the United States Trade Representative on Behalf of the Coalition for Fair Lumber Imports (Washington, DC: Dewey Ballantine LLP, April 14, 2000). FLC Les Reed, Two Centuries of Softwood Lumber War Between Canada and the United States: A Chronicle of Trade Barriers Viewed in the Context of Saw Timber Depletion (Montreal, Canada: Free Trade Lumber Council, May 2001). World Resources Institute, Canada ' s Forest at a Crossroads: An Assessment in the Year 2000 , a Global Forest Watch Canada Report (Washington, DC: 2000). CRS Report CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis of the Dispute , by [author name scrubbed] (pdf). Appendix A. Softwood Lumber from Canada: Dumping Margins Appendix B. Softwood Lumber from Canada: Subsidy Rates

U.S. lumber producers have long raised concerns about softwood imports from Canada. They argue that Canada subsidizes its lumber producers with low provincial stumpage fees (for the right to harvest trees). In Canada, the provinces own 90% of the timberlands, which contrasts with the United States, where 42% of timberlands are publicly owned and where government timber is often sold competitively; these differences in land tenure make comparisons difficult. U.S. producers also argue that Canadian log export restrictions subsidize producers by preventing others from getting access to Canadian timber; U.S. log exports from federal and state lands are also restricted, but logs are exported from U.S. private lands. Finally, U.S. producers argue that they have been injured by imports of Canadian lumber. They point to the growth in Canadian exports and market share, from less than 3 billion board feet (BBF) and 7% of the U.S. market in 1952 to more than 18 BBF per year and a market share of more than 33% since the late 1990s. Canadians counter these arguments, asserting that their stumpage fees are based on markets, that the WTO prohibits treating export restrictions as subsidies, and that the U.S. industry has been unable to satisfy the growth in U.S. lumber demand for homebuilding and other uses. The United States initiated investigations of Canadian subsidies—a prerequisite for establishing countervailing duties (CVDs)—in 1982, 1986, and 1991. Subsidy findings led to a 15% Canadian tax on lumber exports in 1986 and a 6.51% CVD in 1992. Canada challenged the CVD, which was revoked in 1994. A 1996 Softwood Lumber Agreement restricted Canadian exports until March 31, 2001. U.S. producers filed antidumping (AD) and CVD petitions immediately after the 1996 agreement expired. U.S. agencies determined that Canadian lumber was subsidized and was being dumped and that the imports threatened to injure U.S. industry. Final AD and CV duties of 27% were imposed in May 2002, although lumber duties were later lowered as a result of annual Commerce Department reviews. Canada filed NAFTA and WTO cases and, with Canadian producers, suits in U.S. federal court challenging U.S. agency actions in the AD and CVD investigations. Canadian companies also filed claims against the United States under the NAFTA investment chapter. On July 1, 2006, the United States and Canada signed a Softwood Lumber Agreement (2006 SLA) to end the dispute. A finalized version was signed September 12, 2006, and, with subsequent amendments, entered into force October 12, 2006. Among other things, the seven-year agreement provides for the settlement of pending litigation and establishes Canadian export charges, varying by weighted average lumber prices and lower if the Canadian exporting region also accepts volume restraints. The United States has revoked the AD and CVD orders, with at least 80% of the duty deposits being returned to the importers of record. The remaining 20% is being used to fund lumber-related entities and initiatives provided for in the agreement.

Introduction At the end of 2010, the lower income tax rates provided in the 2001 tax cuts were to expire. President Obama had proposed to extend most of the income tax cuts, but to continue some higher tax rates for couples with income over $250,000 and singles with income over $200,000. The most important element of this proposal, as measured by revenue effect, is allowing the top two rates of 33% and 35% to expire. These rates would have risen to 36% and 36.9%. This proposal would have raised $369 billion over FY2011-FY2020, about half of the total from all proposals for not extending tax cuts for these high-income taxpayers. At the end of December, P.L. 111-312 extended all tax cuts for two years. Thus the issue of extending the tax cuts will continue as an issue in the 112 th Congress. Although a variety of issues surround this option, this report focuses on a particular issue, the effect on small business owners, and in turn, the potential effects on employment. Some critics of allowing the tax rates to rise express concerns about possible negative effects on small business owners' hiring and the dampening effect on job creation. This argument is buttressed by a popular conception that small businesses are responsible for the majority, perhaps the vast majority, of new jobs. In some cases, this issue appears to relate to the short term, which has been addressed, for now, with the temporary extension. If the economy continues with high unemployment, as some project, the short-term issue may re-emerge. In some cases the issue appears to relate to longer-term issues and will be relevant to the question of permanent policy. The first section of this report addresses the effects of the changes in top rates, and how well these revisions target small businesses. Two aspects of targeting are considered: the fraction of small businesses affected by the rate changes and the fraction of revenue gain accruing to taxpayers other than these small businesses. The results suggest that only a small fraction of small businesses will be affected, around 2% to 3%. They also suggest that 80% of the reduced taxes are likely to accrue to non-businesses income and about 90% to non-business income or businesses without employees. The second section of the report reviews the claim that small businesses are the primary creators of jobs. This perception is based on research published originally in the 1980s. More recent research has revealed some methodological deficiencies in these original studies and suggests that small businesses contribute only slightly more jobs than other firms relative to their employment share. In addition, this differential is not due to hiring by existing small firms, but rather to startups, which tend to be small. This section also briefly summarizes issues raised by some researchers about the quality of jobs in the small-business sector. The third section reviews the evidence on the effect of taxes on entrepreneurship and self-employment. The results of these studies are mixed, but overall they do not suggest that lower taxes are likely to increase self-employment. The following section discusses perhaps the most important issue to consider, job creation as a policy justification for targeted provisions. The basic economics of market equilibrium indicate that, in the long run, there is no need for the government to intervene in the creation of jobs. In the short run, intervention is appropriate during a recession, but tax cuts to businesses and high-income individuals are not likely to be very effective for this purpose. The final section briefly summarizes the current benefits and penalties for small businesses in the tax code and general justifications for preferential tax treatment. The Effects on Small Businesses of Allowing the Two Top Rates to Expire: Target Efficiency Given an objective of benefiting small businesses, how well would retaining the top two current tax rates be targeted to small businesses? There are two parts to this question: the fraction of small businesses in the country affected by the tax change (which indicates whether most of the target is being reached) and the share of the tax benefit falling on activities other than those targeted (which indicates how much is being spent on income outside of business). Before addressing these data questions, it is important to recognize what types of business income appear on individual tax returns, especially as subsequent analysis will also focus on the activities of different forms of business organizations. Unincorporated businesses, or businesses taxed as if they were not incorporated, with owners' income subject to the individual income tax, generally operate as sole proprietors, partnerships, or Subchapter S firms. These businesses are also referred to as pass-through or flow-through entities. Sole proprietorships have one owner, while partnerships are businesses with two or more owners. Some types of partnerships have attributes of corporations, mainly limited liability (limited partnerships and limited liability corporations). Finally individuals or partners can operate as Subchapter S corporations, which are incorporated but treated, for tax purposes, as unincorporated businesses. According to data from the Internal Revenue Service, there were 32.1 million businesses in 2007, most of them sole proprietorships. Firms include 1.9 million corporations, 4 million Subchapter S corporations, 3 million partnerships (0.7 million general partnerships, 0.5 million limited liability partnerships, and 1.8 million limited liability corporations), and 23.1 million sole proprietors. While businesses with flow-through income treatment are not all necessarily small, and most corporations are small, these flow-through businesses (proprietorships, partnerships or Subchapter S corporations), for purposes of analyzing tax effects, are treated as a proxy for small businesses in the data presented in this report. In reviewing data on the targeting of these rate cuts, several factors qualify the results of some calculations and are useful to enumerate at this point. The first is that not all high income taxpayers who appear, based on income, to be affected by the rates changes will be, because of the alternative minimum tax (AMT). Some data sources account for this effect and some do not. Because these tax rates are not changing, the significant share of high-income taxpayers who would otherwise pay tax at the 36% or 39.6% rates will pay the AMT and their taxes will not be affected. The second is that a significant share of taxpayers and income at high-income levels are recipients of passive rather than active income. An example of passive income might be rental income as a limited partner in a real estate leasing operation. Recipients of passive income through partnerships and Subchapter S corporations are similar to shareholders of corporations: they do not actively run the business or make hiring decisions. The third is that some businesses experience losses, and there is no income to be subject to tax. Whether calculations include businesses with losses will have consequences for the estimates. Finally, the vast majority of small businesses, almost 80%, do not have employees. Although some limited evidence will be discussed, it is unlikely that a small tax reduction for these non-employer firms would induce these firms to hire. What Share of Small Businesses Are Affected? Small business owners would be expected to be relatively more affected by tax rate changes that apply to the top brackets than other taxpayers because they are more concentrated in the higher income brackets than the remainder of the population. Table 1 compares the share of all returns in high income classes (which are roughly equivalent to the taxpayers potentially subject to the top tax rates) to the share of business returns. Business income is reported in two basic categories: income from business or profession, which reflects sole proprietorships, and income from partnerships and Subchapter S firms. As Table 1 indicates, returns for businesses are more concentrated in higher income classes than returns in general, and this effect is particularly the case for partnership and Subchapter S firms. The $200,000 and above adjusted gross income class includes some taxpayers who would not be affected by the President's proposals (because their incomes would not place them in these top rates), which indicates a share of less than 9.6% of small businesses would be affected. As will be shown below, the shares of returns affected subject to the top two rates are also significantly reduced because of the AMT. The shares can also be affected by how returns with losses are treated. The Joint Committee on Taxation, the Department of Treasury, and the Urban-Brookings Tax Policy Center have provided information on the share of returns and income of small business either in the higher-income categories or subject to the top two tax rates. The Joint Committee on Taxation (JCT) estimates that in 2011, 3% of taxpayers with net positive small business income (about 750,000 taxpayers) would be subject to the two top marginal tax rates under the President's proposal. This estimate does not include taxpayers with net losses. JCT also estimates that about 50% of business income will be reported on returns with these marginal tax rates (with aggregate income approximately $1 trillion). This study included income from rents and royalties, and estates and trusts, as well as Subchapter S, partnership, and sole proprietorship business income in estimating shares. A Treasury Study in 2007, prepared for an economic competitiveness conference, had a chapter on pass-though entities, which included data on the share of business income by high-income taxpayers. This study focused on examining high income taxpayers with business income and did not adjust for the alternative minimum tax, so the numbers are comparable to those in Table 1 . As with the JCT study, it focused on returns with positive net income. It included ordinary income from partnerships, sole proprietorships, and Subchapter S corporations, as well as capital gains from partnerships, Subchapter S corporations and estates and trusts. It provided, however, some important information of the effects of including passive versus active income. Some partners or shareholders of Subchapter S corporations are not active business owners. It also provided the share of returns and income in which income was reasonably large relative to wages (thus excluding those taxpayers whose income was a minor part of earnings). As shown in Table 2 , the shares of returns falling in the income ranges of the top brackets are consistent with Table 1 , but neither include the effect of the AMT and, therefore, both overstate the share subject to the two top tax rates. Table 2 also indicates that a significant portion of returns (over a third) and income (19%) are passive. Excluding passive income slightly lowers the share of returns in the top brackets (from 8% to 7%) and significantly lowers the share of income (from 72% to 57%). Table 2 also shows that a significant share of income will accrue to individuals where it is a minor part of their income, which might occur with a small consulting business for someone whose main source of income is wages. The Urban-Brookings Tax Policy Center has also calculated the share of business returns and the share of business income falling into the top brackets. Their results are similar to those reported by the Joint Committee on Taxation. They also consider only taxpayers with positive income, and take into account the alternative minimum tax. As shown in Table 3 , their results also indicate shares in the different rates, showing that most of the returns and income are in the top bracket. (For example, 1.9% of returns are subject to one of the top two rates, but 1.4% of returns are subject to the top rate, so that 0.5% of returns pay tax at the second highest rate.) The Tax Policy Center also reports separately for sole proprietorships, partnerships and Subchapter S firms. As also was suggested by data in Table 1 , high income business taxpayers are responsible for larger shares of partners and shareholders of Subchapter S income. Table 3 reports a 1% smaller share in the top rate brackets for partnerships than for Subchapter S firms, but the shares for sole proprietorships are smaller than either partnerships or Subchapter S firms. The data in Table 3 indicate that among the taxpayers subject to the top rates, 22% are sole proprietors, 38% are partners, and 40% are shareholders of Subchapter S corporations. By contrast, about 74% of all returns with business income are sole proprietorship returns, with the remainder divided relatively evenly between partnership and Subchapter S. As is clear from these tables, adjusting for the AMT is important in calculating the fraction of businesses that would be subject to the top tax rates, as JCT estimates and Table 3 indicate a share of around 3% while the estimates in Table 1 and Table 2 indicate a share of 9%. In addition, the calculations in Table 2 and Table 3 and by the JCT estimate the distribution of taxpayers with positive income, while the calculations in Table 1 include both returns with net positive income and returns with losses. One can also make the argument that the universe of businesses include those with losses, but only those with gains would be subject to the higher tax rates. Table 4 returns to the aggregate data in Table 1 and makes some of these adjustments to examine the share. First, it confines the numerator only to taxable returns (while retaining all businesses returns in the denominator). This correction makes very little difference to the outcome, however. Second, it also adjusts, separately and in combination, for including only returns with positive income in the numerator and for the AMT. When the AMT adjustment is made alone, the results are similar to those for the Tax Policy Center data in Table 3 . Including only returns with positive income in the numerator lowers the share measurably, and in combination with the AMT, reduces the share from 3.5% to 2.6%. Another correction, when considering the universe of small businesses, is to add corporate returns to the denominator. That is, corporate returns are not affected by these individual tax rate changes, but they do constitute part of the universe of small businesses. Of the 1.9 million corporate returns, the vast majority would be considered small business. How many should be added to the denominator depends on the definition of small business. According to Census data, there are approximately 1.3 million corporations (with the remaining 0.6 million probably non-employer businesses, that is, businesses with no employees). Many sources, including the Census Bureau, use firms with less than 500 employees as a standard for a small business. Because there are only 18,000 firms that have 500 or more employees, all of the 1.9 million would be added to the denominator of the ratio. This correction would reduce the 2.6% figure to 2.5%, and the 1.1% figure to 1%. If, for example, firms with nine or fewer employees were considered small, the effects would be similar: the total of small corporations would be 1.6 million. In addition to these small businesses reported on tax returns, small businesses that do not file tax returns, either because they had sufficient losses or because of evasion, would increase the size of the denominator and lower the share. The implication of this analysis is that only a small fraction of small businesses are affected by the two top rates, ranging from 2.6% to 3.5%. What Share of the Tax Benefit Does Not Go to Small Business Operations? The second aspect of the targeting is what share of the tax cut is likely to go to business income. The Tax Policy Center has estimated that 26% of income appears on returns whose highest bracket would be 36% and 33.4% of income on returns in the 39.6% bracket is business income. Weighting the two indicates a share of 33%. Although this share suggests that two-thirds of the tax benefit does not affect the targeted population, there are two reasons to expect that the estimate of the share benefitting businesses may be too high. First, a significant share of this business income does not come from operating an active business but from a passive investment. Based on the share of income that is passive reported in Table 2 , this estimate would be reduced from 36% to 21%. The second reason is that a significant share of businesses are non-employer businesses: according to Census data, out of 27 million businesses, 21 million are businesses that have no employees. Thus, it is unlikely that a slight reduction in income tax rates for non-employer businesses is likely to induce these firms to hire. If the 21% share were multiplied by the ratio of all employer businesses (6 million) to all businesses (27 million), the fraction of the benefit going to small businesses with workers would be less than 5%. Unfortunately, there is no information available about the characteristics of these high income returns relative to the basic population, but there is some reason to reduce the expected share of income affected to reflect income of non-employer firms who are unlikely to hire employees. In the Appendix , this issue is explored with available data; the results suggest a reduction to around 12%. Job Creation and Job Quality in Small Businesses The popular idea that small business is responsible for most new jobs in the economy dates from a study by Birch in 1981. This study found that firms with less than 100 employees, which represented about 35% of the labor force, created 8 out of 10 jobs over the 1969-1976 period. Similar figures are still cited occasionally. For example, Headd reports, using the same methodology, that small businesses, defined as firms with less than 500 employees, who employ half of workers, accounted for 90% of net job creation from 1993 to 2006. The Birch findings have led to a series of studies questioning the methodology that led to these results. In general, the issues that might be raised about the Birch findings include the use of establishment rather than firm data and a statistical problem referred to as "regression to the mean." Establishments may be individual firms, or they may be outlets of large firms (e.g., the local Walmart store, which is part of a large corporation). The first study, by Armington and Odle, addressed the establishment versus firm issue. They found that the firms studied by Birch accounted for about 38% of net new jobs, roughly in proportion to their numbers, for 1978-1980. They suggested that Birch had counted as small firms businesses that were outlets of larger firms. Brown, Hamilton, and Medoff also report, based on a study by the Small Business Administration, that the Birch numbers overstated the share of jobs created, finding that these firms accounted for 56% of new jobs. They found considerable variation across different time periods. In some intervals these small firms accounted for virtually all growth. On average, firms with less than 100 employees seemed to account for about half of jobs created from 1976 to 1986, more than their share in the labor force in 1980 of 35%. (These shares are similar to those of the period 1969-1976.) Firms with less than 500 employees accounted for about 60% of net new jobs over the same time period, with a labor force share of about 50%. These authors also had some other interesting insights into the figures on job creation by small firms. Although the data suggest that small businesses in general created new jobs in excess of their share of the labor force, there were two important qualifications to this observation. First, part of the growth reflected the fact that industries that tended to be dominated by small firms had been growing. The increased jobs by new firms may not have been so much because small firms were doing better than larger ones, but rather because the industries in which small firms operated were growing, perhaps for unrelated reasons. Second, they point out that most of the jobs were created by new firms, which tend, of course, to be small (firms are not usually "born" large). According to Brown et al., the majority of these jobs will not persist because many of the firms will fail; from 60% to 80% within the first few years. The data reflect a blending of small firms and new firms. Economists were also concerning themselves with a problem referred to as "regression to the mean." This problem arises in many contexts and refers to observations that are away from their means but moving toward them. In the context of small and large firms, the problem is that Birch and other researchers classified firms by their size in each year to assign changes in employment size. However, if firms are subject to shocks (either negative or positive) more firms that have suffered a negative shock will be in the small group and more firms that have had a positive shock will be in the large group. Thus, even if all the firms are the same permanent size, the firms identified as "small" firms will be growing and the firms identified as "large" will be declining. This phenomenon led to a communication to the Journal of Economic Literature by the eminent economist Milton Friedman, published in 1992, criticizing researchers for not recognizing this problem and mentioning the small business job creation research as an illustration. At the time this communication was published, researchers were working to find a data set and test this effect. This research ultimately led to a book by Davis, Haltiwanger, and Schuh. They used longitudinal data on manufacturing that followed firms over a period of time. Instead of just examining firms and classifying them by size, they used average size or terminal size. All firm sizes were declining, but they found the smallest declines in the largest firms. These results contrasted with the results using Birch's method on their data, which showed positive growth rates in the smaller firms and negative growth for larger firms. Their research appeared to show not only that regression-to-the-mean was important quantitatively, but also showed that it reversed the findings. Following the Davis et al. study, Neumark, Wall, and Zhang examined this issue with a different data set that included all industries (although it was confined to firms operating in California) over the 1992-2004 period. They found correcting for regression-to-the mean to be quantitatively quite important, but it did not reverse the direction of changes. For example, without the correction, using base size, employment in the smallest firms, with 0 to 10 employees, grew by 22% and employment in firms with 50,000 or more declined by 3%. With average firm size classification, employment in the small firms grew by 3.2% and employment in the largest declined by 1.6%. They also cite other research and suggest that the change in direction for the Davis, Haltiwanger, and Schuh study may have been due to the specific industry, manufacturing. Haltiwanger, Jarmin, and Miranda use a national data base to further explore this issue. As with earlier studies, they found regression-to-the-mean to be a significant problem. After correcting for that, they find differences across firm sizes, with a general tendency for smaller firms to grow slightly faster, although the differences are generally small and job growth rates do not decline continually as firm size rises. Job growth rates are much larger for the smallest business (0 to 4) class. They then decline with larger firm size, up to 19 employees, rise up to 250 employees, are almost constant up to 2,500 employees, and then decline. Perhaps more importantly, the authors find any relationship disappears with controls for age. That is, it is new firms (which are generally small) that are growing faster, not mature small firms. Headd's paper also reports, based on data using methods controlling for regression to the mean, that firms with less than 500 employees are responsible for 65% of employment growth, although it is difficult to determine from his exposition whether these results are reflecting establishments or firms. It is, at any rate, a marked contrast from the 90% figure he cites without controlling for these effects. The absolute share of new jobs ascribed to small businesses depends on how small business is defined. Birch defined small businesses as firms with less than 100 employees; the U.S. Census Bureau defines small businesses as firms with less than 500 employees; and the Small Business Administration has different sizes for different industries. Recent health legislation enacted in 2010, seeking to exempt small businesses from mandates, placed the cut-off at 50 employees. Headd's data are divided into three classes: less than 20, between 20 and 499, and 500 and over. The smallest class, less than 20, was responsible for 22% of net new jobs. In sum, the research on small business and job growth does not support the notion that small businesses produce a significantly larger share of net new jobs than their share of employment, and the importance of those jobs as an overall share of job growth depends on the definition of small business. Brown, Hamilton, and Medoff also raise questions about the quality of small business jobs. They point out that jobs in small firms tend to pay lower wages, have fewer fringe benefits, have poorer working conditions, and tend to be less secure than jobs in larger firms. The rates of creation and destruction for smaller (or younger firms that tend to be small) are large. Similar points have been made by other researchers as well. For example, Davis, Haltiwanger, and Schuh document the greater turnover in small firms in the manufacturing sector. Headd, while acknowledging these aspects of small business jobs, also notes that the small-business sector fills a labor supply niche, of individuals who are more likely to be minorities and have lower educational qualifications. These individuals might have more difficulty finding better jobs in any case. Therefore, it is not clear that the quality of jobs in the small-business sector is a justification for either higher or lower taxes. The Effect of Taxes on Small Business How do taxes affect small business? The federal income tax code is written in a way that reduces several costs related to the expansion of small businesses. First, as with all businesses, labor pay and benefits are deductible business expenses under Section 162(a) of the Internal Revenue Code (IRC). Second, the tax code contains provisions that reduce a small business owner's cost of acquiring additional capital (e.g., the cost of providing an additional computer for a new employee's workstation). Section 179 expensing allowances allow taxpayers to immediately deduct the cost of a qualified depreciable asset, up to a dollar limit, rather than deducting the cost of a period of a year. Several other tax incentives may directly or indirectly allow small businesses to expand by reducing their overall tax burden, decreasing compliance costs with federal regulations, and providing them with additional ways to attract capital. As of January 2012, the federal government provides more than $15 billion in annual tax expenditures targeted toward small businesses. Tax rate levels may not deter a small business from hiring an additional worker, as long as the business owner believes that worker will provide a positive contribution to the firm. The Congressional Budget Office reports that increases in the after-tax income of businesses typically do not create much incentive for small businesses to hire additional workers, because production depends principally on the demand for their products or services. Given the evidence that more job growth arises from new firms, evidence on the choice of self-employment may be more important than evidence on the behavior of existing firms. An extensive empirical literature on this issue is mixed, but largely suggests that higher tax rates are more likely to encourage, rather than discourage, self-employment. Schuetze and Bruce review 21 studies of the effects of taxes on employment using a variety of data sets and statistical approaches. Of these studies, 11 found that higher tax rates increased self-employment, 2 found that they decreased self-employment, and 7 found no statistically significant relationship. One study focused on the degree of progressivity in the tax system rather than the level of taxes, and found that a progressive tax system discouraged self-employment. The studies cover a range of approaches. Eight of the studies used aggregate time series data (for the United States, in most cases) with three studies finding positive effects on self employment for higher tax rates, two finding negative effects, and three finding no effect. Four studies examined cross sections of individuals (comparing tax rates and choice of employment of individuals at one point in time), with three finding a positive effect and one no effect. There are difficulties with both of these approaches that can often be addressed with panel studies (which follow individuals over time) or repeated cross sections. The study of progressivity was of this type. Of the remaining five studies in this category, four found that higher tax rates increased self employment, and one found no effect. Finally, three studies examined the effect of differential state tax rates, with two finding no effect and one a positive effect for higher taxes. Four additional studies have been released subsequent to this review. Garret and Wall examined state panel data and found no statistically significant effect. Bruce and Deskins examined state tax rates and found no effect of state income tax rates on state entrepreneurship rates, although they found that higher rates slightly reduce the state's share of entrepreneurs. Bruce and Mohsin, using time series data, found negative but quantitatively small effects on entrepreneurship rates. They suggest that it would take a prohibitively large tax rate change to generate a noticeable change in self employment. Gurley-Calvez and Bruce, examining the exit of individuals from self employment, find that cuts in the wage tax, holding employment tax rates constant, would increase exits from self employment, while cuts in self employment rates, holding the wage tax rate constant, would decrease exits. Based on magnitudes, an across-the-board tax cut would increase entrepreneurial longevity. While these four studies did not find the positive effects that dominated previous studies, the effects were often insignificant. Thus, on the whole, the research suggests that higher tax rates are not likely to decrease self-employment, and could increase it. There are two reasons higher tax rates might be expected to encourage self-employment, and these are reasons often advanced by researchers. First, self-employment offers greater opportunities to avoid or evade taxes, and avoidance and evasion are more valuable the higher the marginal tax rates. The second reason is that earnings tend to vary more among the self-employed, and higher tax rates reduce the variance of earnings. That is, although expected earnings are taxed, the variation in those earnings is reduced because the government's tax causes it to act as a partner in the business, bearing some of the risk and receiving some of the return. In contrast to the large body of research on self-employment choice, there is little research on the effects of tax changes on the investments or hiring decisions of existing small firms. Carroll, Holtz-Eakin, Rider, and Rosen used panel data to examine the behavior of firms without employees before and after the Tax Reform Act of 1986, where high-income taxpayers had very deep cuts in tax rates. Of particular interest are the estimates of the effects on hiring labor. Because the costs of labor are deductible, tax rates would matter only if the employer expanded the scope of his efforts or investment to increase the size of the firm. They compared high-tax rate and low-tax rate individuals. Based on their findings, retaining the top two tax rates would, as compared with allowing them to expire, increase workers hired by six-tenths of 1% due to the increase in the probability of hiring, and increase either workers or wages of those firms who already have workers by nine-tenths of 1% within four years. With only one study, the results cannot easily be relied on, particularly because there are limitations to this type of study. One reservation about the estimates is that they seem quite large as a behavioral response, especially for the response of initial non-employer firms to hire workers. Because there is no direct effect on the incentive to hire workers from the changes in the owners tax rate, the increased hiring should derive from the increased effort of the owner or from cash flow effects. The study tested for the latter effect and found no relationship, but never examined the effect on the labor supply of owners. Moreover, in other cases where analysis was based on the 1986 tax reform and estimates were made based on tax changes (especially those that moved in the other direction), elasticities were found to be overstated. Reliance on these results might have to wait until a similar analysis is performed on the 1993 tax increase or the 2001 tax decrease. The empirical evidence suggests that tax rates have small, uncertain, and possibly unexpected effects on the formation of small business, and given only one study, it is premature to conclude that raising taxes of the owner would decrease hiring in existing firms. Is Job Creation a Justification? Is lowering taxes, or keeping taxes lower for small business, if there were evidence that tax cuts would be effective, justified by job-creation objectives? This issue is perhaps the central one, because all of the other effects do not matter for the purpose of job creation if the answer to that question is no. In answering this question, it is important to distinguish between longer-run policies during periods of full employment and short-run policies in a recession. First, consider the long run. Economic theory suggests that there is no reason to view general job creation as a long-run objective of government policies. The economy can generate the jobs needed by the natural process of growth and market adjustment. In 1961 and in 1991, the unemployment rate was the same, 6.7%. Employment, however, rose from 66 million to 117 million. Employment tends to grow steadily; the unemployment rate fluctuates. Long-term jobs policies, therefore, should not be aimed at increasing jobs (which at full employment will only lead to inflation), although they can be designed to reduce structural or frictional unemployment (such as improving the skills of disadvantaged workers). Federal policies may, of course, be needed to smooth out short-term business cycles, but even in these cases it is the aggregate stance of fiscal policy that should be evaluated with respect to job creation, and not a specific program. The short-term policy issue, therefore, becomes one of choosing to use resources by determining which type of stimulus is most effective. In general, research suggests that when using fiscal policy to stimulate the economy, direct spending and reducing taxes or increasing transfers to lower-income individuals is likely to be most effective. The objective of tax cuts to stimulate the underemployed economy is generally to increase demand, because insufficient demand is the fundamental problem. For fiscal policy, money provided either through spending or tax cuts is only effective if it is spent, and high-income taxpayers are probably the least likely to spend. Similarly, tax cuts provided for businesses are also likely to be relatively ineffective. Note that this issue of effectiveness of a stimulus does not depend on where jobs were lost or on evidence from past recessions. Headd, for example, discusses the greater job loss in a recession and gain in a recovery of small businesses. But these contractions and expansions derive from reductions in aggregate demand, which tend to affect some industries differently from others (e.g., industries that produce durable goods or goods that are less likely to be necessities). To stimulate the economy with spending or tax cuts requires changes that will be spent initially and that will naturally increase demand in those sectors that have contracted the most. Trying to deal with sectoral differences by targeting tax cuts to those sectors will likely not succeed if they do not increase spending. Other Justifications for Special Tax Provisions and Treatment of Small Business As the findings in this report suggest, across-the-board tax cuts for high-income individuals are not efficiently targeted to small businesses. It is possible to design more focused provisions. However, two important issues should be considered in evaluating more carefully designed provisions. The first is whether small businesses are currently favored or disfavored by the tax law. The second is whether there are justifications for favorable treatment. In general, small businesses, particularly high-income small businesses, are tax favored compared with large corporations. They are able to use pass-through forms of operation and do not have to pay a separate corporate tax. If they operate as a corporation, they benefit from graduated corporate rates, and they have a variety of special tax benefits. One of these benefits, the ability to immediately deduct the cost of investment in equipment, leads to an effective elimination of tax on the return to this type of investment. As noted earlier, small firms are able to engage more freely in tax evasion. Two aspects of the tax rules may impose a burden, however. The first is the imposition of payroll taxes on all business income, not just labor income. This effect, however, is far more significant for lower- and middle-income small businesses because the old age, survivors, and disability insurance tax base is capped. Furthermore, additional taxes are associated with additional benefits. Moreover, passive investment income is scheduled to be taxed under Medicare, which has no ceiling, under the health reform proposals. The second is that, because of economies of scale, tax compliance costs are a smaller share of income for large firms than for small ones. In general, most researchers conclude that small businesses are favored relative to large ones. Is there a justification for providing favorable tax treatment for small business other than job creation? In addition to tax compliance costs, justifications advanced for favoring small businesses include the argument that small businesses are important contributors to economic innovation and technological advance, small businesses undertake greater risks, and small businesses have more difficulty raising capital. Although a more detailed examination of these issues is beyond the scope of this report, all three have been questioned by economists as arguments to justify general tax benefits, because of lack of merit in the argument, inefficient targeting, or both. If this favorable treatment is not justified, then the tax system already distorts the allocation of resources away from larger firms and toward smaller ones. If it is justified, it would probably be more efficient to target such issues. For example, if innovation is the issue, tax subsidies should be directed to research and development. If there is a market failure in the capital markets, expanding small business loan guarantees might be more appropriate. If encouraging risk is desirable, provisions aimed at that problem, such as longer loss carryback periods, could be considered. If tax compliance by small business is an issue, expanded cash accounting methods may be helpful. Conclusion This report has examined the justification for retaining the lower rates for the top two tax rates because of concerns that allowing them to rise will reduce job creation by small businesses. An important reservation about such a justification is that lowering the top tax rates benefits only a small share (3% or so) of businesses, and 80% or more of the tax cut's benefits do not accrue to business. As well as lack of target efficiency, evidence on the role of small business in job creation, the effects of tax changes on small business behavior, and the likelihood this provision would not be an effective demand stimulus suggest that the formulation of small business policies should be informed and guided by any market failures that may exist. Appendix. Estimating the Share of Non-Employer Firms This appendix explores the issue of whether the share of the tax cut going to businesses should be reduced by the share of non-employer firms. With no reduction, the results presented earlier indicate that 79% of the tax cut accrues to taxpayers other than businesses, whereas with a full reduction, more than 95% accrues to other taxpayers. Two reservations arise about applying these general figures to high income taxpayers. The first is whether there are differences, given the same type of business operation, between high-tax and low-tax business owners. The Carroll et al. study of proprietorships with and without workers found a very similar ratio of firms without employees among low-income and high-income taxpayers (78% and 79%). The second is that the composition of business by organizational form differs in the case of high-tax rate recipients of business income from the general population. Becuase it seems more likely that multiple-owner businesses will have employees, the businesses recipients are adjusted, after removing passive income, for the share that appear to be single-owner firms. To address this second issue, first consider the industry distribution and number of partners and shareholders for non-employer firms as a group, sole proprietorships, partnerships, and subchapter S firms. These distributions are listed in Table A-1 (non-employer firms), Table A-2 (sole proprietorships), Table A-3 (partnerships), and Table A-4 (subchapter S firms), which also provide references to data sources for each type of firm. Proprietorships have a very similar industry distribution to non-employer firms, not surprising as they dominate firms. Partnerships are significantly different (with a much larger share in finance and real estate), and Subchapter S firms have a distribution closer to the non-employer firms than to partnerships, with somewhat more of their business in trade and construction (as well as finance and real estate) and somewhat less in services. According to data on passive income in Table 2 , 36% of high-income recipients of pass-through income receive passive income. Most of those recipients are likely to be in partnerships, as supported by the much larger share of partners in finance, insurance, and real estate in that category (61%) as compared with proprietorships (9%) and Subchapter S firms (17%). In addition, the partnership data provide information on the number of partners in general partnerships, limited partnerships, and limited liability companies. Presuming that these latter two types of firms provide largely passive income, they account for 85% of partners. Also, according to Table 2 , high-income pass-through owners are allocated 23% to proprietorships, 38% to partners, and 39% to Subchapter S shareholders. By assigning 32% of passive recipients to partnerships (0.85 times 38%) and the remaining 4% to Subchapter S firms, the result is a distribution of 23%, 6%, and 35% as the active owners in each sector. Dividing by the total of active owners as a share, a new distribution of active business owners across the three types can be derived: 36%, 9%, and 55%. To use these new shares to adjust the numbers, consider as a rule of thumb that single-owner firms are similar, so that the Subchapter S firms with one owner are treated as having a similar share of non-employer firms as proprietorships. According to the data on Subchapter S firms, about 65% of firms have only one shareholder, and given the number of shareholders, 37% of shareholders are single-owner firms. Excluding partnerships and multi-owner subchapter S firms, 56% (36% plus 0.37 times 55%) of active firms would have a single owner. Taxing 56% of the difference between 21% and 5%, is 9%, suggesting that the 21% share accruing to active businesses should be reduced to 12% (21% minus 9%) to account for non-employer owners.

At the end of 2010, the lower income tax rates provided in 2001 were to expire. The President had proposed to extend most tax cuts, but to continue higher rates for couples with income over $250,000 and singles with income over $200,000. The most important element of this proposal, as measured by revenue effect, is allowing the top rates of 33% and 35% to expire, when they would have risen to 36% and 36.9%. P.L. 111-312, enacted in December 2010, extended all tax cuts for two years, through 2012, delaying the consideration of which tax cuts to retain. Some critics of allowing the tax rates to rise express concerns about possible negative effects on small business owners' hiring and the dampening effect on job creation. This view is buttressed by a popular conception that small businesses are responsible for the majority, perhaps the vast majority, of new jobs. The first issue addressed is how well retaining the lower levels of the top two rates target small business. Two aspects of targeting are considered: the fraction of small businesses affected by the rate changes and the fraction of revenue gain accruing to taxpayers other than these small businesses. The results suggest that only a small fraction of businesses would be affected, around 2% to 3%. They also suggest that 80% of the reduced taxes are likely to accrue to non-business income and almost 90% to either non-business income or businesses without employees. The claim that small businesses are the primary creators of jobs is based on research published originally in the 1980s. More recent research has revealed some methodological deficiencies in these original studies and suggests that small businesses contribute only slightly more jobs than other firms relative to their employment share. Moreover, this differential is not due to hiring by existing small firms, but rather to startups, which tend to be small. Some critics also question whether small business jobs should be encouraged because they tend to be lower paid, with fewer benefits and more turnover. Yet, small businesses may offer employment to workers with less education or other characteristics that lead to difficulty finding employment with larger firms. In addition to targeting efficiency and job creation issues, there is uncertainty about the effects of taxation on small businesses. An extensive literature suggests that higher taxes have no effect or actually encourage self-employment. Researchers speculate that higher taxes may lead individuals to select self-employment because the opportunities for tax evasion and avoidance are greater. In addition, taxes reduce risk (the variance in return) and greater variance in earnings likely occurs in self-employment. Evidence of effects of taxes on existing firms' hiring is limited. Perhaps the most important issue concerns job creation as a policy justification. In the long run, there is no need to address job creation as the market economy naturally generates jobs (although targeted programs, such as those for disadvantaged workers, may improve efficiency). In times of recession, the government may need fiscal stimulus, but the purpose of this stimulus is generally to increase aggregate demand. The most effective approaches are direct spending and tax cuts and transfers to lower income individuals who are more likely to spend. Tax cuts for high-income individuals or business are less likely to be spent and are less effective as a stimulus. There may be justifications for favoring small business, although small businesses, especially businesses owned by high-income individuals, are already subject to favorable treatment. Tax policy might be most appropriately formulated in the light of any imperfections in the economy that justify preferential treatment.

Why Oman? Why Now? U.S. interest in Oman stems from a number of factors. Oman is a small exporter of oil and natural gas that is strategically located at the entrance to the Persian Gulf, 35 miles directly opposite Iran. It is not a member of the Organization of the Petroleum Exporting Countries (OPEC). Oman is a moderate Islamic country which has sought to maintain good relations with all Middle East countries. It also has a 170 year history of political and economic cooperation with the United States, and has supported the U.S. war on terrorism. Oman is an important gateway to the Persian Gulf region. Oman has many reasons for wanting to negotiate an FTA with the United States. It is a country whose proven oil reserves could be exhausted within 15 or 20 years; yet, almost 40% of the country's GDP, two-thirds of its export earnings and three-fourth of its government revenues currently come from oil revenues. It is therefore trying to liberalize and diversify its trade regime as it seeks to broaden economic opportunities for a fast-growing workforce. As a result, it is looking to expand its economy beyond oil and gas exports. It sees the United States as an important ally in the venture to prepare itself for a time when its economic and social challenges intersect. U.S.-Oman Bilateral Trade and Investment Oman is a small U.S. trade partner, ranking 88 th among all U.S. trade partners. Total U.S.-Oman trade at $1 billion in 2005 ($593 million in U.S. exports and $555 million in U.S. imports) accounts for 0.04% (four one-hundredths of one percent) of all U.S. trade. As a trading partner it is also 11 th among the 20 MEFTA entities, which together represent 4% of U.S. trade for 2005. The United States, on the other hand, ranks fourth in importance among Oman's trading partners, behind the United Arab Emirates (UAE), Japan, and the United Kingdom for 2004 (most recent data). In 2005, the most important U.S. imports from Oman (see Table 1 ) were oil and natural gas (75%, constituting 1% of all U.S. oil and gas imports from MEFTA countries), and apparel (10%). The most important U.S. exports to Oman were various types of transport equipment and road vehicles (totaling 56%), and various types of machinery (24%). Since 2001, U.S. exports to Oman have almost doubled to $593 million, for various reasons, while U.S. imports from Oman, at $555 million, have increased by about a third, primarily because of increases in the price of petroleum imports. As a result, for 2005, the United States had a small trade surplus with Oman. Foreign Direct Investment in Oman Total U.S. foreign direct investment in Oman was $358 million in 2003, nearly double the $193 million investment in 2002. The Bureau of Economic Analysis does not report on investment by sector for Oman, when investment is highly concentrated in a small number of investors, and such reporting might reveal the identity of individual investors. However, most of it is likely invested in oil and gas-related facilities. However, the Department of Commerce's Country Commercial Guide for Oman reported that the largest investor in Oman is Royal Dutch Shell Oil which holds 34% of Petroleum Development in Oman, the state oil company, and 30% of Oman Liquid Natural Gas. In addition, U.S. firms, Gorman Rupp (water pumps) and FMC (wellhead equipment), have entered into industrial joint ventures with Omani firms, and Dow Chemical announced a joint venture with Oman Oil Company and the government of Oman in July 2004 to develop a large petrochemical plant in Sohar. The Country Commercial Guide for Oman also reported that total investment in listed Omani companies with foreign participation was $2.4 billion in September 2004, of which 8.94% ($215 million) was (worldwide) foreign investment. Foreign capital also constituted 7.5% of all capital invested in finance, 3% of all capital invested in manufacturing, and 9% of all capital invested in insurances and services. The U.S.-Oman FTA The FTA with Oman is similar to other recent FTAs with MEFTA countries (Morocco and Bahrain), with slight variations. The U.S.-Oman FTA has three basic parts: new tariff schedules for each country, broad commitments to open markets and provisions to support these commitments, and protections for labor and the environment. The USITC argues that the economic effect of the agreement on the U.S. economy is expected to be small but positive, and that the impact on U.S. workers is likely to be minimal because trade with Oman is low. U.S. apparel workers are a group that is potentially adversely affected. Apparel imports from Oman declined by 57% in 2005 over 2004, because the World Trade Organization (WTO) Agreement on Clothing and Textiles (ACT) expired in January of 2005, ending the trade quota system among WTO partner countries. The USITC reports that tariff reductions and elimination under the U.S.-Oman FTA should restore some of the competitiveness of Oman's apparel exports among U.S. purchasers—and estimates that the resulting increase in imports would come at the expense of workers elsewhere in the world, not U.S. workers. Tariff Provisions Under the U.S.-Oman FTA, the United States and Oman will provide each other immediate duty-free access for tariff lines covering almost all consumer and industrial goods, with special provisions for agriculture and textiles and apparel. For agricultural products, Oman will provide immediate duty-free access for current U.S. exports in 87% of agricultural tariff lines; and the United States will provide immediate duty-free access for 100% of Oman's current exports of agricultural products to the United States. Both countries will phase out all tariffs on the remaining eligible goods within 10 years. Textile and apparel products are divided into three categories. Most U.S. imports from Oman are category A (cotton and manmade fibers) for which duties will be eliminated immediately so long as the goods meet the FTA rules of origin requirements. On category B products (home furnishings—mainly bed and kitchen linens) tariffs will be reduced over five years, and for category C products (wool goods), tariffs will be reduced over 10 years. Most apparel must be assembled in an FTA party from inputs (yarn and fabric) made in an FTA party. At present, virtually all U.S. textile and apparel imports from Oman are dutiable, with an average tariff rate of 15.4% in 2005. At the same time, only 11% of U.S. agricultural imports from Oman are dutiable. These dutiable products carried an average tariff of 10.4% in 2005. Most U.S. exports to Oman incurred the common external Gulf Communications Council (GCC) tariff of 5% to all non-GCC members. The GCC includes, besides Oman, Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE. Market Access and Related Provisions14 The U.S.-Oman FTA contains broad commitments to open markets in sectors such as banking, insurance, securities, and telecommunications. It also includes protections for U.S. investors, and for holders of copyrights, trademarks, patents, and trade secrets. It includes enforcement measures for intellectual property rights infringement. In addition it contains transparent sanitary and phytosanitary measures, government procurement disciplines, streamlined and transparent customs procedures, commitments to combat bribery, and tools to enforce the trade agreement. More specifically: Commitments to Open Services Markets Oman provides market access across its entire services regime, including audiovisual, express delivery, telecommunications, computer, distribution, and healthcare; and services incidental to mining, construction, architecture and engineering. The agreement will enhance Oman's commitment to the WTO General Agreement on Trade in Services (GATS). Annexes I and II of the agreement indicate the exceptions to the coverage of the agreement that each country has reserved for itself in the case of services. Opportunities for Banks, Insurance, Securities, and Related Services U.S. financial service suppliers have the right to establish subsidiaries, branches, and joint ventures in Oman, to expand their operations throughout Oman, and to offer the full range of financial services. Annex III of the agreement lists the exceptions to the coverage of the agreement that each county has reserved for itself in the area of trade in financial services. New Protections for U.S. Investors All forms of investment are protected under the agreement, including enterprises, debt concessions, contracts, and intellectual property. U.S. investors will have, in most circumstances, the right to establish, acquire, and operate investments in Oman on an equal footing with Omani investors and with investors of other countries. Annexes I and II of the agreement indicate the exceptions to the coverage of the agreement that each country has reserved for itself in the case of foreign investment. Open and Competitive Communications Market U.S. phone companies will have the right to interconnect with a dominant carrier in Oman at nondiscriminatory rates. U.S. firms seeking to build a physical network in Oman will have nondiscriminatory access to key facilities such as telephone switches and submarine cable landing stations. E-Commerce Each government commits to nondiscriminatory treatment of digital products and agrees not to impose customs duties on digital products transmitted electronically. Copyright Protection in a Digital Economy Each government commits to protect copyrighted works, including phonograms, for extended terms consistent with U.S. standards and international trends. Patents and Trade Secrets Grounds for revoking a patent are limited to the same grounds required to originally refuse a patent, thus protecting against arbitrary revocation. Patent terms can be adjusted to compensate for unreasonable delays in granting the original patent, consistent with U.S. practice. Trademarks The FTA applies the principle of "first-in-time, first-in-right" to trademarks and geographical indications, so the first person who acquires a right to a trademark or geographical indication will be the person who has the right to use it. Each government will be required to establish transparent procedures for the registration of trademarks. Intellectual Property Rights (IPR) The FTA requires each government to criminalize end-user piracy, providing a strong deterrence against piracy and counterfeiting. The FTA mandates both statutory and actual damages under Omani law for IPR violations. Transparent Sanitary and Phytosanitary Measures and Technical Barriers to Trade Oman commits to a science-based regime for sanitary and phytosanitary measures and to transparent procedures for developing and implementing technical regulations. Government Procurement U.S. suppliers are granted nondiscriminatory rights to bid on contracts to supply most Omani government entities; and Omani government purchasers may not discriminate against U.S. firms or in favor of Omani firms when making government purchases above a threshold monetary level. Customs Procedures The FTA requires transparency and efficiency in customs administration, including publication of laws and regulations on the Internet and procedural certainty and fairness. Transparent Rule-Making and Procedural Protections for Traders Each government will publish its laws and regulations governing trade, and will publish proposed measures in advance, and provide an opportunity for public comment on them. Each government will ensure that a trader from the other country can obtain prompt and fair review of a final administrative decision affecting its interest. Commitments to Combat Bribery Each government is required to prohibit bribery, including bribery of foreign officials, and to establish appropriate criminal penalties to punish violators. Tools to Enforce the Trade Agreement All core obligations of the FTA, including enforceable labor and environmental provisions, are subject to the dispute settlement provisions of the agreement. Dispute panel proceedings are subject to requirements for openness and transparency. Protections for Labor and the Environment Labor Protections Each government is required to effectively enforce its own labor laws, as with other FTAs negotiated under the presidential trade promotional authority or "fast track" authority of the Trade Act of 2002 ( P.L. 107-210 ). This is the only labor provision enforceable through the agreement's dispute resolution process, and the maximum penalty for each violation is limited to $15 million per violation per year. If the Party complained against fails to pay a monetary assessment, the complaining Party can take other steps to collect the assessment (or otherwise secure compliance), including by the suspension of tariff benefits under the FTA. However, the labor section of the U.S.-Oman FTA also contains other provisions, which are subject to consultation rather than actual enforcement: Each country agrees not to weaken or reduce its labor laws to attract trade and investment. Each government reaffirms its obligations as a member of the International Labor Organization (ILO, which requires it to uphold ILO core labor standards) and commit to "strive to ensure" that its laws provide for labor standards consistent with internationally recognized labor rights (which are defined in the FTA to reflect U.S. trade law, and are slightly different from ILO core labor standards.) Labor ministries together with other appropriate agencies agree to establish priorities and develop specific cooperative activities. (See section below on "The Labor Debate" for a discussion of most recent labor issues.) Environmental Protections Each government is required to effectively enforce its own environmental laws. This is the only environmental provision enforceable through the agreement's dispute resolution process, and as with labor provisions, the maximum fine is limited to $15 million per violation per year. Each country also agrees not to weaken or reduce its environmental laws to attract trade and investment. As a complement to the agreement, the governments sign a Memorandum of Understanding on Environmental Cooperation that establishes a Joint Forum on Environmental Cooperation, develop a plan of action, and set priorities for future environment-related projects. The General Debate Over the Agreement Arguments in Favor of the Agreement Supporters of the Agreement Support for the agreement is broad in the business community. Among businesses, support is led by the National Foreign Trade Council and the Business Council for International Understanding which heads up the Middle East Free Trade Coalition (MEFTC), an alliance of about 120 companies and associations including the U.S. Chamber of Commerce, and the National Association of Manufacturers. Support also comes from 24 out of 27 trade advisory committees representing business labor, environment, state and local government, agriculture, various industries, and functional areas (e.g., consumer goods, distribution services, small and minority businesses, customs matters, intellectual property, and standards and technical trade barriers.) Congressional support on the House side was led by the Congressional Middle East Economic Partnership Caucus (MEEPC), a bipartisan group of lawmakers which began with 16 members and six co-chairs including Representatives Ben Chandler, Phil English, Darrell Issa, William Jefferson, Gregory Meeks, and Paul Ryan. Congressional support on the Senate side was led by Senator Charles Grassley, Chairman of the Senate Finance Committee, and by Senator Craig Thomas, Chairman of the Subcommittee on International Trade, which held hearings on the U.S.-Oman FTA on March 6, 2006. Arguments in Favor of the Agreement USTR Portman asserted that the U.S.-Oman FTA will contribute to economic growth and trade between both countries, generate export opportunities for U.S. companies, farmers, and ranchers, help create jobs in both countries, and help American consumers save money while offering them greater choices. He pointed out that in addition to eliminating tariffs on U.S. exports, Oman will provide substantial market access across the entire services regime, provide a secure, predictable legal framework for U.S. investors operating in Oman, provide for effective enforcement of labor and environmental laws, and protect intellectual property. Furthermore, he argues that this agreement will support and accelerate the market liberalization that Oman started as part of its accession to the WTO in 2000. Portman contends that joint U.S.-Omani efforts will advance economic growth and democracy, raise living standards and promote peace and economic stability in the Middle East—a region of almost 350 million people and a $70 billion trading relationship with the United States. The overall Advisory Committee for Trade Policy Negotiations (ACTPN) also notes that the agreement will strengthen the likelihood of additional agreements in the region and improve and strengthen overall U.S. relations with the countries of the Middle East. In addition, those in favor of the agreement assert that Oman is one of the most "open" countries in the Middle East. Economic Freedom of the World, 2005 , published by Canada's Fraser Institute, reports (p. 4) that when measures of economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict. Economic Freedom ranked Oman 17 th out of 127 countries in terms of degree of economic freedom afforded in five basic areas. The only MEFTA country it ranked higher was the UAE, which tied for 9 th place (with Australia, Luxemburg, and Estonia.) Other MEFTA country rankings were Bahrain (24 th ), Jordan (25 th ), Israel ( 50 th ), and Egypt, (tied for 78 th with Iran and Morocco.) In 2003, Oman passed a new labor law extending its labor protections for domestic workers to foreign workers (who predominate in the private sector). In response to some calls to strengthen the Omani labor law further, Chuck Ditrich, National Foreign Trade Council vice president, urges patience, acknowledging that Oman still has some areas that may need further legislation, but argues that Omani laws must be viewed in the context of a "very traditional society" that is committed to modernization. For example, the government of Oman reportedly recognizes the need for more explicit provisions for collective bargaining in its laws. Moreover, Oman has reportedly undertaken consultation with the ILO for technical assistance in complying with ILO core labor standards. Arguments Against the Agreement Three of the 27 reports by trade advisory committees mandated under the trade promotion authority language of the Trade Act of 2002 have some criticisms of the U.S.-Oman FTA: those committees on the environment, intergovernmental affairs, and labor. Environment Most members of the Trade Policy and Environment Committee agreed that the environment and public participation provisions were acceptable; however, they noted that the U.S.-Oman FTA lacks some environmental provisions which have appeared in other agreements and which would have been appropriate. Examples of such provisions are the extensive public participation framework from the Central America Free Trade Agreement (CAFTA) and some basic environmental provisions which appeared in the FTAs with Chile and Singapore. Intergovernmental Affairs The Intergovernmental Advisory Policy Committee, in principle, supported the trade liberalization objectives of the agreement. However, the committee stressed the need for trade agreements to continue to respect the authority of state and local governments to regulate in areas under their jurisdiction. They also stressed the need for ongoing consultations with sub-federal governments. Labor The labor groups are the most vocal critics. They argue that potential losers from the agreement would be workers in Oman who would miss out on the opportunity to be more fully protected by labor standards. Other implied losers would be U.S. workers for whom the agreement does little to "level the playing field." Main arguments against the FTA offered by labor interests are concentrated primarily on two basic issues: weaknesses in the agreement, and weaknesses in Omani laws and enforcement, for which the agreement does not adequately compensate. Weaknesses in the Agreement Labor critics point out that the Trade Act of 2002 requires U.S. negotiators to "seek provisions that treat U.S. principal negotiating objectives equally with respect to both: (1) the ability to resort to dispute settlement; and (2) the availability of equivalent dispute settlement procedures and remedies. However, critics argue, the agreement does not do this. Further, they argue, the FTA is a step backward from protections offered Oman under the Generalized System of Preferences: Not All Labor Provisions Are Treated Equally . The U.S.-Oman FTA identifies three basic labor commitments for partner countries: (1) commitments to comply with ILO standards; (2) commitments to enforce their own labor standards; (3) and commitments to not derogate from those standards in order to attract trade and investment. However, critics argue, only the second of these three commitments is enforceable through the dispute resolution procedures of the U.S.-Oman FTA. This treatment, they argue, contrasts with provisions of the U.S.-Jordan FTA which makes all three commitments enforceable through the dispute resolution process. Unequal Treatment of Labor Compared to Most Non-Labor Provisions . Second, there are different dispute resolution procedures for labor and non-labor (e.g., intellectual property) violations, For labor (and environmental) violations, the potential penalty for the one labor (and environmental) violation (failure to enforce one's own laws) that is open to the dispute resolution procedures is capped at $15 million per violation per year. For non-labor (and non-environmental) violations, there is no cap on any monetary assessment. A Step Back from GSP . In addition, the AFL-CIO sees the U.S.-Oman FTA as being a step back from the Generalized System of Preferences (GSP) program. Under GSP, trade preferences for developing countries including Oman are dependent on such countries' taking steps to afford their workers internationally recognized worker rights. A challenge to GSP eligibility for any country begins with a petition to the Office of the USTR documenting that a country is not taking steps to afford its workers such rights. In June of 2005, the AFL-CIO petitioned the USTR to remove Oman from GSP status, arguing that it was not affording its workers internationally recognized worker rights. The USTR subsequently rejected the petition and Oman continues to hold GSP status. Weaknesses in Omani Law and Enforcement When there are weaknesses in the agreement, critics argue, if a country's basic laws and enforcement of those laws are strong enough, workers can still be protected. Oman, critics argue, lacks protections in certain areas. Omani Gaps in Ratification of ILO Core Labor Standards First, as of the date of this report, according to the ILO website, Oman has ratified conventions relating to only two of the four basic ILO core labor standards (enumerated in a footnote on p. 7): those protecting against child labor, and those prohibiting forced labor. Oman has not ratified conventions related to the right to organize and bargain collectively and the elimination of employment discrimination. Lack of Other Omani Laws and/or Enforcement Furthermore, various sources suggest that Omani labor laws and/or enforcement do not fully cover certain aspects of the following areas relating to core labor standards/internationally recognized worker rights: Right to Organize and Bargain Collectively . The State Department's Country Reports on Human Rights Practices, 2004, finds in the area of "right to organize and bargain collectively," that Omani law does not provide workers with the right to form or join "unions" but does permit them to form representation committees with the goal of taking care of their interests. The LAC reports that where representation committees exist, however, they are by law, not authorized to discuss wages, hours, or conditions of employment. Country Reports for 2005 adds an unofficial estimate that 25 representation committees, representing 9.1% of employees in the private sector, have been registered since 2004 and reports that provisions of the law apply to [Omani] women and foreign workers [as well as Omani men]. Right to Strike . Furthermore, according to Country Reports for 2004, the Omani law does not address strikes or explicitly provide for the right to collective bargaining. However, it reports that the 2003 Omani labor law removed a 1973 prohibition on strikes and details procedures for dispute resolution. Country Reports for 2005 also indicates that, while labor unrest was rare, there were four reported strikes during the year. The most significant one closed the largest seaport for two days. Prohibition of Forced or Compulsory Labor . Country Reports for 2004 also finds that the Omani law prohibits forced or compulsory labor, including that of children. Country Reports for 2004 further notes that even though the protections of the 2003 Omani labor law apply equally to foreign and domestic workers, at times foreign workers (who account for 80% of private sector workforce and 50% of all workers in Oman) were placed in situations amounting to forced labor. Country Reports for 2005 echoes the finding that some situations amounted to forced labor and adds that employers sometimes withheld documents that would release workers from employment contracts and allow them to change employers. Without such documents, a foreign worker must continue to work for his current employer or become technically unemployed and consequently a candidate for deportation. Country Reports for 2005 further reports that many foreign workers were not aware of their right to take such disputes to the Labor Welfare Board, which "in most cases" released the worker from the service contract without deportation, awarded compensation for time worked under compulsion, reimbursed the worker for back wages, and subjected the guilty employer to fines. However, Country Reports 2005 states, there were no available statistics on the number of disputes filed or resolutions by the end of 2005. Congressional Activity Before the U.S.-Oman FTA and implementing legislation were formally submitted to Congress, both House and Senate committees held preliminary hearings. The House Ways and Means Committee held full committee hearings on April 5, 2005. The International Trade Subcommittee of the Senate Finance Committee held hearings on March 6, 2006. Then, on May 10, the House Ways and Means Committee held "mock" markup hearings on the Administration's draft implementing legislation and approved the bill without amendment on a party-line vote of 23-11. On May 18, 2006, the Senate Finance Committee held its "mock" markup, adopting an amendment before passing the bill unanimously. The amendment reflected recent concerns about sweatshop conditions in Jordan (see section below), and implications for production under the U.S.-Oman FTA. On June 28, the Senate Finance committee approved the draft implementing legislation ( S. 3569 ) for the U.S.-Oman FTA by a vote of 10 to 3. On June 29, the Senate passed the bill by a vote of 60 to 34. On June 29 the House Ways and Means Committee also approved the draft implementing legislation ( H.R. 5684 ) by a vote of 23 to 15. On July 20 the House passed the bill by a vote of 221 to 205. On September 19 the Senate reconsidered the implementing legislation and passed the House version of the same bill by a vote of 63 to 31. This action was necessary because the Constitution requires that all revenue-raising legislation, which encompasses trade bills, since they affect tariffs, originate in the House. The bill was signed by the President and became P.L. 109-283 on September 26, 2006. Other Labor Issues A report of alleged sweatshop conditions in plants in Jordan producing for export to the United States has been issued by the National Labor Committee (NLC), a nonprofit organization that promotes worker rights around the world. The 161-page report has raised concerns within Congress that similar conditions might exist or occur in other MEFTA countries, including Oman if the U.S.-Oman FTA were to go into effect. The NLC report entitled U.S.-Jordan Free Trade Agreement Descends into Human Trafficking and Involuntary Servitude, released in May of 2006, documents conditions in 28 separate factories in Jordan in foreign trade zones, where clothing is produced by Jordanian and foreign guest workers, mostly for export to the United States. The report estimates that tens of thousands of foreign guest workers who entered employment willingly were subsequently stripped of their passports and trapped in involuntary servitude, sewing clothing in factories for companies including Wal-Mart, K-Mart, Gloria Vanderbilt, Target, Kohl's, J.C. Penney, Victoria's Secret, and L. L. Bean. The Senate Finance Committee responded to the concerns on May 18, 2006, by unanimously adopting an amendment in its mock markup of the Administration's U.S.-Oman FTA draft implementing legislation. The amendment, offered by Senator Kent Conrad, would prohibit any products made in Oman "with slave labor (including under sweatshop conditions so egregious as to be tantamount to slave labor) or with the benefit of human trafficking," from benefitting from the agreement. Committee Republicans, including Chairman Chuck Grassley, joined Democrats in voting for the conceptual amendment. The committee then unanimously approved the U.S.-Oman draft implementing bill as amended. Any amendments passed by a committee during the mock markup process are advisory in nature, rather than obligatory. The Administration responded that while they would consider the amendment, they had some concerns. First, they argued, the amendment might fall outside the scope of the provision in the Trade Act of 2002 , P.L. 107-210 , Sec. 2103(b)(3)(ii), requiring that any new statutory language be "necessary or appropriate" to implement the trade agreement. Second, the Administration argued, Sec. 307 of the Tariff Act of 1930 already prohibits the importation of merchandise produced in whole or in part through prison, forced, or indentured labor, including by those who voluntarily entered into employment but were later subject to de facto slave working conditions. In response to the Administration's argument, Senator Conrad pointed out that Sec. 307 of the Tariff Act of 1930 may not be applicable to apparel produced under slave labor conditions in Oman. This, he argued, is because apparel is no longer made in great quantities in the United States; and Sec. 307 does not apply to goods produced under forced or indentured labor if those goods are not domestically produced in quantities that meet the consumption demands of the United States. Third, the Administration argued that the amendment may be unnecessary because FTA language requiring Oman to enforce its own labor laws, which prohibit forced labor, is strong enough or enforceable enough to discourage or affect its practice. In addition, the Administration pointed out, Oman has approved core labor standards prohibiting forced or compulsory labor and has made commitments to strengthening its labor standards still further. These Omani commitments came from the Omani Minister of Labor as part of an exchange of letters between House Democrats, the Omani Minister, and the USTR. The Omani Minister made eight commitments in March and ten further commitments regarding forced labor and child labor in May. In those commitments Oman promised to issue Royal Decrees and Ministerial Decisions to strengthen the country's labor laws in response to congressional concerns by no later than October 31, 2006. While some Republicans argued that Oman needs time to craft new laws with technical support from the ILO, some Democrats argued for changes in Omani laws before the U.S.-Oman FTA implementing legislation is considered by Congress. On July 8, 2006, the Sultan of Oman issued a Royal Decree (74/2006) amending provisions of Omani labor law to provide some labor rights consistent with ILO core labor standards. As amended by the decree, Omani law would permit the right to form unions, the right to bargain collectively, and to engage in other union activities. The law would also prohibit employers and others from imposing any compulsory or forced labor with specific penalties for noncompliance. Penalties are provided for those who would interfere with union activity, or decline to provide the necessary facilitation or information. The Royal Decree delegates promulgation of regulations to the Ministry of Manpower; therefore, specific details regarding its implementation and enforcement are yet to be determined. Meanwhile, a few days after the Senate Finance Committee markup hearing, Jordan's trade minister Sharif Zu'bi indicated that the NLC report had incorrectly identified three sweatshops that are not even in Jordan, and that three others had been closed before the report was released in May. In addition, he noted that the Jordanian government had formed nine inspections teams to investigate the entire garment trade in the country, and is working with the International Labor Organization, U.S. labor committees, the USTR, the State Department, and U.S. and Jordanian apparel companies to address the challenges and improve their monitoring system. Issues on Port Security In the Spring of 2006, the U.S. interagency "Committee on Foreign Investment in the United States" raised no objections to the acquisition and continued operation of contracts by the Dubai-owned "Dubai Ports World" company from a British firm that managed port facilities in several cities including New York, New Jersey, Baltimore, New Orleans, Miami, and Philadelphia. After several members of Congress expressed opposition to the $9 billion merger on the grounds that the company might not be as vigilant on port security as required, the company agreed to a 45-day review of its operations at those ports. On March 9, the House Appropriations Committee voted 62-2 on a provision in the FY2006 supplemental funding bill for Iraq and Afghanistan war operations and other costs that would have effectively prevented DP World from operating in the United States. The following day DP World officials announced that they would divest the newly-acquired U.S. port operations to an American owner. The Oman FTA Provision A provision in the Oman FTA became the focus of increased attention. Some argue that this provision could obligate the United States to open up landside aspects of its port activities to operation by companies such as DP World. Others argue that the provision is not new to bilateral trade agreements, and does not change current U.S. policy. The provision, contained in Annex II of the U.S.-Oman FTA, addresses cross-border services and investment in the area of transportation. More specifically, the provision sets out two categories of transportation activities: those for which the United States reserves the right to adopt or maintain any measures, and those activities for which the United States does not reserve the right to adopt or maintain any measures—those activities which are exclusions from the above list. The list for which the United States reserves the right to maintain any measure includes requirements for investment in, ownership and control of, and operation of drill rigs, U.S. flagged vessels, fishing vessels; plus requirements related to documenting a vessel under the U.S. flag, promotional programs, certification licensing, and citizenship requirements, programs, certification licensing and citizenship requirements, manning requirements, and all matters under the jurisdiction of the Federal Maritime Commission. The excluded list, for which the United States does not reserve the right to adopt or maintain any measure, includes two categories of activities—one unconditional, and one conditional. The first category (a) is vessel construction and repair. On this category the United States reserves no right to adopt or maintain any measure. The second category (b), for which the United States waives its right to adopt or maintain any of the listed measures on the condition that comparable market access in these sectors is obtained from Oman, includes the following activities: landside aspects of port activities including operation and maintenance of docks; loading and unloading vessels directly to or from land; marine cargo handling; operation and maintenance of piers; ship cleaning; stevedoring; transfer of cargo between vessels and trucks, trains, pipelines, and wharves; waterfront terminal operations; boat cleaning; canal operation; dismantling of vessels; operation of marine railways for drydocking; maritime surveyors, except cargo; marine wrecking of vessels for scrap; and shift classification societies. Some in Congress argue that the provision excluding the above activities from the U.S. government's "right to adopt or maintain any measure" should be removed from the agreement because it poses a potential security risk to the United States. Others are arguing that the provision merely restates what is already the situation in the United States, and is not a problem. The arguments on both sides follow. Arguments in Favor of the Provision Those arguing that the provision excluding certain activities from the U.S. "right to adopt or maintain any measure" should remain in the agreement argue that: It Complies with Most Favored Nation Treatment Obligations A basic obligation of free trade agreements such as the U.S.-Oman FTA is the obligation (subject to specified exceptions) to treat service suppliers and investors of other parties no less favorably than the United States treats its own service suppliers and investors. This provision meets those requirements. Provision Exists in Other FTAs This provision is already included in other agreements, including the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement, and FTAs with Australia, Bahrain, Chile, and Morocco. Omani Companies Already Have this Right Proponents argued that Omani companies are presumably already able to acquire contracts for and perform these services. Currently there are no U.S. laws that prevent either an Omani-owned company or any other foreign-owned company from contracting with port owners to perform "landside aspects of port activities" in the United States. Coast Guard Protection Exists The U.S. Coast Guard and Customs and Border Protection play an integral role in ensuring security at U.S. ports; and nothing in the agreement amends or diminishes the authority of these agencies. No Omani Companies Are Currently Interested in U.S. Port Operations While Oman already provides market access to U.S. service suppliers and investors, the USTR is not aware of any Omani companies that are currently involved in any U.S. port operations or that might be interested in such operations in the future. However, If They Were, the "Essential Security" Exception Would "Fully" Protect the United States According to proponents, if an Omani company were to express such interest in the future, the "essential security" (or "national security") exception (explained below) could arguably be invoked to "fully" protect U.S. national security needs. The United States Could Deny FTA Benefits to Owners of a "Shell" Operation; to Businesses Whose Owners Were Nationals of Countries Subject to U.S. Sanctions; or to Any Potential Investment Pursuant to the "Essential Security Exception" Described Below If non-Omani persons set up an enterprise in Oman that was merely a "shell"—i.e., that was engaged in no substantial business activities in Oman—and that enterprise sought to make an investment in the United States, the FTA contains specific language that would arguably permit the United States to deny the FTA's investment-and services-related benefits to that enterprise. Moreover, even if the enterprise set up in Oman had "substantial business activity" in Oman, the United States could deny FTA benefits to it if its owners were nationals of countries subject to U.S. sanctions. Finally, the U.S. government retains the authority to block any potential investment pursuant to the "essential security" exception described below. The "Essential Security" Exception Offers Protection Chapter 21 of the U.S.-Oman FTA contains several exceptions to the agreement. Article 21.2 addresses "essential security" and provides that: Nothing in the agreement shall be construed: (a) to require a Party to furnish or allow access to any information ... which it determines to be contrary to its essential security interests; or (b) to preclude a Party from applying measures it considers necessary for the fulfillment of its obligations [for] the maintenance or restoration of international peace or security or the protection of its own essential security interests. An "essential security" exception has been included in all U.S. trade agreements dating back to the 1947 General Agreement on Tariffs and Trade (GATT). The United States, among other countries, has consistently interpreted this language (worded similarly to Article 21 of the U.S.-Oman FTA) to be self-judging, and therefore that national security matters are not appropriate for adjudication in a third-party dispute settlement mechanism. In other words, under these provisions it can be argued that nothing in an agreement can prevent the United States from applying measures that it considers necessary for the protection of essential security interests. Moreover, proponents will argue that review of national security claims by international tribunals are without precedent and are highly unlikely because, arguably, no tribunal would accept jurisdiction over the question of what constitutes a country's "national security." The Exon-Florio Amendment Offers Additional Protection for "National Security" Issues In addition, U.S. law—in particular the Exon-Florio Amendment to the Defense Production Act of 1950 —authorizes the President to block proposed foreign investment in the United States that threatens national security. The President has delegated to the interagency Committee on Foreign Investment in the United States (CFIUS) the responsibility to continuously monitor foreign investment in the United States to ensure against threats to national security; and a CFIUS review could still be performed at the discretion of CFIUS. While it is theoretically possible for Oman to bring a legal challenge to the actions of the United States before a third-party tribunal, proponents argued, the United States would appear to be on solid legal grounds for asserting not only that the panel does not have the legal authority to determine the validity of such a matter, but also that the inconsistent measure is permitted and justifiable given the broad "self-judging" language of the national security exception. Arguments Against the Provision Those arguing that the exception provision of Annex II should not have been included in the U.S.-Oman FTA argue that such a provision could pose a serious threat to Congress' ability to ensure the security of U.S. port infrastructure. Specific arguments against the provision are as follows: The Specific Commitments in Annex II Raise Significant National Security Concerns, Opponents Argue This is because language in Annex II regarding landside port operations introduces new rights of establishment for foreign companies to own sensitive U.S. infrastructure. These FTA provisions arguably subject U.S. laws or policies (whether enacted by Congress, the Executive, or the States) that restrict foreign ownership to a challenge in dispute resolution and/or to suit under the investor-state enforcement provisions. The United States Will Be Required to Offer Oman the Right to Bid to Operate at U.S. Ports—the Very Activities About Which Congress Expressed National Security Concerns During the Dubai Ports World Debate Under the FTA, this right is conditional upon obtaining comparable market access in this sector from Oman. However, this right covers the very port activities about which Congress expressed national security concerns during the Dubai Ports World debate. Annex II Language Goes Beyond U.S. Commitments in the WTO Generally, the service sectors to which the "right to establish" for foreign companies applies in these FTAs is the same as the service sectors that the United States agreed to in the 1994 WTO's General Agreement on Trade in Services (GATS). However, opponents argue, the Oman FTA adds to the U.S. commitments by specifically including (or by not specifically excluding) "landside operations of ports." Opponents Also Argue that the WTO Text and Practice Says That National Security Claims Are Theoretically Reviewable The reason for this, they argue, is that neither the GATT agreement nor the FTA expressly exempts these provisions from review by an international tribunal. Under Annex II, the United States May Not Ban Enterprises of a Party from Owning and Operating Covered Services Nor can either country limit the number or size of such services, or require specific forms of ownership (i.e., require U.S. partners or require that it be a non-profit organization). If the United States Took Action to Deny a Company its New Right to Establish, Opponents Argued, It Would Be a Violation of the FTA, and Subject to Dispute Resolution and Trade Sanctions 50 Under the FTA, such disputes can be brought in two fora, both of which raise concerns: In a Government-to-Government Dispute Resolution Fora, Judges with a Narrow Trade Expertise Would Decide Between U.S. National Security Needs and Trade Commitments Government-to-government dispute resolution cases are not heard in U.S. courts, but in three-person trade tribunals under procedures agreed to in Article 20 of the FTA. In these cases, each country in the dispute may select one "judge" from its country and these two tribunalists would choose a third "judge"—from a list of trade experts provided by each country. In such a scenario, "judges" with a narrow trade expertise and perspective including non-U.S. individuals would be empowered to balance competing U.S. interests—national security needs against U.S. trade commitments—to decide which comes first. In the Investor-State Dispute Resolution Fora, U.N. and World Bank Tribunalists Would Be Empowered to "Second Guess" a U.S. National Security Claim Investor-state enforcement is enumerated in Chapter 10 of the U.S.-Oman FTA. Under these provisions, even if the Omani government were not to initiate a case, an actual investor/company has the right to privately initiate its own case against the United States. Such a case, if brought, would seek a judgement requiring that the United States pay monetary damages equal to part of the expected future profits it would be denied by an adverse U.S. action. The case would be adjudicated by United Nations or World Bank tribunalists, who would be empowered to "second guess" a national security claim, and possibly order the U.S. government to pay the foreign company for its lost future profits. If the U.S. Were to Raise an "Essential Security" Exception After a CFIUS Review, an FTA Panel Would Likely Deny the Exception If the U.S. were to raise the "essential security" exception included in Chapter 21, Article 21.2 as a defense before a trade tribunal and a CFIUS review had been completed without a finding of a security threat (as in the case of Dubai World Ports), opponents argue, there is no doubt that an FTA panel would not permit use of the FTA's "essential security" exception to excuse consequent government action that interfered with the FTA investor right to establish port operations. If a CFIUS Review Predetermined That an Acquisition Were Not in the National Security Interests of the United States, this Would Not Terminate an FTA Claim However, the converse is not necessarily true: If a CFIUS review did determine that an acquisition were not in the national security interest of the United States, opponents argued, this would not terminate an FTA claim. This is because the FTA sets out procedures for responding to validly raised claims. Thus, even with a CFIUS review, it is argued that the United States would still be required to respond in a United Nations or World Bank tribunal, essentially requiring litigation on the "essential security" defense. Outcome of a Congressional Vote on the FTA and Potential Consequences If It Had Failed to Pass Oman joins four other MEFTA countries with FTAs, and the proposed MEFTA is now one-quarter of the way complete. An agreement with Oman could be a pathway to create private sector jobs for Oman's burgeoning population and a gateway to more openness in the Middle East. If Congress had not approved the U.S.-Oman FTA, any one of a number of things could have happened. On one hand, Oman could have just continued trading with the United States as usual. On the other hand, Oman could have looked elsewhere to countries such as China, Russia, or India for support in diversifying beyond the production of oil which could run out in roughly 15-20 years. In addition, had the U.S.-Oman FTA not been approved, there might have been broader implications. For example, Oman has been letting the United States use several military facilities. While many argued that it would have been be in Oman's interest to continue to cooperate with the United States military, Oman might have been tempted to put further restrictions on the U.S. use of these facilities. Oman might also have shrunk back from its cooperation on counterterrorism which is said to have included sharing/providing tips on intelligence about possible Al Qaeda suspects operating in the Persian Gulf or Oman itself.

In aiming to fight terrorism with trade, the United States negotiated and the President signed on January 19, 2006, the U.S.'s fifth bilateral free trade agreement (FTA) in the proposed 20-entity Middle-East-Free Trade Area (MEFTA). This FTA is with Oman. Other U.S.-FTAs are with Israel, Jordan, Morocco, and Bahrain. A sixth is being negotiated with the United Arab Emirates. Oman is a small oil-exporting U.S. trade partner that has been supportive of U.S. policies in the Middle East and is strategically located at the mouth of the Persian Gulf. Because its oil reserves could be exhausted within 15-20 years, Oman is trying to liberalize and diversify its trade regime beyond oil and gas to provide economic opportunities for its fast growing workforce. Supporters of the agreement typically cite political and economic reasons. Opponents typically point to labor and human rights issues. The FTA with Oman is similar to other MEFTA FTAs and has three basic parts: new tariff schedules, broad commitments to open markets and provisions to support those commitments, and protections for labor and the environment. It provides immediate duty-free access for almost all consumer and industrial goods, with special provisions for agriculture and textiles and apparel. Among all U.S. trade partners, Oman ranks 88th for the United States, while the United States ranks third for Oman (after the United Arab Emirates and Japan). U.S.-Oman trade at about $1 billion for 2005 represents 0.04% (four-one hundredths of one percent) of total U.S. trade. In 2005, the most important U.S. imports from Oman were oil and natural gas (75%), and apparel (10%). The most important U.S. exports to Oman were transport equipment (56%), and machinery (24%). The U.S. International Trade Commission (USITC) predicts that the economic effect of the U.S.-Oman FTA is likely to be minimal since trade levels are low; and any increase in U.S. imports of apparel would come at the expense of workers elsewhere in the world, not in the United States. Total U.S. foreign direct investment in Oman was $358 million in 2003, up from $193 million in 2002. Supporters argue that the U.S.-Oman FTA will contribute to bilateral economic growth and trade, generate export opportunities for U.S. companies, farmers, and ranchers, and help create jobs in both countries. Critics argue that labor protections are inadequate for Omani workers, and that the FTA will not help level the playing field for Omani and U.S. workers. Critics also argue that a provision in Annex II of the FTA could obligate the United States to open up landside aspects of its port activities to operation by companies doing business in Oman—activities about which Congress expressed national security concerns during the Dubai Ports World debate. After the President submitted the agreement and the implementing legislation to Congress, relevant committees had 45 days to consider (or not consider) it, and either chamber had 15 more days to vote the legislation up or down without amendment to the agreement itself or the legislation. The Senate passed implementing legislation on June 29, 2006 (S. 3569); the House passed it (H.R. 5684) on July 20; the Senate re-passed it under the House number on September 19, and it became P.L. 109-283 on September 26, 2006. This report will be updated as events warrant.

Introduction As Congress considers different approaches to reform the housing finance system, one of the major policy issues to emerge concerns the role of the federal government in supporting affordable housing for low- and moderate-income households. Much of this debate centers on Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). As GSEs, Fannie Mae and Freddie Mac are hybrid entities, private companies with congressional charters that contain special privileges and certain responsibilities. Notably, Fannie Mae and Freddie Mac have traditionally been required to provide support for affordable housing in certain ways. Although the most prominent proposals to reform the housing finance system—the Protecting American Taxpayers and Homeowners Act (PATH Act; H.R. 2767 , Representative Garrett), the Housing Opportunities Move the Economy Forward Act proposal (HOME Forward Act, Representative Waters), and the Johnson-Crapo GSE Reform Proposal (Senator Johnson and Senator Crapo) —agree on the need to dissolve the GSEs and eventually revoke their charters, there is disagreement on what should replace the GSEs. Part of the disagreement involves whether any entity that replaces the GSEs should be required to support affordable housing activities and, if so, what form such support should take. Some argue that the hybrid nature of the GSEs—private companies with a public mission—led to perverse incentives to lower underwriting standards in an effort to expand credit availability to low-income borrowers. Instead, they argue, in a future system the government should support affordable housing primarily through existing government programs or agencies with an explicit mission of supporting affordable housing, such as the Federal Housing Administration (FHA) and other programs administered by the Department of Housing and Urban Development (HUD). Others argue that the perverse incentives can be realigned such that private companies could be encouraged to support affordable housing and broad access to credit in a responsible manner. This report explains the ways in which the GSEs currently support affordable housing and describes the different affordable housing approaches contained in the reform proposals. For a more general overview of the housing finance system, see CRS Report R42995, An Overview of the Housing Finance System in the United States , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. For a more complete review of the housing finance reform proposals, see CRS Report R43219, Selected Legislative Proposals to Reform the Housing Finance System , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. What is Affordable Housing? An issue of ongoing interest to Congress has been the availability of affordable housing that is of a decent physical quality. There can be many definitions of what constitutes "affordable," but one common definition classifies housing as affordable if a household is paying no more than 30% of its income toward housing costs. Households that pay more than 30% of their income for housing costs are considered to be cost burdened, and households that pay more than 50% of their income for housing costs are considered to be severely cost burdened. With a larger percentage of income going to housing costs, households that are cost burdened may have difficulty paying for other necessities. Generally speaking, the lower a household's income, the harder it might be to find housing that is affordable. When the concept of affordable housing is discussed, it is usually in reference to housing that is affordable to low- or moderate-income households. Low-income households are commonly defined to be households with incomes at or below 80% of area median income (AMI). Very low-income households are defined as households with incomes at or below 50% of AMI, and extremely low-income households are defined as households with incomes at or below 30% of AMI. There is not a consistent definition of "moderate-income," which is defined differently in different contexts. Affordable housing can be rental housing or owner-occupied housing. For the lowest income households, affordable housing will often be rental housing, because lower-income households might find it more financially feasible to rent rather than own their homes. Evidence shows that there is a shortage of rental housing that is physically adequate, affordable, and available to households at the lowest end of the income spectrum. (A unit is generally considered "available" to a household at a given income level if the unit is either currently occupied by a household at or below the same level of income or is vacant.) According to HUD, in 2011, there were about 93 adequate, affordable, and available rental units for every 100 low-income households. There were fewer adequate, affordable, and available rental units farther down the income spectrum: 57 units for every 100 very low-income households and 31 units for every 100 extremely low-income households. Affordable housing can also be owner-occupied housing, particularly for moderate-income households, households at the higher end of low income, or households in areas with little rental housing stock and inexpensive single-family housing (such as rural areas). When there is discussion of "affordable housing" in the context of homeownership, it is often in reference to ensuring that creditworthy households have opportunities to access mortgages on affordable terms. There has been particular concern about whether certain types of households are "underserved" by the mortgage market, meaning that they are less likely to be able to access affordable mortgages. Possible underserved market segments could include low- and moderate-income or minority households, households living in certain areas (such as neighborhoods with high concentrations of poverty or in rural areas), and households seeking less traditional types of housing, such as manufactured housing. To address this perceived need for affordable rental and owner-occupied housing, Congress has established several federal programs designed to increase the availability of housing that is affordable to low-income households. Most of these programs are administered by HUD, and they include rental assistance programs to support affordable rental housing and block grants that states and local governments can use for rental or owner-occupied housing. Congress has also established programs to support access to affordable homeownership, such as by providing mortgage insurance through FHA. FHA insures mortgages made by private lenders to certain creditworthy borrowers who might otherwise have difficulty qualifying for affordable mortgages, such as households with small down payments. FHA traditionally serves many first-time homebuyers, low- and moderate-income households, and minority households. In addition to insuring single-family mortgages, FHA also insures mortgages on multifamily buildings (i.e., apartment buildings with five or more units), which can encourage lenders to offer multifamily mortgages on better terms and in turn increase the supply of affordable rental housing. In addition to these programs and activities, Congress has also directed the GSEs to support affordable housing, primarily by purchasing both single-family and multifamily mortgages that provide affordable housing for low- and moderate-income households or households that are located in underserved areas. The GSEs' Support for Affordable Housing The GSEs' business model (see shaded box below) is intended to provide support to the broader mortgage market, but certain actions of the GSEs are geared primarily toward assisting low- and moderate-income households. This report focuses on the three main channels of support that are currently in statute, although only one of these channels has been fully operational for any length of time. The three channels focus on both affordable rental and owner-occupied housing to varying extents, but historically the GSEs' support for affordable housing has largely been more targeted to homeownership rather than rental housing. First, the GSEs have been directed to provide support through affordable housing goals mandated by Congress since 1992. The goals are numerical standards in which each GSE is required to focus a certain amount of its business on specified types of low-income borrowers and areas that are considered to be underserved by the mortgage market. Originally, the specific goals were set by HUD, but since 2008 they have been set by the GSEs' regulator, the Federal Housing Finance Agency (FHFA). Second, Congress in 2008 established a "duty to serve" requirement for the GSEs. Under the duty to serve requirement, the GSEs are required to provide leadership to assist low-income households in the manufactured housing, affordable housing preservation, and rural markets. Although FHFA published a proposed rule on the duty to serve requirement in 2010, a final rule has not yet been promulgated. Third, also in 2008, Congress directed the GSEs to make contributions to two affordable housing funds, the Housing Trust Fund and the Capital Magnet Fund. The funds were intended to increase the supply of housing affordable to low-income households, with a particular focus on rental housing. These contributions were suspended shortly after the GSEs were placed in conservatorship, and the GSEs have not made contributions to these affordable housing funds to date. Affordable Housing Goals The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (FHEFSSA; P.L. 102-550 ) established three numerical affordable housing goals for the GSEs: a low- and moderate-income goal, an underserved areas goal, and a special affordable housing goal. The Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289 ) replaced the previous housing goals with new single-family and multifamily goals for new categories of borrowers. Under the affordable housing goals established by HERA, each GSE is required to focus a certain amount of its business on specified types of borrowers. By purchasing mortgages that are made to lower-income borrowers, some argue, the GSEs can increase homeownership rates among segments of the population that are less likely to own their home. The " Effectiveness of GSE Affordable Housing Goals " section of this report provides a review of the research on the effectiveness of the GSEs in boosting homeownership for low-income households. The single-family goals established by HERA are the low-income home purchase goal , which targets households with incomes no greater than 80% of Area Median Income (AMI) who are purchasing homes; very low-income home purchase goal , which targets households with incomes no greater than 50% of AMI who are purchasing homes; low-income areas home purchase subgoal , which targets households purchasing homes in (1) low-income census tracts, with median income no greater than 80% of AMI, and (2) high-minority tracts, with minority population at least 30% and tract median income less than 100% of AMI if borrower income does not exceed 100% of AMI; low-income areas home purchase goal , which includes the low-income area home purchase subgoal plus home purchase mortgages on properties in federally declared disaster areas if borrower income does not exceed 100% of AMI; and low-income refinance goa l , which targets households with incomes no greater than 80% of AMI who refinance their mortgage. The GSEs can satisfy each of the single-family affordable housing goals in one of two ways, either (1) by meeting the prospective benchmark that is set in advance by FHFA for the goal (Benchmark Level) or (2) by having "the goal category's share of the Enterprise's business for the year [be] at least as great as the category's share of the overall market" (Market Level). For example, if the Benchmark Level set by FHFA for the low-income home purchase goal in 2012 is 23% but, in retrospect, it turns out that home purchases by low-income households made up 26.6% of the total market in 2012, then a GSE could satisfy the goal if the share of its total purchases that were low-income home purchases exceeded either the Benchmark Level or the Market Level. Table 1 shows Fannie Mae's and Freddie Mac's performance for the single-family housing goals using both performance metrics for 2012. Fannie Mae met each goal by performing above the Benchmark Level, though it met the Market Level for only the low-income areas home purchase goal. Freddie Mac also met each goal by performing above the Benchmark Level; it performed above the Market Level for the low-income areas home purchase goal and the low-income refinance goal. In addition to the single-family goals, the GSEs must also satisfy two multifamily goals. To the extent that poorer families are more likely to rent than own their homes, the multifamily goals are more likely to benefit such households than the single-family goals. The multifamily goals are the low-income multifamily goal , which is the number of units in multifamily properties that are financed by a GSE that are affordable to households with incomes no greater than 80% of AMI; and very-low income multifamily goal , which is the number of units in multifamily properties that are financed by a GSE and that are affordable to households with incomes no greater than 50% of AMI. Unlike the single-family goals, the multifamily goals can only be satisfied by meeting a Benchmark Level set by FHFA and do not have a Market Level compliance option. To satisfy the Benchmark Level for a goal, each GSE must finance a minimum number of units that meet the requirements of that goal. Table 2 shows Fannie Mae's and Freddie Mac's performance for the multifamily housing goals using both performance metrics for 2012. Both GSEs satisfied each goal. The GSEs are also required to report to FHFA their purchases of mortgages in small multifamily properties (5 to 50 units), though there is not an official goal. If a GSE fails to meet one of its goals and FHFA determines that the goal was feasible, FHFA may require the GSE to submit a housing plan that describes the actions the GSE will take to meet the goal in the following year. If the GSE fails to comply with the housing plan, FHFA may issue a cease-and-desist order or impose civil money penalties. Duty to Serve HERA also established for the GSEs a duty to serve requirement. It requires each GSE to "provide leadership to the market in developing loan products and flexible underwriting guidelines to facilitate a secondary market for mortgages for very low-, low-, and moderate-income families" in three markets that are deemed to be underserved: manufactured housing, affordable housing preservation, and rural markets. For example, the GSEs could assist the affordable housing preservation market by refinancing loans on multifamily properties that, without favorable financing, may convert to market rate rents. HERA requires FHFA to establish a method for evaluating whether the GSEs satisfy the requirement for each market and to evaluate the GSEs using the chosen method. The evaluation should take into consideration "the development of loan products, more flexible underwriting guidelines, and other innovative approaches to providing financing to each of such underserved markets;" "the extent of outreach to qualified loan sellers and other market participants in each of such underserved markets;" "the volume of loans purchased in each of such underserved markets relative to the market opportunities available to the enterprise, except that the Director shall not establish specific quantitative targets nor evaluate the enterprises based solely on the volume of loans purchased;" and "the amount of investments and grants in projects which assist in meeting the needs of such underserved markets." FHFA issued a proposed rule in 2010 for the duty to serve requirement, but a final rule has not been promulgated. The Housing Trust Fund and the Capital Magnet Fund The third method by which the GSEs were to support affordable housing is through contributions to two new affordable housing funds, the Housing Trust Fund and the Capital Magnet Fund. The funds were established by HERA and were intended to increase the supply of housing that is affordable to low-, very low-, and extremely low-income households. However, critics of the funds have argued that they are duplicative of other federal programs that provide funding for affordable housing, and that the funds could potentially be used as "slush funds" for special interest groups. The Housing Trust Fund, which is administered by HUD, would provide formula funding to states to provide housing (primarily rental housing) for very low- and extremely low-income households. For years, affordable housing advocates had argued for the establishment of a national housing trust fund that would be funded through a dedicated funding source, rather than through appropriations, and that would be focused on increasing the supply of rental housing available to households at the lowest end of the income spectrum. The Capital Magnet Fund, which is administered by the Department of the Treasury's Community Development Financial Institutions (CDFI) Fund, provides competitive funding to nonprofit housing organizations for affordable housing primarily for low-, very low-, and extremely low-income households. A major goal of the Capital Magnet Fund is to leverage the funds to attract additional funding for affordable housing development. Both the Housing Trust Fund and the Capital Magnet Fund were to be funded through contributions from Fannie Mae and Freddie Mac. Specifically, the GSEs were directed to contribute 4.2 basis points (that is, 0.042%, or .042 cents for each dollar) of the unpaid principal balance of the new mortgages they purchased each year. Ultimately, 65% of those contributions were to go to the Housing Trust Fund and 35% to the Capital Magnet Fund. However, the law also required the Director of FHFA to suspend the contributions under certain circumstances related to the GSEs' financial status. In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship, where they have remained since. In November of that year, just a few months after HERA had been enacted, FHFA directed Fannie Mae and Freddie Mac to suspend their contributions to the affordable housing funds. Neither GSE had begun making contributions at the time that the contributions were suspended. The Housing Trust Fund has not received any funding to date. The Capital Magnet Fund received one appropriation, in FY2010, for $80 million, which is the only funding it has received to date. The following subsections describe in more detail the structure of the Housing Trust Fund and the Capital Magnet Fund, respectively, based on current law and regulations. Housing Trust Fund The Housing Trust Fund would provide funds to states to use to increase housing opportunities for extremely low-and very low-income renters and homeowners. The funds would be distributed by formula. By statute, the formula takes into account several factors related to a state's need for housing that is affordable to very low- and extremely low-income households. Specifically, the formula takes into account the relative number of affordable standard rental units available to extremely low-income renter households in a state (this factor is given "priority emphasis"); the relative number of affordable standard rental units available to very low-income renter households in a state; the relative number of extremely low-income renter households living in homes that lack complete kitchen or plumbing facilities, experiencing overcrowding (more than one person per room), or spending more than 50% of income on housing costs in the state; and the relative number of very low-income renter households spending more than 50% of income on rent in a state. The sum of these factors would then be multiplied by the relative cost of construction in the state to arrive at a grant amount. Each state, by statute, would receive a minimum grant amount of $3 million. States could designate an entity, such as a housing finance agency, a housing and community development agency, or a tribally designated housing entity, to administer funds that it received from the Housing Trust Fund. The state grantee would ultimately award funds to recipients, which would be for-profit or nonprofit organizations with relevant affordable housing experience. Funds from the Housing Trust Fund must be used primarily to provide rental housing for extremely low- and very low-income families. Funds could be used to produce, preserve, rehabilitate, or operate rental housing, or to produce, preserve, or rehabilitate homeownership housing (including activities such as providing down payment assistance). At least 80% of a state's grant amount would have to be used for rental housing, and no more than 10% could be used for homeownership. (Based on HUD's proposed rule on the program, up to 10% of a grant amount could be used for administrative costs.) All funds would have to be used to benefit households that are at least very low-income, and the majority of the funding would have to be used to benefit households that have extremely low incomes. Specifically, at least 75% of amounts used for rental housing would have to be used to benefit households that are extremely low-income, while the remainder of funds used for rental housing and any funds used for homeownership could be used to benefit households that are very low-income. By statute, no funds could be used for political activities, advocacy, lobbying, counseling services, travel expenses, or preparing or providing advice on tax returns. Capital Magnet Fund Unlike the Housing Trust Fund, which would provide funds via formula, the Capital Magnet Fund provides competitive funds to affordable housing organizations. To be eligible for funding, an organization must be a CDFI or a qualified nonprofit organization that has the development or management of affordable housing as one of its principal purposes. The Capital Magnet Fund is intended to leverage private capital and support for investment in housing primarily for low-, very-low, and extremely low-income households. Similarly to the Housing Trust Fund, funds from the Capital Magnet Fund can be used to develop, preserve, rehabilitate, or purchase affordable housing. Unlike the Housing Trust Fund, funds from the Capital Magnet Fund can also be used to help finance economic development activities or community service facilities (such as day care centers or health clinics). Funds from the Capital Magnet Fund must primarily benefit low-income households (including very low- and extremely low-income households); no specific amount must be used to benefit very low- or extremely low-income households. An interim rule published by Treasury requires that awardees using funds for affordable housing activities must ensure that more than 50% of eligible project costs (i.e., costs funded through the Capital Magnet Fund or related leveraged funds) are used for housing that is affordable to low-, very low-, and extremely low-income households, and that all eligible project costs are used for housing that is affordable to households with incomes no higher than 120% of AMI. A major focus of the Capital Magnet Fund is to leverage funding for affordable housing activities. Therefore, the statute directs the Treasury Secretary to seek to fund projects that will have total costs that are at least 10 times the amount of funds received from the Capital Magnet Fund. Some of the types of activities that can be funded include capitalizing revolving loan funds or affordable housing funds, providing loan loss reserves, and offering risk-sharing loans. Treasury limited the amount of an awardee's grant that can be used for economic development or community service facilities to 30%, and limited the amount that can be used for administrative expenses to 5%. Like the Housing Trust Fund, the statute prohibits funds from being used for political activities, advocacy, lobbying, travel expenses, preparing or providing advice on tax returns, or counseling. Although the Capital Magnet Fund has never received funding from the GSEs, it has received funding once, through a discretionary appropriation of $80 million in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). The CDFI Fund received 230 applications for that funding, requesting a total of $1 billion. Ultimately, 23 grantees in 14 states received grants in amounts ranging from $500,000 to $6 million. Nine of the awardees were CDFIs, 13 were nonprofit housing organizations, and one was a tribal housing authority. The funds were expected to potentially serve households in 38 states and the District of Columbia. Fourteen of the awardees, and more than 20% of the funds awarded, were expected to serve non-metropolitan areas. While the Housing Trust Fund and the Capital Magnet Fund share a similar purpose—expanding the supply of affordable housing for lower-income households—there are several differences between the two programs. These include differences in how the funds are distributed, the income groups they target, and the degree to which they focus on rental or homeownership housing. Table 3 at the end of this report summarizes some of the major differences between these two programs under current law. Effectiveness of GSE Affordable Housing Goals Much of the research on the GSEs' support for affordable housing focuses on the extent to which the GSEs increase homeownership rates for certain segments of the market. Some analysts, however, take a broader perspective on the GSEs' affordable housing initiatives, arguing that the GSEs' support for affordable housing had severe negative effects for the broader economy. In his dissent to the Financial Crisis Inquiry Commission, Peter Wallison contends that the government's efforts to increase homeownership for low- and moderate-income households through the GSEs and other channels led to perverse incentives, which "caused underwriting standards to decline, increased the numbers of weak and high risk loans far beyond what the market would produce without government influence, and contributed importantly to the growth of the 1997-2007 housing bubble." By directing the GSEs to have a larger share of their business focus on lower-income borrowers, the argument goes, the government gave lenders the incentive to make riskier loans because those lenders knew they would be able to sell some or all of those loans to the GSEs. Furthermore, to the extent that some of these loans resulted in foreclosure, the goals could have resulted in financial harm to the population they were designed to help. The role of the GSEs in the financial crisis is a contested issue, a full discussion of which is beyond the scope of this report. However, one of the narrower questions that is a part of the argument made by Wallison and others—to what extent did the GSEs' affordable housing goals lead to increased lending to low-income households?—has been widely examined in the research literature and may be useful in assessing the legislative proposals described later in this report. The general consensus of the research literature is that the GSEs appear to have had a limited effect on lending to low-income households. A 2007 speech by former Chairman of the Federal Reserve Ben Bernanke cited a study by Dwight Jaffe and John Quigley which concluded that a "substantial literature has now developed analyzing the efficacy of HUD housing goals for promoting home ownership among lower-income families. The consensus conclusion is that the affordable housing goals (AHGs) have achieved very little in terms of increasing homeownership among low-income families." (The goals are referred to as "HUD housing goals" because HUD set the numerical targets at the time.) Similarly, a 2011 paper by Karen Dynan and Ted Gayer of the Brookings Institution summarized in more detail recent analyses of the GSEs and affordable housing: As for the benefits of assigning the GSEs an affordable housing mission, the available evidence suggests that the GSEs—despite meeting their affordable housing goals—had only limited effects on the supply of affordable housing (Congressional Budget Office, 2010). In a case study of underserved markets in the Cleveland area, Freeman, Galster, and Malega (2006) found little relationship between the degree of GSE secondary-market purchases of mortgages and home price appreciation. Gabriel and Rosenthal (2005) presented evidence suggesting that almost all of the sizable increase in homeownership in the 1990s can be attributed to household characteristics rather than policies to lift credit barriers. Bostic and Gabriel (2006) studied the effects of GSE activities on homeownership rates, vacancy rates, and median house values in California, and found only limited evidence of improved housing market performance. Other studies suggesting that the GSEs have not had a significant or sizable impact on homeownership among low-income and other underserved families include Feldman (2002) and Ambrose and Thibodeau (2004). In addition, two staff working papers by the Federal Reserve analyzed the effect of the Underserved Areas Goal (one of the affordable housing goals in place prior to HERA). Bhutta concluded that the Underserved Areas Goal "has had only a limited effect on GSE purchases and total mortgage credit flow" while Bolotnyy—using a more comprehensive data set—found a smaller effect on affordable housing than Bhutta. Levitin and Ratcliffe, taking a broader perspective on efforts to support affordable housing, analyzed the GSEs' housing goals and the Community Reinvestment Act (CRA), which is intended to incentivize banks to provide credit in low- and moderate-income neighborhoods. The authors argue that though the efforts may have had a positive but modest effect on expanding credit availability, they "may have affected the credit availability in [low-to-moderate income] and minority communities in a qualitative manner. If [the housing goals and CRA] did not exist, there would likely be housing finance available, but less of it, and it would be qualitatively different." The studies cited above analyzed the pre-HERA goals' effects on homeownership. It is possible that the goals instituted by HERA may be more effective and better target low-income households. A 2010 study by CBO, however, notes that the mechanism through which the GSEs support homeownership (reducing interest rates) may not be the most effective in helping low-income households because down payment requirements may be more of a barrier to homeownership for lower-income families making their first home purchase: "Mortgage purchases that satisfy the goals for low- and moderate-income borrowers help those borrowers by reducing the interest rates they pay and by making credit more available than it would be otherwise. But small reductions in interest rates have only marginal effects on rates of home ownership, in part because down payments appear to be a bigger obstacle for first-time buyers." Legislative Proposals As Congress considers different proposals to reform the housing finance system, it is faced with several broad questions related to affordable housing. Among other things, some of these questions may include the following: Should any entity that replaces the GSEs be required to support affordable housing in some way or should any federal support for affordable housing be left to existing government programs? If a new entity is required to support affordable housing, what form should that support take? To the extent that a new entity supports affordable housing, should that support be geared towards rental housing, homeownership, or both? To the extent that a new entity supports affordable housing, should that support target specific market segments, such as certain types of households (e.g., low-income households or moderate-income households), certain geographic areas (e.g., rural areas or low-income or minority neighborhoods) or certain types of housing (e.g., manufactured housing or preservation of affordable rental units)? To the extent that a new entity supports affordable housing, should that support be provided directly, encouraged through incentives for the private market to serve certain types of market segments, or provided through some other approach? The different answers to these questions have led to different policy proposals. This section analyzes the affordable housing provisions of three of the more prominent housing finance reform proposals: the PATH Act ( H.R. 2767 ), the Johnson-Crapo GSE Reform Proposal, and the HOME Forward Act proposal. While the PATH Act has been introduced, the other proposals have been released as discussion drafts as of the date of this report. PATH Act The PATH Act proposes to wind down the GSEs over several years. It would replace them with a National Mortgage Market Utility that would facilitate private market mortgage securitization but would not provide a government guarantee. The PATH Act would retain in a modified form the existing government mortgage insurance programs, such as FHA. The act would also eliminate or delay the implementation of certain existing regulations that some believe are inhibiting the recovery in the mortgage market. In addition, the PATH Act proposes to reform FHA by, among other things, making it an independent agency and taking steps intended to improve its finances, better target its role in the mortgage market, and increase the amount of private capital in the market. As part of its wind down of the GSEs, the PATH Act would repeal the GSEs' affordable housing goals, its contributions to the affordable housing funds, and the statutory authorization for the Housing Trust Fund. The newly created National Mortgage Market Utility would not have a mandate to support affordable housing. Rather, support for affordable rental housing would be provided through existing housing programs, such as those administered by HUD, and support for affordable homeownership would be provided through FHA. Under the PATH Act, a reformed FHA would continue to support low- and moderate-income and first-time homebuyers, and would be the primary federal source of such support. The bill would enumerate a number of purposes for a newly independent FHA, including some that are related to serving underserved markets. Among other things, FHA's purposes would be to "supplement private sector activity by serving hard-to-serve markets, developing new mortgage products, and filling gaps in the provision and delivery of mortgage credit," and to "engage in research, development, and testing of new products designed to make single-family and multifamily housing and residential health care facility credit available to hard-to-serve markets." The bill would also require FHA to establish affordability requirements for FHA-insured multifamily mortgages to ensure that FHA multifamily insurance "contributes to the financing of affordable housing for low- and moderate-income families." Johnson-Crapo GSE Reform Proposal The Johnson-Crapo GSE Reform Proposal would wind down Fannie Mae and Freddie Mac and would replace FHFA with a new agency, the Federal Mortgage Insurance Corporation (FMIC). The FMIC would be an independent agency charged with supporting the mortgage market and providing reinsurance on eligible mortgage-backed securities (MBS). These MBS would have an explicit government guarantee. The FMIC would only pay out on its guarantee after a significant amount of private capital absorbed the first losses. In addition, the FMIC would regulate aspects of the mortgage market related to its guaranteed MBS and would establish a new multifamily housing finance system. The proposal also contains multiple provisions, some of which are described below, related to affordable housing. Housing Funds. The Johnson-Crapo GSE Reform Proposal would repeal Fannie Mae's and Freddie Mac's affordable housing goals. The goals would be replaced with an annual fee on the MBS that would be directed to three different funds. The fee, which would on average be 10 basis points of the total outstanding principal balance of guaranteed MBS (compared with 4.2 basis points under current law), would be structured to provide participants with the incentive to focus more of their business on underserved market segments (such as traditionally underserved areas, including rural and urban areas, manufactured housing, and low- and moderate-income creditworthy borrowers). Participants that did relatively more of their business with underserved market segments would be charged a lower fee than those participants who did less business with underserved market segments. FMIC would allocate 75% of the collected fees to HUD's Housing Trust Fund, 15% to Treasury's Capital Magnet Fund, and 10% to a newly created Market Access Fund. The Housing Trust Fund would be modified to provide for a set-aside of funds to be awarded competitively to tribes to use for affordable housing activities that are eligible uses of funds under the Native American Housing Assistance and Self-Determination Act (NAHASDA). The Housing Trust Fund would also be amended to increase the minimum amount that would be allocated to each state. The Capital Magnet Fund would be modified to make clear that the housing needs of tribes would also be considered. The new Market Access Fund would provide funds to support research and development or credit support for affordable homeownership and rental housing activities that largely benefit low- and moderate-income households (including very low- and extremely low-income households) and underserved or hard-to-serve populations. Specifically, grants from the Market Access Fund could be used for grants and loans for research, development, and testing of mortgage innovations or consumer education. credit support for eligible mortgages or mortgage-backed securities, such as providing a portion of the capital necessary to obtain FMIC insurance. Credit support could not replace borrower funds required to be contributed to the mortgage. grants, loans, and pilot programs for research and development of affordable rental and homeownership programs, including manufactured housing, as long as these funds are only used to benefit households at or below 120% of area median income. limited credit enhancement or other credit support for products and services that will increase the rate of sustainable homeownership and affordable rental housing (including manufactured housing) for households at or below 120% of area median income that might not otherwise be supported by a pilot program large enough to determine whether such a product is viable in the private market. housing counseling by HUD-approved housing counseling agencies. incentives to achieve broader mortgage credit access, such as by further reducing the incentive-based fees charged to participants that are active in underserved areas. The chairperson of the FMIC would be required to report to Congress each year on the performance and outcomes of activities funded through the Market Access Fund. Consistent with current law, funds from the affordable housing funds could not be used for certain prohibited purposes, including political activities, advocacy, and lobbying. The bill would add criminal and civil penalties on entities that used funds for activities that are prohibited by the statute. FMIC Purposes and Duties. FMIC would have as one of its listed purposes to "facilitate the broad availability of mortgage credit and secondary mortgage market financing through fluctuations in the business cycle for eligible single-family and multifamily lending across all—(A) regions; (B) localities; (C) institutions; (D) property types, including serving renters; and (E) eligible borrowers." FMIC would also have as one of its principal duties to ensure that entities that it approves to participate in the system "maintain the capacity" to facilitate the broad availability of mortgage credit as described above. Office of Consumer and Market Access. The Office of Consumer and Market Access (OCMA) would be established within FMIC. OCMA would administer the Market Access Fund. It would also monitor housing finance markets and coordinate with federal agencies regarding affordable housing. OCMA would write an annual report that assessed how well the government-guaranteed portion of the market was supporting borrowers, especially borrowers in underserved markets, and provided recommendations for actions to address deficiencies in credit availability. OCMA would also perform a biennial study on incentives to encourage lenders to address underserved markets and communities. It would also consult with the Federal Home Loan Banks and other entities that support small lenders on ways to address housing needs of underserved markets and communities. Underserved Market Segments. The FMIC would identify not more than eight segments of the mortgage market (called underserved market segments) in which lenders and eligible borrowers have been determined to lack equitable access to the FMIC-guaranteed market. The list of underserved market segments may include traditionally underserved areas, including rural and urban areas, manufactured housing, small balance loans, low- and moderate-income creditworthy borrowers, preservation of existing housing stock created by state or federal laws, and affordable rental housing. FMIC would require each approved guarantor and aggregator participating in the FMIC-guaranteed system to submit an annual report on the actions it has taken to provide credit to the underserved market segments. FMIC, however, "shall not interfere with the exercise of business judgment of an approved aggregator or approved guarantor in determining which specific mortgage loans to include" in the MBS guaranteed by FMIC. Multifamily. The multifamily system created by the Johnson-Crapo GSE Reform Proposal would have affordability requirements intended to increase the supply of affordable rental housing. Each approved guarantor would ensure that at least 60% of the rental housing units in the mortgage loans that collateralize the FMIC-guaranteed multifamily MBS would be affordable to low-income families at the time the mortgages were originated. The FMIC may suspend or adjust the 60% level during a period of unusual and exigent market conditions, during adverse market conditions, or pursuant to a request made by an approved guarantor. Comparison to the GSEs' Three Channels . The proposal would repeal the GSEs' affordable housing goals with the only remaining numerical target being the affordability requirement for multifamily. The 60% target is similar to the affordability levels currently provided for multifamily by the GSEs. The proposal does not have the same duty to serve requirement to "provide leadership to the market... for very low-, low-, and moderate-income families" in specific underserved markets. But the FMIC does have as one of its listed purposes and principal duties to "facilitate the broad availability of mortgage credit." The FMIC would also identify underserved market segments, which could be a broader group of segments than in the GSEs' duty to serve requirement, and would require certain approved entities to submit an annual report on the actions it has taken to provide credit to the underserved market segments. The proposal would keep in a modified form the Housing Trust Fund and Capital Market Fund , establish the Market Access Fund, and increase the contributions to the funds to an average of 10 basis points (from 4.2 basis points under current law). The funding would come from incentive based fees rather than the flat fee charged to the GSEs. Although the average fee would be higher under the Johnson-Crapo reform proposal than under current law, the total amount of money allocated to the affordable housing funds would depend on the dollar volume of mortgages that would be guaranteed by the FMIC. HOME Forward Act The HOME Forward Act would wind down Fannie Mae and Freddie Mac and would replace FHFA with a new agency, the National Mortgage Finance Administration (NMFA). The NMFA would be an independent agency charged with providing access to affordable mortgage credit and protecting taxpayers from absorbing losses. The NMFA would provide reinsurance and an explicit government guarantee on MBS issued by a new entity, the Mortgage Securities Cooperative (MSC), using a common securitization platform. The NMFA would only pay out on its guarantee after a significant amount of private capital absorbed the first losses, including the capital held by the MSC. In addition, the NMFA would regulate aspects of the mortgage market related to its guaranteed MBS and would establish a new multifamily housing finance system as well. The proposal also contains multiple provisions, some of which are described below, related to affordable housing. Housing Funds. The HOME Forward Act would repeal Fannie Mae's and Freddie Mac's affordable housing goals. The goals would be replaced with an annual fee on the MBS that would be directed to three different funds. The fee would be 10 basis points for each dollar of outstanding mortgages collateralizing securities issued by the common securitization platform. The NMFA would allocate 75% of the collected fees to the Housing Trust Fund, 15% to the Capital Magnet Fund, and 10% to a newly established Market Access Fund. The Housing Trust Fund would be modified to ensure that a certain amount of funds would be allocated to rural areas. It would also be modified to specify that no more than 5% of the funds allocated to the Housing Trust Fund could be used for homeownership activities, compared with 10% under current law. The Capital Magnet Fund would be unchanged. The Market Access Fund is intended to promote innovation in housing finance and affordability by providing grants and loans, including through pilot programs, to support the research and development of sustainable homeownership and affordable rental programs so long as the funds are for the benefit of families with incomes at or below 120% of AMI. providing limited credit enhancement and other credit support for products and services that could increase homeownership and affordable rental housing for families with incomes at or below 120% of AMI and might not otherwise be available on a sufficient scale to determine their viability. providing grants and loans to redevelop abandoned and foreclosed properties in areas of greatest need. Consistent with current law, funds from the Housing Trust Fund and the Capital Magnet Fund could not be used for certain prohibited purposes, including political activities, advocacy, and lobbying. The bill would add criminal and civil penalties on entities that used funds for activities that are prohibited by the statute. Purposes and Responsibilities. The NMFA would have one of its purposes and its responsibilities be to provide access to affordable mortgage credit. The MSC would also have a responsibility and duty to "facilitate a robust secondary market for eligible mortgages across the spectrum of creditworthy borrowers, including borrowers in underserved rural and urban markets." The NMFA would establish guidelines or rules for evaluating the MSC's compliance with its responsibility. If the MSC refuses to comply, the NMFA may enforce compliance and issue a cease-and-desist order and impose civil money penalties. Multifamily. As part of the multifamily system established by the MSC, there would be the expectation that "to the maximum extent practicable, at least 60 percent of the total dwelling units financed by mortgages purchased by the Multifamily Platform must be affordable to households earning not in excess of 80 percent of area median income." Comparison to the GSEs' Three Channels. The proposal would repeal the GSEs' affordable housing goals with the only remaining numerical target being the affordability requirement for multifamily. The 60% target is similar to the affordability levels currently provided for multifamily by the GSEs. The proposal does not have the same duty to serve requirement to "provide leadership to the market... for very low-, low-, and moderate-income families" in specific underserved markets. But the NMFA would have one of its purposes and its responsibilities be to provide access to affordable mortgage credit. The MSC would also have a responsibility and duty to "facilitate a robust secondary market for eligible mortgages across the spectrum of creditworthy borrowers, including borrowers in underserved rural and urban markets." The act would keep in a modified form the Housing Trust Fund and Capital Market Fund , establish the Market Access Fund, and the contributions to the funds to 10 basis points (from 4.2 basis points under current law). Although the fee would be higher under the HOME Forward reform proposal than under current law, the total amount of money allocated to the affordable housing funds would depend on the dollar volume of mortgages that would be securitized through the system. Comparison of Affordable Housing Funds in the Johnson-Crapo and HOME Forward Proposals The affordable housing fund provisions included in the Johnson-Crapo proposal and the HOME Forward proposal are broadly similar in both proposals, although there are some differences in the details. Both the Johnson-Crapo and HOME Forward proposals would increase the average fee charged to fund the affordable housing funds, to 10 basis points from 4.2 basis points. The HOME Forward Act would charge a flat fee of 10 basis points, while the Johnson-Crapo proposal would charge an incentive-based fee that would average 10 basis points but would differ for different entities according to the amount of business they did in underserved market segments. Both proposals would allocate the same share of funding to each of the affordable housing funds. Both increase the share of funding allocated to the Housing Trust Fund (to 75% of contributions, compared with 65% under current law), decrease the share of funding allocated to the Capital Magnet Fund (to 15% from 35% under current law), and direct 10% of contributions to a new Market Access Fund. Figure 1 and Figure 2 show the allocations of funds under current law and the allocations of funds under these two proposals, respectively. The Johnson-Crapo proposal includes provisions to provide access to funds for tribes (through a set-aside of funds to be distributed competitively to tribes under the Housing Trust Fund, and language providing that tribal areas be considered in awarding funds under the Capital Magnet Fund), while the HOME Forward proposal includes provisions insuring that rural areas receive a certain amount of funds under the Housing Trust Fund. Both proposals would establish a new Market Access Fund, with a broadly similar purpose, although there are some differences in the specific eligible activities in each proposal. For example, the HOME Forward proposal would allow funds from the Market Access Fund to be used to redevelop abandoned and foreclosed properties, while the Johnson-Crapo proposal would allow funds from the Market Access Fund to be used for housing counseling and to provide incentives to market participants to serve underserved areas. Under both proposals, certain eligible activities under the Market Access Fund would be required to benefit households with incomes no higher than 120% of AMI. Table 3 compares the major features of the Housing Trust Fund and the Capital Magnet Fund under current law and these proposals with the proposed Market Access Fund.

Congress is considering different approaches to reforming the housing finance system. One of the major policy issues to emerge concerns the role of the federal government in supporting affordable housing for low- and moderate-income households. Much of this debate centers on Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). As GSEs, Fannie Mae and Freddie Mac are hybrid entities, private companies with congressional charters that contain special privileges and certain responsibilities to support affordable housing. Some argue that the hybrid nature of the GSEs—private companies with a public mission—leads to perverse incentives and, therefore, the government should instead support affordable housing primarily through existing government programs or agencies, such as the Federal Housing Administration (FHA). Others argue that the perverse incentives can be realigned such that private companies could be encouraged to support affordable housing in a responsible manner. The GSEs' business model is intended to provide support to the broader mortgage market, but they take certain required actions that are geared primarily toward assisting low- and moderate-income households. The ways in which the GSEs currently support housing that is affordable to low- and moderate-income households provide one potential baseline to compare recent legislative proposals. This report discusses three major channels of support. First, since 1992 the GSEs have provided support through affordable housing goals mandated by Congress. The goals are numerical standards in which each GSE is required to dedicate a certain amount of its business on specified types of low-income borrowers and underserved areas. Second, in 2008 Congress also established for the GSEs a duty to serve requirement. Under the duty to serve requirement, the GSEs are required to provide leadership to assist low-income households in certain market segments: manufactured housing, affordable housing preservation, and rural markets. Third, in 2008 Congress also directed the GSEs to make contributions to two affordable housing funds, the Housing Trust Fund and the Capital Magnet Fund. The funds were intended to increase the supply of housing affordable to low-income households. The duty to serve regulation has not been finalized and the housing funds have not received contributions from the GSEs since the GSEs were placed into conservatorship. Although three of the more prominent housing finance reform proposals—the Johnson-Crapo GSE Reform Proposal, the Housing Opportunities Move the Economy Forward Act proposal (HOME Forward Act), and the Protecting American Taxpayers and Homeowners Act (PATH Act, H.R. 2767)—would repeal the affordable housing goals and wind down the GSEs, they offer different approaches to supporting affordable housing in a reformed system. The PATH Act would not have a mandate or requirement for private actors to support affordable housing and would leave the support to existing government agencies and programs. The Johnson-Crapo GSE Reform Proposal and the HOME Forward Act differ in their details but offer similar approaches; they would impose a fee on certain mortgage-backed securities and direct that fee to the Housing Trust Fund, Capital Magnet Fund, and a newly established Market Access Fund. They would also have, among other provisions, affordability requirements in their proposed multifamily finance systems. This report explains the ways in which the GSEs currently support affordable housing and describes the different affordable housing approaches contained in the reform proposals.

Introduction Seclusion and restraint have been used in various situations to deal with violent or noncompliant behavior. One of the most common settings for their use has been psychiatric hospitals, but seclusion and restraint have also been used in other residential facilities and in schools. Because of congressional interest in the use of seclusion and restraint in schools, this report focuses on the legal issues concerning the use of these techniques in schools, including their application both to children covered by the Individuals with Disabilities Education Act (IDEA) and to those not covered by IDEA. Background Several reports have documented instances of deaths and injuries resulting from the use of seclusion or restraints in schools but until the Department of Education (ED) issued reporting requirements in March 2010, there was no general reporting requirement. On May 19, 2009, the Government Accountability Office (GAO), in conjunction with a hearing in the House Education and Labor Committee, released a study examining the use of seclusion and restraint in the education setting, finding hundreds of cases of alleged abuse and death due to the use of seclusion and restraint. GAO also examined state laws and noted that it "could not find a single Web site, federal agency, or other entity that collects information on the use of these methods or the extent of their alleged abuse." On March 16, 2010, the Office of Civil Rights of the Department of Education added seclusion and restraint data to its collection of educational information. On July 31, 2009, the Secretary of Education sent letters to Chief State School Officers noting the problems identified by the GAO report and in the May 19 hearing in the House Education and Labor Committee. The Secretary encouraged each state to review its current policies regarding the use of restraints and seclusion in schools and, if appropriate, develop or revise the policies prior to the start of the 2009-2010 school year. He noted the approach used in Illinois, which includes an emphasis on the use of positive behavior intervention and supports, and concluded by stating that the Chief State School Officers would be contacted by ED by August 15, 2009, to discuss relevant state laws, regulations, policies, and guidance. The results of these discussions are posted on ED's website. Generally, the information from the states indicates varied approaches to the use of seclusion and restraint. Federal law does not contain general provisions relating to the use of seclusion and restraint, and currently there are no specific federal laws concerning the use of seclusion and restraint in public schools. However, certain uses of seclusion and restraint in health care facilities that receive federal funds and in certain non-medical, community-based facilities for children and youth are prohibited by the Children's Health Act of 2000. The Individuals with Disabilities Education Act requires a free appropriate public education for children with disabilities, and an argument could be made that some uses of seclusion and restraint would violate this requirement. In addition, certain procedures may violate constitutional rights or state laws. In the 111 th Congress, H.R. 911 , a bill that would prohibit some use of seclusion and restraint in certain residential programs for children, passed the House on February 23, 2009. Legislation specifically regarding the use of seclusion and restraint in public and private schools, H.R. 4247 , S. 2860 , and S. 3895 , 111 th Congress, has been introduced, and H.R. 4247 passed the House on March 3, 2010. Definitions Prior to examining legal principles involved in the use of seclusion and restraint in school, it is helpful to define the terms. The terms have been defined by the Department of Education for the purposes of the 2009-10 Civil Rights Data Collection. Seclusion is defined by ED as: [t]he involuntary confinement of a student alone in a room or area from which the student is physically prevented from leaving. It does not include a timeout, which is a behavior management technique that is part of an approved program, involves the monitored separation of the student in a non-locked setting, and is implemented for the purpose of calming. ED defines restraint for the purposes of the 2009-10 Civil Rights Data Collection as including two parts: physical restraints and mechanical restraints. Physical restraints are defined as: A personal restriction that immobilizes or reduces the ability of a student to move his or her torso, arms, legs, or head freely. The term physical restraint does not include a physical escort. Physical escort means a temporary touching or holding of the hand, wrist, arm, shoulder or back for the purpose of inducing a student who is acting out to walk to a safe location. Mechanical restraints are defined as: The use of any device or equipment to restrict a student's freedom of movement. The term does not include devices implemented by trained school personnel, or utilized by a student that have been prescribed by an appropriate medical or related services professional and are used for the specific and approved purposes for which such devices were designed, such as: •    Adaptive devices or mechanical supports used to achieve proper body position, balance, or alignment to allow greater freedom of mobility than would be possible without the use of such devices or mechanical supports; •    Vehicle safety restraints when used as intended during the transport of a student in a moving vehicle; •    Restraints for medical immobilization; or •    Orthopedically prescribed devices that permit a student to participate in activities without risk of harm. There is no specific federal statutory definition of the terms as used in school settings, although the terms have been defined in the context of community-based facilities for children and youth under the Children's Health Act of 2000. For community-based facilities, seclusion is defined as the involuntary confinement of an individual alone in a room or an area from which the person is physically prevented from leaving. Restraint is defined as a manual method, physical or mechanical device, material, or equipment, that immobilizes or reduces an individual's freedom of movement. Constitutional Issues At times, the use of seclusion and restraint in public schools has been subject to constitutional challenge. Such challenges have primarily been based upon the Fourteenth Amendment's guarantee of due process and the Fourth Amendment's prohibition against unreasonable seizures, although other types of constitutional claims have been asserted at times. The Due Process clause of the Fourteenth Amendment prohibits the government from depriving an individual of his liberty without due process of the law. Although the Supreme Court has not directly considered whether the use of seclusion and restraint in public schools violates the Due Process Clause, the Court has considered a related case involving restraint of a mentally retarded adult confined to a state hospital. In Youngberg v. Romeo , the Court applied a reasonableness standard, holding that there is a constitutionally protected liberty interest in reasonably safe conditions of confinement and freedom from unreasonable bodily restraint. However, in order to determine what is reasonable, courts must defer to the judgment of qualified professionals. In the public school setting, due process challenges to the use of seclusion and restraint have generally been rejected if such tactics are deemed to be reasonable, especially if such use constitutes a routine disciplinary technique. For example, in Wallace by Wallace v. Bryant Sch ool Dist rict , the court held that the plaintiff's isolation in a music room for three class periods was not a due process violation, and in Dickens v. Johnson County B oar d of Educ ation , the court similarly rejected a due process challenge to a brief "timeout" imposed on a student because his seclusion "was not unduly harsh or grossly disproportionate." In some cases, however, the use of seclusion and restraint may be actionable under the Due Process Clause if it is found to be unreasonable. Courts are even more likely to find the use of seclusion and restraint to be unreasonable if such use is so extreme that it "shocks the conscience." Although many of these cases involve more extreme disciplinary methods, such as corporal punishment, there have been some cases that involve seclusion and restraint. In Orange v. County of Grundy , the court declined to dismiss a substantive due process claim, ruling that "placing school children in isolation [in a storage closet] for an entire school day without access to lunch or a toilet facility 'shocks the conscience.'" Indeed, the court emphasized that the use of seclusion must be reasonable, and school officials bear the responsibility to supervise students who are in isolation. Ultimately, however, the due process inquiry, and the reasonableness standard upon which it relies, are subjective and highly dependent on the facts in a given case, thus making it difficult to predict the outcome of a due process challenge to the use of seclusion and restraint in public schools. Meanwhile, some plaintiffs have also claimed that the use of seclusion and restraint violates the Fourth Amendment, which prohibits the government from subjecting individuals to "unreasonable searches and seizures." As with due process claims, courts assess such Fourth Amendment claims using a reasonableness standard. For example, in Rasmus v. Arizona , the court refused to dismiss a student's claim that his brief seclusion in a locked closet constituted a seizure in violation of the Fourth Amendment, reasoning that the seizure could be considered unreasonable because it violated the fire code and behavior management guidelines. In contrast, the court in Couture v. Board of Education of the Albuquerque Public Schools found that the use of supervised timeouts for a student who engaged in disruptive and threatening behavior was reasonable, particularly in light of the fact that the use of timeouts was authorized by the student's Individualized Education Plan (IEP). Ultimately, like due process cases, the resolution of Fourth Amendment claims involving the use of seclusion and restraint generally depends on the facts of a given case, with a violation unlikely to be found except in cases involving excessive or unreasonable uses of such tactics. Finally, it is important to note that constitutional claims have, in some cases, been limited by courts that may be reluctant to find constitutional violations for actions that could ordinarily be remedied under state tort law. For example, in Ingraham v. Wright , the Supreme Court acknowledged that "corporal punishment in public schools implicates a constitutionally protected liberty interest" under the Due Process Clause, but the Court nevertheless held that "the traditional common-law remedies are fully adequate to afford due process." Thus, remedies for the unlawful use of seclusion and restraint should also be sought under state tort law. Individuals with Disabilities Education Act Statutory Provisions The Individuals with Disabilities Education Act (IDEA) is the major federal statute for the education of children with disabilities. IDEA both authorizes federal funding for special education and related services and, for states that accept these funds, sets out principles under which special education and related services are to be provided. The requirements are detailed, especially when the regulatory interpretations are considered. The major principles include the following requirements: States and school districts make available a free appropriate public education (FAPE) to all children with disabilities, generally between the ages of 3 and 21. States and school districts identify, locate, and evaluate all children with disabilities, regardless of the severity of their disability, to determine which children are eligible for special education and related services. Each child receiving services has an individual education program (IEP) spelling out the specific special education and related services to be provided to meet his or her needs. The parent must be a partner in planning and overseeing the child's special education and related services as a member of the IEP team. "To the maximum extent appropriate," children with disabilities must be educated with children who are not disabled; and states and school districts provide procedural safeguards to children with disabilities and their parents, including a right to a due process hearing, the right to appeal to federal district court, and, in some cases, the right to receive attorneys' fees. IDEA provides that when the behavior of a child with a disability impedes the child's learning or the learning of others, the IEP team must consider "the use of positive behavioral interventions and supports, and other strategies, to address that behavior." Nothing in IDEA specifically addresses the use of seclusion and restraints, and the Department of Education has stated that "[w]hile IDEA emphasizes the use of positive behavioral interventions and supports to address behavior that impedes learning, IDEA does not flatly prohibit the use of mechanical restraints or other aversive behavioral techniques for children with disabilities. The Department also noted that state law may address whether restraints may be used and, if restraints are allowed, the "critical inquiry is whether the use of such restraints or techniques can be implemented consistent with the child's IEP and the requirement that IEP Teams consider the use of positive behavioral interventions and supports when the child's behavior impedes the child's learning or that of others." IDEA Judicial Decisions Involving Seclusion and Restraints The Supreme Court has not specifically addressed the use of seclusion or restraints under IDEA; however, in Honig v. Doe , the Court examined IDEA's requirements for children who exhibited violent or inappropriate behavior, and held that a suspension longer than 10 days violated IDEA's "stay-put" provision. In Honig , the Court observed that this decision "does not leave educators hamstrung" and that educators may utilize "normal procedures" which "may include the use of study carrels, timeouts, detention, or the restriction of privileges" as well as a 10-day suspension. Despite the lack of specific language in IDEA regarding the use of restraints and seclusion, cases have been brought alleging that their use violates a child's right to a free appropriate public education. In Melissa S. v. School District of Pittsburgh, the Third Circuit addressed allegations of IDEA violations involving a school's response to the child's serious behavior problems. The court noted that the child "sat on the floor kicking and screaming, struck other students, spit at and grabbed the breast of a teacher, refused to go to class, and once had to be chased by her aide after running out of the school building." In this situation, the school's use of a time-out area in an unused office where her aide and others would give her work and encourage her to go to class did not violate IDEA since it did not change the child's placement and was within normal procedures for dealing with children who were endangering themselves or others. Similarly, the Eighth Circuit in CJN v. Minneapolis Public Schools held that a third grade child with brain lesions and a history of psychiatric illness received FAPE despite extensive use of seclusion since he was progressing academically and the school had made efforts to tailor his IEP to address his behavior. A strong dissent was filed, noting the child seemed to be trapped in an increasingly punitive approach to discipline, and stating, "[w]e are essentially telling school districts that it's copacetic to deal with students with behavioral disabilities by punishing them for their disability, rather than finding an approach that addresses the problem. We also tacitly approve the District's resort to police intervention for the behavioral problems it helped create by failing to address CJN's unique behavioral disorder." Courts have examined whether the administrative exhaustion requirements of IDEA apply in situations involving the use of seclusion and restraint, generally finding that administrative exhaustion is required. For example, in C.N. v. Willmar Public Schools , the child's IEP and behavior intervention plan (BIP) allowed for the use of seclusion and restraint procedures when the child was a danger to herself or others; however, the parents alleged that these procedures were used improperly and excessively. The parents withdrew their daughter from the school and placed her in another school. After her withdrawal, the parents requested a due process hearing, challenging the adequacy of the educational services. The Eighth Circuit affirmed the district court's dismissal of the case, finding that if the parent was dissatisfied with the child's education, she must follow the IDEA due process procedures and file for a due process hearing while the child was still in the school district against which the complaint was made. Similarly, the Ninth Circuit, in Payne v. Peninsula School District , held that administrative exhaustion was required since the use of a "safe room" was included in the child's IEP, was a recognized tool under state statute, and the plaintiff did not alleged physical injuries. However, in an earlier Ninth Circuit opinion, distinguished in Payne , the court found no administrative exhaustion requirement in an action for damages for physical and emotional abuse. In a series of cases involving a special education teacher in Pennsylvania who allegedly hit, pinched, dragged, and restrained autistic students in Rifton chairs with bungee cords and/or duct tape, the district court originally did not require the exhaustion of administrative remedies. However, the court later held that, due to a subsequent court of appeals decision mandating the use IDEA administrative procedures when a violation of FAPE was alleged, exhaustion was required and the IDEA claim was dismissed. This was despite the argument that the cases differed due to the physical and emotional abuse alleged in the lower court cases. This series of cases has not yet ended as the plaintiffs have alleged constitutional violations, violations of Section 1983, and Section 504 of the Rehabilitation Act, as well as state tort claims. In Peters v. Rome City School District, although the child's mother had consented to the school's IEP which included use of a time-out room, the court found that this consent did not impact on her assertion of constitutional violations. The child's mother testified that she had not known how often the child had been placed in the room; how he was treated while there; and that the room was filthy and lacked ventilation. IDEA issues were not directly addressed in Peters since the school district had not objected to the court's failure to instruct the jury about the federal and state laws possibly allowing the use of time-out rooms. In contrast, IDEA has been used by parents in an attempt to enjoin enforcement of a New York state regulation that banned the use of "aversive interventions." Parents argued in part that "some students' IEP's were being revised without parental consent or simply not revised for the new school year, the effect of which was to deprive those students of aversive therapies." The Second Circuit vacated the district court's injunction against the regulation and remanded for further findings, noting, "We are confident that, especially given the harms that could result if the student plaintiffs' behavioral treatments are interrupted, the deficiencies in the district court's order may be expeditiously remedied." On remand, the district court upheld the regulations finding that they represented "an informed, rational choice between two opposing schools of thought on the use of aversives." State Laws and Policies Several recent studies have examined state law and policies regarding seclusion and restraints in schools, and generally have found little uniformity in coverage. The Department of Education released the results of its review of state restraint policies on February 24, 2010. This review includes references to state statutes and regulations as well as information on any planned changes. In a May 2009 study, GAO found that 19 states have no laws or regulations relating to the use of seclusion or restraints in schools, and that the states that have laws or regulations vary widely in their coverage. For example, GAO found that 7 states have provisions restricting the use of restraints but do not regulate seclusion, and 17 states require training prior to the administration of restraints. A 2007 study which surveyed state educational agencies found that 24 states had an established policy or provided guidelines concerning the use of time-out procedures. A January 2009 survey by the National Disability Rights Network examined the laws and policies of 56 states and territories and found that 41% had no laws or policies concerning restraint and seclusion, almost 90% allowed prone restraints, and 45% required or recommended that schools notify parents or guardians of the use of restraints or seclusion. The 2010 update to this report indicated that two state legislatures and six state departments of education strengthened their protections. Federal Legislation On December 9, 2009, legislation establishing minimum safety standards in schools to prevent and reduce the inappropriate use of restraint and seclusion was introduced in the House, H.R. 4247 , and the Senate, S. 2860 . The House Committee on Education and Labor reported H.R. 4247 out of the Committee on February 4, 2010, by a vote of 34 to 10. On March 3, 2010, the House passed H.R. 4247 , the "Keeping all Students Safe Act," by a vote of 262-153. On September 29, 2010, Senator Dodd with Senator Burr introduced S. 3895 . The three bills are similar in their general provisions requiring the Secretary of Education to promulgate regulations but differ in some important respects. Most significantly, S. 3895 , unlike H.R. 4247 and S. 2860 , would allow the use of physical restraint or seclusion to be written into a student's IEP plan under certain conditions. This issue is controversial. Some groups, such as the American Association of School Administrators, argue that, if the IEP cannot include such provisions, communication between schools and parents about a student's needs would be inhibited. However, the prohibition on including seclusion and restraint in an IEP is seen by others as discouraging the use of such practices. In addition, the listing of seclusion and restraint in a student's IEP or behavior intervention plan (BIP) may impact the reasoning in judicial decisions, making it more difficult for parents to argue that the use of seclusion or restraint techniques are inappropriate. H.R. 4247 , introduced by Representative George Miller and Representative Cathy Rodgers, and as passed by the House, would require the Secretary of Education to promulgate regulations "in order to protect each student from physical or mental abuse, aversive behavioral interventions that compromise student health and safety, or any physical restraint or seclusion imposed solely for purposes of discipline or convenience...." These regulations would apply to preschools and public or private schools that receive, or serve students that receive, support from federal education funding. H.R. 4247 would also prohibit the use of physical restraint or seclusion as a planned intervention from being written into the child's IEP plan, and would require state educational agencies (SEAs) to submit state plans to the Secretary of Education providing assurances that the state has in effect state policies and procedures that meet the minimum standards established by the Secretary. The Secretary would also be given authority to award grants to the SEAs to assist in establishing, implementing, and enforcing the state policies and procedures. These grants are to be awarded using competitive procedures based on merit and none of the appropriated funds may be used for a congressional earmark. H.R. 4247 would also clarify that school resource officers may use handcuffs in certain circumstances. The Congressional Budget Office has stated that enacting H.R. 4247 as reported out would not affect direct spending or revenues. S. 2860 , introduced by Senator Dodd, echoes the requirements of H.R. 4247 but is not identical. For example, the Senate bill, but not the House bill, requires notification in writing to the state protection and advocacy system of serious bodily injury or death resulting from the use of seclusion or restraint in schools. S. 3895 , introduced by Senator Dodd and Senator Burr, also would require the Secretary of Education to promulgate regulations to protect each student from any aversive behavioral intervention that compromises student health and safety, or any physical restraint or seclusion imposed solely for purposes of discipline or convenience." Under S. 3895 , these regulations must be promulgated not later than one year after enactment; H.R. 4247 would require promulgation within 180 days of enactment. In addition, unlike H.R. 4247 , S. 3895 does not forbid earmarks. However, as noted previously, the major distinction from H.R. 4247 is that S. 3895 would allow the use of physical restraint or seclusion to be written into a student's IEP plan under certain conditions.

Seclusion and restraint have been used in various situations to deal with violent or noncompliant behavior. Because of congressional interest in the use of seclusion and restraint in schools, including passage of H.R. 4247 and the introduction of S. 2860, 111th Congress, first session, this report focuses on the legal issues concerning the use of these techniques in schools, including their application both to children covered by the Individuals with Disabilities Education Act (IDEA) and to those not covered by IDEA. Several reports have documented instances of deaths and injuries resulting from the use of seclusion or restraints in schools but, until the Department of Education (ED) issued reporting requirements in March 2010, there was no general reporting requirement. On May 19, 2009, in conjunction with a hearing by the House Education and Labor Committee, the Government Accountability Office (GAO) released a study examining the use of seclusion and restraint in the education setting, finding hundreds of cases of alleged abuse and death due to the use of seclusion and restraint. On July 31, 2009, the Secretary of Education sent letters to Chief State School Officers noting the problems identified by the GAO report and in the May 19 congressional hearing, encouraging each state to review its current policies, and stating that the Chief State School Officers would be contacted by ED by August 15, 2009, to discuss relevant state laws, regulations, policies, and guidance. The results of these discussions are posted on ED's website. Federal law does not contain general provisions relating to the use of seclusion and restraints, and there are no specific federal laws concerning the use of seclusion and restraint in public schools. The Individuals with Disabilities Education Act requires a free appropriate public education for children with disabilities, and an argument could be made that some uses of seclusion and restraint would violate this requirement. In addition, certain procedures may violate constitutional rights or state laws. Although there are some judicial cases, they do not provide clear guidance on when, if ever, seclusion and restraint may be used in schools. H.R. 4247, and S. 2860, 111th Congress, first session, and S. 3895, 111th Congress, second session, would establish minimum safety standards in schools to prevent and reduce the inappropriate use of restraint and seclusion. H.R. 4247 was passed by the House on March 3, 2010.

Background and Overview Titles III and VI of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, P.L. 111-203 , address certain issues that many Members of Congress, including the major drafters of the legislation, the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs, perceived as impediments to effective regulation of the banking industry and possible contributing factors to certain aspects of the financial crisis of 2008. The version of Title III reported by the Senate Committee on Banking, Housing, and Urban Affairs, on which the final version is based, sought "to increase the accountability of the banking regulators by establishing clearer lines of responsibility and to reduce the regulatory arbitrage in the financial regulatory system whereby financial companies 'shop' for the most lenient regulators and regulatory framework." The final version takes a step in that direction by abolishing one of the regulators, the Office of Thrift Supervision (OTS), the agency which had supervisory authority over Washington Mutual and Indy Mac Bank, the failures of which represented large losses to the Deposit Insurance Fund. The act distributes the OTS functions, regulating savings associations (thrifts or savings and loans) and savings and loan holding companies. Under Title X of the bill, the Consumer Financial Protection Bureau (CFPB) will assume much of the OTS responsibility for overseeing compliance by savings and loan associations with federal consumer protection laws. Title III allocates prudential supervision among three federal regulators. The Office of the Comptroller of the Currency (OCC) will now regulate federally chartered thrifts as well as national banks; the Federal Deposit Insurance Corporation (FDIC) will now regulate state-chartered thrifts as well as state-chartered banks which are not members of the Federal Reserve System (FRS); and the Board of Governors of the Federal Reserve System (FRB) will now regulate both bank holding companies (including financial holding companies) and thrift or savings and loan holding companies, as well as state-chartered banks which are members of the Federal Reserve System (FRS). Other provisions of Title III provide for reallocation of OTS personnel and property among those agencies, with various safeguards respecting employee rights and status. Many of the provisions of Titles III and VI appear to be designed to correct perceived inadequacies in terms of the prudential regulation of banks, savings associations, bank holding companies, and savings and loan holding companies or discrepancies between the regulation of banks and savings associations. For example, there are provisions preventing depository institutions under supervisory or enforcement orders from changing their charters without full consent by the existing chartering authority and a plan for meeting the requirements of the enforcement order. There are numerous provisions requiring greater coordination among regulators and provisions enhancing the authority of FRB to oversee all of the components of holding companies. There are also provisions providing backup examination and enforcement authority in case the FRB's efforts fail to meet the standards imposed under the statute. There are various provisions designed to minimize regulatory differences applicable to different types of banking institutions and to address what have appeared to be loopholes permitting certain companies to own or control a depository institution without having to submit to consolidated regulation by the FRB under the Bank Holding Company Act (BHC Act). Miscellaneous matters addressed in Title III include changing the basis of deposit insurance assessments imposed on banks; permanently increasing deposit insurance coverage to $250,000; applying that increase retroactively to January 1, 2008; and establishing offices of Minority and Women Inclusion in the Department of the Treasury and in the federal financial regulatory agencies. Title VI contains a number of provisions designed to tighten regulation of banking activities possibly threatening the safety and soundness of depository institutions and their holding companies. There are provisions tightening the controls on transactions with affiliates, derivative and swaps operations, and lending limits. There are also restrictions on banking companies making investments in hedge funds or private equity funds or engaging in proprietary trading, patterned on a proposal by a former FRB Chairman and current Chairman of the President's Economic Recovery Advisory Board. Title III: Enhancing Financial Institution Safety and Soundness Act of 2010 Overview of Title III Title III consists of three subtitles. Subtitle A transfers the powers and duties of the OTS and establishes a transfer date for the transfers to become effective. Subtitle B provides for the transition to the new regulatory structure. Subtitle C contains several provisions affecting the FDIC and deposit insurance. Subtitle D includes various provisions including establishment of the Office of Minority and Women Inclusion within federal financial regulatory agencies and the Department of the Treasury, branching by depository institutions; and extension of temporary deposit insurance coverage of transaction accounts. What follows are summaries of sections of Title III relating to substantive changes in the regulation of depository institutions and their holding companies. Transfer of OTS Functions to the OCC, FDIC, and FRB Distribution of OTS Functions Section 311 requires that OTS functions are to be distributed to the OCC, FDIC, and FRB one year after enactment, subject to a six-month extension. Section 312 transfers the authority of OTS and the Director of OTS as follows: To the FRB, the authority to supervise, issue rules, and take enforcement actions respecting any savings and loan holding company and any of its subsidiaries, other than a depository institution; To the OCC, the authority to supervise, issue rules, and take enforcement actions respecting any federally chartered savings association or thrift; and, To the FDIC, the authority to supervise, issue rules, and take enforcement actions respecting any state-chartered savings association or thrift. Section 313 abolishes the OTS and the position of Director of the OTS effective 90 days after the transfer. Section 314 charges OCC, in addition to its other functions, with "assuring … fair access to financial services and fair treatment of customers by the institutions and other persons subject to its jurisdiction, and requires the Comptroller of the Currency to designate a Deputy Comptroller for supervising and examining federal savings associations. Transition from OTS to New Regulators Sections 315, 316, 317, 318, and 319 are essentially technical in nature. For example, they include provisions that preserve OTS regulations, orders, agreements, regulations, and law suits and establish a method for the agencies to which OTS functions are transferred to effectuate the transition. There are provisions respecting funding, contracting and leasing authority, and setting forth a procedure for the agencies to which OTS functions are transferred to assume responsibility. Sections 321, 322, 323, 324, 325, and 326 address various matters that arise during the transition period by outlining the type of consultation and cooperation to take place among the transferee agencies and the OTS with respect to payment of expenses; transfer of personnel; property and administrative services; and any other necessary actions for orderly implementation. OTS employees are to be transferred to the OCC and FDIC (and the Consumer Financial Protection Bureau) based on the functions they perform. Various provisions make allowances for employee retention rights with respect to salary and benefits, including retirement benefits. There are also provisions for transferring OTS property, contracts, and funds and for the OTS Director to wind up the affairs of the agency after the transfers have been accomplished. Report Outlining Transition Implementation Plan Section 327 requires the agencies jointly to submit, within 180 days of enactment, a plan for implementing Title III to the Senate Banking Committee and the House Financial Services Committee as well as to the Inspectors General (IGs) of Treasury, FDIC, OCC, OTS, and FRB. Within 60 days of receiving the plan, the IGs are to submit a written report on the proposed plan addressing various factors relating to the plan's fair, efficient, and orderly implementation of the requirements of the legislation. The Treasury, FDIC, and FRB IGs are to submit joint reports every six months on implementation of the plan. Deposit Insurance Fund and Enhanced FDIC Authority Assessments Based on Assets Rather Than Insured Deposits Section 331 alters the basis on which assessments on depository institutions for deposit insurance are calculated. No longer will assessments be based on the amount of insured deposits; rather assessments generally are to be based on "the average consolidated total assets of the insured depository institution … minus … the sum of—the average tangible equity of the insured depository institution …." There is authority for the FDIC to vary this for custodial banks (banks with a percentage of revenues generated by assets under custody) and banker's banks (banks providing banking services to other banks). Elimination of Procyclical Assessments Section 332 eliminates a requirement that the FDIC refund or credit to the next assessment any overpayments of assessments and authorizes it to suspend or limit the payment of dividends from excess reserves in the deposit insurance fund. The section also requires the FDIC to issue regulations on refunding overpayments or limiting dividend payments. FDIC May Require Reports Without Getting Approval of Primary Regulator Section 333 eliminates a requirement that FDIC receive a depository institution's primary federal regulator's approval before requiring additional reports from an insured depository institution. All that is now necessary is consultation with the primary federal regulator. Increase in the Minimum Reserve Ratio Section 334 increases the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35% of estimated insured deposits or the comparable percentage of the assessment base. It requires the FDIC to take the steps necessary for the reserve ratio to reach that goal by September 30, 2020. It also requires the FDIC to "offset the effect [of this requirement] … on insured depository institutions with total consolidated assets of less than" $10 billion. Permanent Deposit Insurance Increase to $250,000; Applied Retroactively for Depositors of Institutions Which Failed in 2008 Section 335 effectuates a permanent increase in deposit insurance and share insurance for insured depository institutions and insured credit unions to $250,000, and applies this increase retroactively to the depositors of any institution for which the FDIC was appointed receiver after January 1, 2008. This will cover depositors in such institutions as IndyMac Bank, F.S.B., Pasadena, California, which was closed by the OTS, with the FDIC named as Conservator, on July 11, 2008. Director of the Consumer Financial Protection Bureau, Ex-Officio Member of FDIC Board Section 336 substitutes the Director of the Consumer Financial Protection Bureau for the OTS Director to serve with the Comptroller of the Currency as ex-officio members of the FDIC Board of Directors along with three presidentially appointed members. It provides for an acting official to serve in case of a vacancy or disability of an ex-officio board member. Branching Authority of Savings Associations Converting to Bank Status Section 341 authorizes a savings association converting to bank status to continue to operate any branch that it was operating immediately before the conversion and to acquire any additional branches in any state in which it operated a branch immediately before becoming a bank in any location in that state if the state law would permit a bank chartered in that state to operate a branch in that location. Office of Minority and Women Inclusion in Federal Financial Regulatory Agencies Section 342 requires the Consumer Protection Bureau, Treasury, OCC, FDIC, FRB, each Federal Reserve bank, the Federal Housing Finance Agency, the National Credit Union Administration, and the Federal Trade Commission to establish an Office of Minority and Women Inclusion "responsible for all matters of the agency relating to diversity in management, employment, and business activities." The Director of these offices is to be a career reserved position in the Senior Executive Service, and is to develop standards on equal employment opportunity; increased participation of minority- and women-owned businesses in agency programs; and assessment of the diversity policies of the regulated entities. There is also a provision authorizing the Director to recommend termination of contractors "who have failed to include minority and women in their workforce." Section 342 requires annual reports from these offices and imposes upon the agencies obligations to make efforts to seek workforce diversity by recruiting practices and partnering with organization devoted to these goals, including inner-city high schools. Deposit Insurance for Non-Interest Bearing Checking Accounts Section 343 requires the FDIC and the NCUA to provide deposit insurance and share insurance coverage, without any cap or limit, for non-interest bearing transaction accounts. This authority sunsets January 1, 2013. Sections 351- 378 consist of technical and conforming amendments to conform other sections of the law to changes made in Title III. Title VI: Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions Title VI, the Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010, addresses some of the issues that have been viewed as possibly weakening the ability of banking companies to focus on their main business of financial intermediation—accepting retail deposits that earn a modest return at no risk of loss to depositors and transforming them into capital that is available for lending and, thereby, fostering economic growth and activity. Title VI includes a temporary moratorium on FDIC approval of deposit insurance for new industrial loan companies and credit card banks; authority to segregate into intermediate holding companies the commercial activities of unitary thrift holding companies which have been able to combine an insured depository with commercial activities under exceptions to the BHC Act; broader authority for the FRB to supervise holding companies; further lending limits on depository institution loans to insiders; stricter capital levels for holding companies; prohibitions on proprietary trading and investment in hedge funds by banking companies; various requirements for studies (including a study on subjecting savings association holding companies to the BHC Act); and specific provisions aimed at such particular activities or powers of banks and thrifts. What follows is a brief summary of each of the sections of Title VI except for those which are essentially technical in nature. Moratorium and Study on Treatment of Credit Card Banks and Industrial Loan Companies Section 603 establishes a three-year-moratorium during which the FDIC may not approve deposit insurance for any new credit card bank, industrial bank, or trust bank or any application for change in control of any existing institution of those types that has the result that a "commercial firm" acquires control of the institution (i.e., a firm that has 85% of its annual gross revenues derived from activities other than control of depository institutions and activities that are financial in nature). There are exceptions for change in control situations involving an institution which is in default or danger or default; for the merger or whole acquisition of the commercial firm; or for the acquisition of voting shares of less than 25% of the commercial firm. This section also requires that, within eighteen months, the Government Accountability Office (GAO) must submit a study of whether it is necessary to eliminate certain exceptions to the BHC Act definition of "bank" or "bank holding company" that allow certain companies to avoid being subject to the requirement that companies owning or controlling banks be subject to FRB regulation under the BHC Act. In this study, GAO is to identify types and numbers of institutions, their size, geographic location, commercial affiliates, and their federal supervisor. GAO is to evaluate the adequacy of the applicable regulatory frameworks and the consequences of subjecting the institutions to the BHC Act. Among the exceptions that GAO is to study are (1) state-chartered banks owned by thrift associations and limited to taking deposits for thrift associations; (2) a bank controlled by a trust company or mutual savings bank in the same state as of December 31, 1970, provided that, subject to an exception for investments authorized for national banks, the trust company or mutual savings bank does not acquire any interest in a company which would give it 5% of the voting shares of the company; (3) institutions which function only in a trust or fiduciary capacity, subject to certain activities restrictions; (4) credit card banks; (5) industrial loan companies; and (6) savings associations. Reports and Examinations of Holding Companies and Regulation of Holding Company Subsidiaries Expanded FRB Authority Section 604 expands the FRB's authority with respect to bank holding company subsidiaries in several ways and, thereby, modifies the "Fed-lite" provisions of the Gramm-Leach Bliley Act of 1999 (GLBA). Section 604(c) removes the strict limitations on FRB authority to take direct action against functionally regulated subsidiaries of bank holding companies. Section 604(a) extends the authority of the FRB to require reports from bank holding companies and their subsidiaries to cover compliance with any applicable federal law in addition to those laws which the FRB has explicit authority to enforce. Exempted from this authority are functionally regulated subsidiaries and insured depository subsidiaries. In seeking reports from bank holding company subsidiaries, the FRB is to use existing reports and supervisory materials as much as possible. Section 604(b) expands FRB's authority to examine bank holding company subsidiaries by specifically including risks to U.S. financial stability as a focus of the examination and by authorizing it to monitor, except for functionally regulated subsidiaries and depository institution subsidiaries, how the subsidiaries are complying with any other applicable federal law (subject to the allocation of examination functions under the Consumer Financial Protection Act of 2010). Section 604(c) also adds to the definition of "functionally regulated subsidiaries" certain entities which are subject to regulation or registration with the Commodities Futures Trading Commission. Sections 604(g) and (h) provide parallel authority for the FRB to require reports and make examinations of thrift holding companies. In examining holding companies, the FRB is required to coordinate with other regulators and avoid duplication. Section 604(i) modifies the definition of savings and loan holding company under the Home Owners Loan Act (HOLA) to exclude bank holding companies, intermediate holding companies, and companies controlling a savings association "that functions solely in a trust or fiduciary capacity." Risk to Financial System Must Be Considered in the Context of Any Holding Company Acquisition or Merger Section 604(d) amends the BHC Act to require the FRB to consider, in addition to other enumerated factors, the potential risks to the U.S. banking system or U.S. financial stability of any proposed acquisition, merger, or consolidation. Section 604(e) amends a provision of the BHC Act which permits financial holding company acquisitions of nonbanking concerns without prior notice to require prior notice for acquisitions involving savings associations and to require FRB approval for acquisitions involving assets of $10 billion or more. Standards for FRB Examination of Holding Company Subsidiaries Section 605 sets standards for the FRB examination of non-depository, non-functionally regulated subsidiaries of depository institution holding companies by requiring that the examination cover "the activities … that are permissible for the insured depository institution subsidiaries of the depository institution holding company in the same manner, subject to the same standards, and with the same frequency as would be required if such activities were conducted by the lead insured depository institution subsidiary of the holding company." If the FRB does not conduct such an examination, the regulator of the lead depository institution may provide the FRB with a written recommendation to conduct such an examination. If the FRB fails to begin such an examination or provide an explanation for not doing so within 60 days of receiving such a recommendation, the regulator of the lead depository institution may commence to conduct the examination. The focus of the examination is to determine whether the activities of these non-functionally regulated, non-depository institution subsidiaries of the holding company materially threaten a depository institution or the holding company, accord with law, and are subject to appropriate risk management systems. Such examinations are to be coordinated with the FRB not only to avoid duplication and share information but also to eliminate the possibility of "conflicting supervisory demands." Recommendations for supervisory actions are to be submitted to the FRB; if the FRB does not take enforcement action within 60 days, the agency making the recommendation may take action. Before taking any supervisory action against a non-depository, non-functionally regulated subsidiary, notice is to be provided to the appropriate state or federal regulator. Fees may be assessed as necessary for the cost of examinations by the regulator of the holding company's lead depository institution. Increased Standards for a Bank Holding Company to Commence to Engage in Financial Activities or to Complete an Interstate Merger or Acquisition Section 606 amends the BHC Act to add to the requirements for engaging in financial activities as a financial holding company a specification that the holding company (as well as its subsidiary depository institutions as required under GLBA) be well capitalized and well managed. This section contains a provision authorizing savings and loan holding companies to engage in activities that are permissible for financial holding companies provided they meet all the requirements and conduct the activities subject to the same regime as is applicable to financial holding companies. Section 607 amends the BHC Act and the Bank Merger Act to increase the capital standards for interstate acquisitions of a bank by a bank holding company or interstate bank mergers by requiring that the bank holding company or, in the case of mergers, the resulting bank be well managed and well capitalized. Increased Restrictions on Interaffiliate Transactions Within Holding Companies Section 608 amends sections 23A and 23B of the Federal Reserve Act, which impose restrictions on interaffiliate transactions between member banks (and their subsidiaries) and their bank holding company or any of their holding company affiliates, by expanding the transactions covered under section 23A. For example, purchases of assets subject to repurchase agreements are included within the category of extensions of credit, and there is no authority for the FRB to exempt purchases of real or personal property within this category. Securities borrowing and derivative transactions also are covered to the extent of any credit exposure of the member bank to the affiliate. Section 608 also limits the FRB's authority to grant exemptions by removing the FRB's authority to grant an exemption for a transaction by order, thus, requiring all exemptions to be by regulation. It provides the FRB with authority to determine, jointly with the appropriate federal banking agency, how to calculate the amount of a covered transaction in the case of netting agreements. Before any exemption may take effect, the FDIC must be notified and not object in writing within 60 days of notice on the basis of the exemption's presenting "an unacceptable risk to the Deposit Insurance Fund." It also provides authority for the FRB and the OCC or the FDIC to grant exemptions for a transaction by national banks or state-chartered banks, provided that there is a finding that the exemption is in the public interest and the FDIC determines that the exemption does not present "an unacceptable risk to the Deposit Insurance Fund." Section 608 also amends section 23B of the FRA to further reduce the FRB's flexibility in granting exceptions to the requirements that interaffiliate transactions under the BHC Act be on market terms by requiring that the FRB notify the FDIC and not receive a written objection from the FDIC within 60 days of notice that contends that the proposed exception presents "an unacceptable risk to the Deposit Insurance Fund." Similar amendments are added to the HOLA transactions involving savings associations and savings and loan holding companies. Section 609. makes transactions between banks and their subsidiaries subject to FRA section 23A by removing an exemption for transactions entered into after enactment, effective one year after the transfer date, i.e., the date on which OTS functions are actually assumed by the transferee agencies. Lending Limits Section 610 includes within the lending limits applicable to national banks, and, thus, to limits on loans to one person or insiders and interaffiliate transactions, any credit exposures arising from derivative transactions, repurchase agreements, reverse repurchase agreements, and securities lending or borrowing transactions. Derivative Transactions by State-Chartered Banks Section 611 permits state-chartered banks to engage in derivative transactions only if the law of the bank's chartering state "takes into consideration credit exposure to derivative transactions." Charter Conversions by Institutions Under Enforcement Order Section 612 prohibits depository institutions from converting from one charter—state to federal or vice-versa or thrift to bank—while under a formal enforcement order or a memorandum of understanding unless the proposed new regulator notifies the prospective former regulator that a conversion is proposed and of a plan to address the supervisory concerns, and the former regulator does not object. The new regulator must see to it that the plan is implemented. If there has been a final enforcement action by a state attorney general, the conversion must be conditioned on compliance with its requirements. De Novo Interstate Branching Section 613 expands the authority of banks to establish de novo branches on an interstate basis to permit de novo branching to any location in a state allowed for branching by an in-state bank. No longer will state laws placing conditions on de novo branching by out-of-state banks act as a bar to an out-of-state bank wishing to establish its first branch in the state. Loans to Insiders Section 614 adds credit exposure by virtue of derivative transactions, reverse repurchase agreements, securities lending or borrowing transactions to the restrictions on loans by member banks to insiders; authorizes the FRB to issue implementing rules; and requires the FRB to consult with OCC and FDIC when doing so. Countercyclical Capital Requirements Section 616 amends the BHC Act, the Savings & Loan Holding Company Act, and the International Lending Supervision Act of 1983 to require the federal banking regulators to make capital "requirements countercyclical, so that the amount of capital required to be maintained by a [holding company, insured depository institution] … increases in times of economic expansion and decreases in times of economic contraction, consistent with … safety and soundness …." The section also adds a new section 38A to the FDI Act to specify that the federal regulators of bank holding companies and savings and loan holding companies or any depository institution controlled by any company that is neither a bank holding company nor a savings and loan holding company must require them "to serve as a source of financial strength for any depository institution subsidiary." The regulators are to issue implementing rules to this effect within a year of enactment. Section 616 also authorizes the regulators to require reports under oath from such companies in order to assess the ability of the company to comply with the law and to enforce compliance. For this purpose "source of financial strength" is the "ability … to provide financial assistance to such insured depository institution in the event of the financial distress of the insured depository institution." Elimination of SEC-Regulated Investment Bank Holding Company; Establishment of FRB-Regulated Securities Holding Company Section 617 eliminates the investment bank holding company framework in section 17 of the Securities Exchange Act of 1934, under which a securities firm not having a depository institution subsidiary may choose to be supervised by the SEC as an investment bank holding company, coincidentally satisfying a foreign law requirement for consolidated supervision by its home country. The securities holding company regime established in section 618 serves as a replacement. Section 618 establishes a framework whereby a securities holding company may submit to FRB regulation as a supervised securities holding company. Under this provision, "a person (other than a natural person) that owns or controls 1 or more brokers or dealers registered with the … [SEC]… and the associated persons" may elect to register with FRB and, thereby, meet a foreign regulator's requirement for supervision on a consolidated basis. A securities holding company would then become subject to the recordkeeping, reporting, and examination requirements imposed by the FRB as specified in section 618. This section provides the FRB with a full range of civil enforcement authority under section 8 of the FDI Act; authorizes it to apply BHC Act requirements on the company; and requires the FRB to prescribe capital and risk management standards, taking into account the differences in types of business, financial assets, liabilities, off-balance sheet exposure, transactions and relationships with other financial companies, importance as a source of credit and liquidity, and the scope of activities of the supervised securities holding company. The "Volcker Rule" Provision21 Overview Section 619 includes certain prohibitions on proprietary trading and hedge fund investments by banking companies. Subsection (a) contains an outright prohibition on proprietary trading by and ownership of interests in or sponsorship of hedge funds or private equity funds by a "banking entity." "Banking entity" is defined in subsection (h) to mean any FDIC-insured depository institution, company controlling an insured depository institution, company treated as a bank holding company for purposes of the International Banking Act of 1978, and any affiliate or subsidiary of such entity. The exact language provides a broad prohibition. It reads: "a banking entity shall not … engage in proprietary trading, or … acquire or retain any equity, partnership, or other ownership interest in or sponsor a hedge fund or a private equity fund." There are, however, certain exceptions, some transitional and others designated as permitted activities under subsection (d) of the legislation. Rather than subjecting nonbank financial companies supervised by the FRB to a prohibition on proprietary trading and hedge fund ownership or sponsorship, the legislation authorizes the regulators to issue rules subjecting such companies to additional capital and quantitative limits on such activities unless the activity has been identified as a permitted activity under section (d) and has not been subjected to capital and quantitative requirements for safety and soundness purposes. Subsection 619(h) sets forth definitions of various terms, in some cases providing a degree of discretion to the regulators to expand the reach of the prohibitions and limitations. For example: A "hedge fund" or a "private equity fund" is defined as "an issuer that would be an investment company … but for section 3(c)(1) or 3(c)(7) of [the Investment Company Act of 1940], or such similar funds as the … [appropriate regulatory agencies] may , by rule , … determine ." "Proprietary trading" is "engaging as a principal for the trading account of the banking entity or nonbank financial company supervised by the Board in any transaction to purchase or sell, or otherwise acquire or dispose of, any security, any derivative, any contract of sale of a commodity for future delivery, any option on any such security, derivative, or contract, or any other security or financial instrument that the appropriate … agencies …may, by rule … , determine. " Financial Stability Oversight Council Study on Implementation of Restrictions on Proprietary Trading and Investment in Hedge Funds and Private Equity Funds Subsection 619 (b) requires the Financial Stability Oversight Council to complete a study not later than six months after enactment and make recommendations on how implementation may be geared to (1) promote banking entity safety and soundness; (2) limit inappropriate transfers to "unregulated entities" of the federal subsidies embodied in FDIC deposit insurance and FRS liquidity programs; (3) "protect taxpayers and consumers and enhance financial stability" by minimizing risky activities by banking entities; (4) reduce conflicts of interest between customer interests and the self-interest of the covered entities; (5) limit unduly risky activities of the covered entities; (6) accommodate insurance company investment authority while safeguarding both affiliated banking entities and the financial stability of the United States; and (7) devise appropriate timing for divestiture of illiquid assets affected by implementation of section 619. Joint Rulemaking Subsection 619(b) requires the federal banking regulators and the SEC and CFTC to conduct joint rulemaking and to adopt these rules no later than nine months after the Council completes its study. The regulators must coordinate the regulations for safety and soundness and elimination of the possibility of advantaging or disadvantaging some companies. Subsection (c) specifies that final rules are to become effective the earlier of (1) 12 months after they are issued or (2) two years after enactment. Divestiture of Non-Conforming Activities Within Two Years In general, banking entities will be given two years to divest nonconforming activities. Subsection 619(c) requires divestiture of nonconforming activities generally within two years of enactment subject to certain exceptions. The FRB is to issue rules on the divestiture provisions within six months of enactment. Additional capital and other restrictions, including margin requirements, on ownership interests in or sponsorship of hedge funds or private equity funds by banking entities are to be implemented by rules promulgated within the context of the joint rulemaking. The two-year divestiture requirement may be extended under certain circumstances: (1) the FRB may approve extensions for one-year periods not to exceed three additional years, and (2) if a contractual obligation in effect on May 1, 2010, requires a banking entity to take or retain its ownership interest in, or provide additional capital to, an illiquid fund, the entity may apply to the FRB for an extension which may be granted for no more than five years; divestiture would be required at the end of the five years or on the contractual date—whichever is earlier. Exceptions Subsection 619(d) identifies exceptions to the blanket prohibitions of subsection 619(a) by listing permitted activities and setting conditions under which those activities may be conducted. It excludes from permitted activities any transaction or class of activities, otherwise permitted, that would involve or result in a material conflict of interest; a material exposure by the banking entity to "high-risk assets or high-risk trading strategies" as defined by the regulators; or a threat to safety and soundness of the banking entity or to the financial stability of the United States. It provides standards by which the regulators may set further limits or conditions on these activities and includes authority for the regulators to add to the list of permitted activities. The regulators may impose additional capital and quantitative limits as "appropriate to protect the safety and soundness of banking entities engaged in such activities." Among the conditions specified for conducting these activities are that the activity must (1) be permitted under other federal or state law; (2) be subjected to restrictions as determined by the appropriate federal regulators; and (3) not involve or result in a material conflict of interest, expose the banking entity to "high-risk assets or high-risk trading strategies," or threaten safety and soundness of the banking entity or the financial stability of the United States. Subject to those conditions, the exceptions or permitted activities are: Government and GSE Obligations . Subsection (d)(1)(A) authorizes the purchase and sale of U.S. obligations; obligations of federal agencies; obligations of Ginnie Mae, Fannie Mae, Federal Home Loan Banks, Farmer Mac, and Farm Credit System institutions; and obligations of any state or political subdivision of a state. Market Making Activities. Subsection (d)(1)(B) authorizes the "purchase, sale, acquisition, or disposition of securities and various instruments which the regulators have determined by rule to fall within the definition of "proprietary trading" under subsection (h)(4), provided the transactions are "in connection with underwriting or market-making related activities, to the extent that … [such transactions] are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties." Risk Mitigating Hedging Activities . Subsection (d)(1)(C) authorizes "risk-mitigating hedging activities" that are related to "positions, contracts, or other holdings of the banking entity and are designed to reduce specific risks in connection with and related to such holdings. Small Business Investment Company Investments . Subsection (d)(1)(E) authorizes specified small business investment company investments and investments qualified as rehabilitation expenditures with respect to a qualified rehabilitated building or certified historic structure as defined in section 47 of the Internal Revenue Code or similar state historic tax credit program. Insurance Company Portfolio Investments. Subsection (d)(1)(F) authorizes the "purchase, sale, acquisition, or disposition of securities and other instruments" which the regulators have determined by rule to fall within the definition of "proprietary trading" under subsection (h)(4) if the transactions are "by a regulated insurance company directly engaged in the business of insurance for the general account of the company by any affiliate of such regulated insurance company, provided that such activities by any affiliate are solely for the general account of the regulated insurance company." The transactions must also comply with applicable law, regulation, or guidance, and there must be no determination by the regulators that a relevant law, regulation, or guidance is insufficient to protect the safety and soundness of the banking entity or the financial stability of the United States. Proprietary Trading by Foreign Companies Conducted Outside the United States . Subsections (d)(1)(H) and (I) authorize investments permitted under sections 4(c)(9) and 4(c)(13) of the Bank Holding Company Act, provided they are conducted solely outside the United States by a company not controlled directly or indirectly by a company organized under the laws of the United States or of a state. Other Investments . Subsection (d)(1)(J) provides the regulators with authority to permit "[s]uch other activity … by rule, … [as] would promote and protect the safety and soundness of the banking entity and the financial stability of the United States." Exceptions to the Ban on Investing in Hedge Funds or Private Equity Funds Subsection 619(d)(1)(G) authorizes banking entities to organize and offer private equity or hedge funds only if (1) the banking entity provides "bona fide trust, fiduciary, or investment advisory services"; (2) the fund is offered only in connection with trust, fiduciary, or investment advisory services to "persons that are customers of such services of the banking entity"; (3) the banking entity retains only a de minimis interest in the funds; (4) the banking entity and its affiliates engage in no transaction with the fund that would be designated as a covered transaction under FRA section 23A and other transactions with the fund are conducted only on terms specified in FRA section 23B, as if the banking entity were a member bank, and the fund an affiliate of that bank; (5) the banking entity does not guaranty the obligations of the hedge fund or private equity fund; (6) the banking entity does not share a name with the hedge fund or private equity fund; (7) no director or employee of the banking entity, other than a director or employee directly engaged in providing investment advisory or other services to the hedge fund or private equity fund, takes or retains an interest in the fund; and (8) the banking entity takes certain steps to assure the investors in the hedge fund or private equity fund that losses of the fund will be borne solely by its investors. De Minimis Investment in Hedge Fund or Private Equity Fund Subsection 619(d)(4) permits banking entities, subject to certain limitations, to make and retain a "de minimis investment" in a hedge fund or private equity fund or to make an initial investment in a hedge fund or private equity fund that the banking entity organizes. Among the limitations is a requirement to seek unaffiliated investors to reduce, within one year (subject to a possible extension for two more years), the banking entity's initial investment to the prescribed de minimis amount, as defined in subsection (d)(4). A de minimis investment must be (1) "not more than 3 percent of the total ownership interests of the fund," (2) "immaterial to the banking entity, as defined by rule," and (3) such that the aggregate investment of the banking entity in all such funds does not exceed 3% of its Tier 1 capital. There is also a requirement that a banking entity's aggregate outstanding de minimis or initial investments in hedge funds or private equity funds organized by the banking entity, including retained earnings, must be deducted from assets and tangible equity of the banking entity and the amount of the deduction to "increase commensurate with the leverage of the hedge fund or private equity fund." Under subsection 619(f), a banking entity serving as "an investment manager, investment advisor, or investment sponsor to a hedge fund or private equity fund" or a banking entity which organizes and offers a hedge fund or private equity fund in connection with fiduciary or trust services as specified in subsection (d)(1)(G) or any affiliates thereof may enter into a transaction with the fund which would be a covered transaction under FRA section 23A if the banking entity and affiliate were a member bank and the fund were an affiliate thereof. In addition, any transaction between the banking entity and the fund must comply with Section 23B of the FRA as if the banking entity were a member bank and the fund, an affiliate, thereof. The FRB may permit a banking entity to enter into a prime brokerage transaction with any hedge fund or private equity fund in which a hedge fund or private equity fund managed, sponsored, or advised by the banking entity or nonbank financial company has an ownership interest under certain conditions. The banking entity must be in compliance with all of the conditions under which a banking entity may organize and advise a hedge fund or private equity fund in connection with fiduciary or trust services under subsection (d)(1)(G). Moreover, the banking entity's chief executive officer must provide an annual, and updated as necessary, written certification of compliance. The FRB must have determined that the primary brokerage agreement is consistent with the safe and sound operation of the banking entity; moreover, the prime brokerage transaction is subject to FRA section 23B as if the counterparty were an affiliate of the banking entity. Additional capital charges or other restrictions for nonbank financial companies are to be covered by rules issued by the appropriate regulators in the prescribed joint rulemaking proceedings. Regulatory Authority to Grant Exceptions and Rules of Statutory Construction Subsection 619(d)(1)(J) provides the regulators with authority to permit "[s]uch other activity … by rule, … [as] would promote and protect the safety and soundness of the banking entity and the financial stability of the United States." Subsection 619(g) provides three rules of statutory construction for interpreting section 619: (1) the prohibitions and restrictions of section 619 apply, except as provided in the section, notwithstanding the existence of other provisions of law authorizing such activities; (2) nothing in section 619 is to "be construed to limit the ability of a banking entity or nonbank financial company … to sell or securitize loans in a manner otherwise permitted by law"; and (3) nothing in section 619 is to "be construed to limit the inherent authority of any Federal agency or State regulatory authority under otherwise applicable provisions of law." Evasions Subsection 619(e) authorizes the appropriate regulator, having reasonable cause to believe that a banking entity or a nonbank financial company supervised by the FRB, is engaged in activities functioning as an evasion of section 619, or in violation of section 619, to order, subject to notice and opportunity for a hearing, termination of the activity and disposition of the investment. This subsection also requires the regulators to issue internal control and recordkeeping rules to insure compliance with section 619. Report Section 620 requires the federal banking agencies to prepare a joint report within 18 months of enactment on the investments and activities which banking companies may engage in under federal and state law, focusing on the types of activities, associated risks, and risk mitigation activities. The report is to be forwarded to the House Committee on Banking and Financial Services and the Senate Banking, Housing and Urban Affairs Committee two months after its completion with recommendations on whether activities present safety and soundness risks to banking concerns or to the U.S. financial systems, whether each investment or activity is appropriate, and any additional necessary restrictions. Conflicts of Interests Relating to Certain Securitizations Section 621 prohibits, subject to certain exceptions, asset-backed securities underwriters and sponsors and related entities from engaging in transactions with investors in those securities under circumstances giving rise to a conflict of interest and requires the SEC to issue implementing rules. Specifically, section 621 amends the Securities Act of 1933 to prohibit any "underwriter, placement agent, initial purchaser, or sponsor or any affiliate or subsidiary of any such entity, of an asset-backed security …at any time for … one year after the date of the first closing of the sale of the asset-backed security [from engaging in] any transaction that would involve in or result in any material conflict of interest with respect to any investor in a transaction arising out of such activities." The SEC is to issue rules within 270 days of enactment to implement this provision. There are specific exceptions for risk-mitigating hedging activities designed to reduce related risks and for purchases of the securities made pursuant to and consistent with commitments to provide liquidity for the security or market making for the security. Concentration Limit of 10% of Aggregated Consolidated Assets of All Financial Companies Section 622 prohibits any insured depository institution, bank holding company, savings and loan holding company, company controlling an insured depository institution, nonbank financial company supervised by the FRB, or any foreign bank or company treated as a bank holding company to merge or acquire assets of another company if the total consolidated liabilities of the acquiring company upon consummation of the transaction exceeds 10% of the aggregate consolidated liabilities of all financial companies at the end of the previous calendar year. The FRB may make exceptions with respect to the acquisition of a bank in default, an acquisition involving assistance provided by the FDIC under its authority to provide assistance to insured depository institutions in danger of default or during severe financial conditions under 12 U.S.C. § 1823(c), or an acquisition that results in minimal increase in the company's liabilities. Rulemaking authority is provided to the FRB; however, the rules must be "in accordance with the recommendations of the Council" after the Council completes a study on the potential effect of this concentration limit. The Council is to complete its study within six months of enactment; the FRB, to issue rules within nine months thereafter. Section 623 amends the FDIA, the BHC Act, and the Savings and Loan Holding Company Act to prohibit the federal banking agencies from approving any application for an interstate merger transaction in which the resulting depository institution, bank holding company, or savings and loan holding company would control more than 10% of the total amount of deposits of insured depository institutions in the United States. There are exceptions for acquisitions of a depository institution in default or involving assistance provided by the FDIC under its authority under 12 U.S.C. § 1823(c).to provide assistance to insured depository institutions in danger of default or during severe financial conditions and for transactions resulting in only a minimal increase in the liabilities of the financial company. Qualified Thrift Lenders Section 624 applies to savings associations which fail to remain qualified thrift lenders, i.e., to qualify as a domestic building and loan association under 26 U.S.C. § 7701(a)(19) or generally to maintain 65% or more of portfolio assets in qualified thrift investments. It adds to the restrictions in place prior to enactment of the Dodd-Frank legislation a provision that limits their ability to pay dividends unless they are permissible for a national bank; necessary to meet obligations of the company which controls the savings association; and are specifically approved by OCC. The OCC may employ a full range of enforcement authority, under section 8 of the FDIA, against a savings association failing to remain a qualified thrift lender, which is deemed to be a violation of section 5 of the Home Owners' Loan Act, 12 U.S.C. §1464. Treatment of Dividends by Certain Mutual Holding Companies Section 625 imposes restrictions on the declaration or waiver of dividends by mutual holding companies. It requires every savings association subsidiary of a mutual holding company to provide the appropriate federal banking agency and the FRB 30-days' notice before declaring a dividend on any nonwithdrawable stock of the savings association. It permits a mutual holding company to waive dividends declared by a subsidiary if (1) no insider or tax-qualified or non-tax-qualified employee stock benefit plan of the mutual holding company holds any of the subject stock or (2) the FRB is given 30-days' notice of the intended waiver and the FRB does not object. The FRB may object to the waiver only on the following grounds; (1) the waiver would be detrimental to the safe and sound operation of the savings association; (2) the mutual holding company's board of directors has not determined that the waiver is consistent with its fiduciary duties to the mutual members of the holding company; or (3) prior to December 1, 2009, the mutual holding company reorganized into a mutual holding company, issued minority stock from its mid-tier stock holding company or its subsidiary stock savings association, and waived dividends which it had a right to receive from the subsidiary stock savings association. Intermediate Holding Company for Unitary Thrift Holding Companies Section 626 authorizes the FRB to require a grandfathered unitary thrift holding company which conducts commercial or manufacturing activities or other non-financial activities in addition to financial activities to conduct all or part of its financial activities in an intermediate savings and loan holding company. If the FRB determines that the establishment of such an intermediate holding company is necessary to supervise the financial activities or to keep the FRB from supervising the non-financial activities, it must establish an intermediate holding company. Financial activities that are internal to the company need not be placed in the intermediate holding company if the FRB finds that the grandfathered unitary thrift holding company engaged in the activities during the year prior to enactment and at least 2/3's of the assets or revenues generated from the activities are attributable to the grandfathered unitary thrift holding company. If an intermediate holding company is required, the grandfathered unitary thrift holding company must serve as a source of strength for it; the FRB may require periodic reports from the parent company. The FRB is required to issue regulations regarding interaffilate transactions between the intermediate holding company and its parent and non-subsidiary affiliates, but it may not "restrict or limit any transaction in connection with the bona fide acquisition or lease by an unaffiliated person of assets, goods, or services." FRB may use the full array of enforcement authorities under section 8 of the FDIA to enforce the provisions of the section against the grandfathered unitary thrift holding company. A savings clause states that nothing in the section is to be construed as requiring a unitary savings and loan holding company to conform its activities to those permissible for a savings and loan holding company, i.e., to divest its non-conforming commercial or manufacturing activities. Interest on Business Checking Accounts Section 627 repeals the prohibition applicable to banks and thrifts on paying interest on business checking accounts, effective one year after enactment. Credit Card Bank Small Business Lending Section 628 permits credit card banks to make one kind of commercial loan without satisfying the BHC Act definition of "bank," and, thereby, being subject to FRB regulation on a consolidated basis. The type of loan authorized is credit card loans to small businesses meeting the Small Business Administration eligibility criteria for business loans under 13 C.F.R., Part 121. Agency Implementation Many of the provisions of Titles III and VI of Dodd-Frank require implementation by the federal banking agencies involving studies, rulemaking, and other efforts. That process began shortly after enactment of the legislation, and each of the major federal bank regulatory agencies has provided some information on methodology. The FRB has established a web page tracking how it is proceeding. Information on FRB implementation is available on the FRB's website, which lists completed initiatives and planned activities, and includes links to proposed implementing regulations and comments which have been supplied to the agency in response to those proposed regulations. The FDIC has a similar web page offering information on Dodd-Frank implementation. Although OCC appears not to have taken a similar method of informing the public on its activities, the agency provided the Senate Committee on Banking, Housing, and Urban Affairs with testimony on its initiatives and plans to implement the legislation. In January 2011, the FRB, FDIC, OCC, and OTS published a "Joint Implementation Plan: 301-326 of the Dodd-Frank Wall Street Reform and Consumer Protection Act."

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, P.L. 111-203, has as its main purpose financial regulatory reform. Titles III and VI effectuate changes in the regulatory structure governing depository institutions and their holding companies and, thus, constitute a substantial component of the reform effort. Under Title III, there will no longer be a single regulator of federal and state-chartered savings associations, also known as thrifts or savings and loan associations. Title III abolishes the Office of the Thrift Supervision (OTS) and contains extensive provisions respecting the rights of affected employees as well as other administrative matters. It allocates the OTS functions among three existing regulators: the Comptroller of the Currency (OCC) will regulate federally chartered thrifts; the Federal Deposit Insurance Corporation (FDIC), state-chartered thrifts; and the Board of Governors of the Federal Reserve System (FRB), savings and loan holding companies. Title III also makes certain changes to deposit insurance: it makes permanent the increase of deposit insurance coverage to $250,000, and makes that increase retroactive to January 1, 2008. It extends full insurance coverage of non-interest bearing checking accounts for two additional years and authorizes a similar program for credit unions. Included in Title III is also a requirement that the Department of the Treasury and each federal financial regulatory agency establish an office of Minority and Women Inclusion. Title VI addresses some perceived inadequacies with respect to prudential regulation of depository institutions and their holding companies, including the existence of certain exceptions to the Bank Holding Company Act's (BHC Act's) general prohibition on affiliation of banking institutions and commercial or manufacturing concerns; investment in hedge funds or private equity funds and proprietary trading by banking institutions; gaps in the authority of the FRB to oversee all of the subsidiaries of bank holding companies; the need for greater coordination among the regulators with respect to enforcement actions, charter conversions, and mergers and acquisitions; and elimination of some of the differences affecting the regulation of thrifts and banks, state-chartered and federally chartered institutions, and bank and thrift holding companies. Each of the federal banking agencies has begun the process of implementing applicable provisions of the legislation and has published information on projected activities. The full implications of Titles III and VI will not be apparent until the agencies promulgate the many implementing regulations required before many of the provisions go into effect. Generally, the legislation specifies a time period for when a particular rulemaking is to be completed; in some cases, studies are required before the rulemaking may occur.

Introduction In the wake of accounting scandals involving the Federal Home Loan Mortgage Corporation (Freddie Mac) and its sister organization the Federal National Mortgage Association (Fannie Mae) and, more recently, with various housing problems beginning with the subprime mortgage crisis, Congress has launched efforts concerning the oversight of Freddie Mac and Fannie Mae. Legislative efforts to increase the oversight of these two entities are still pending. The Department of the Treasury may assert that it has the power to regulate Fannie and Freddie's debt issuances more strongly than it has in the past. According to these reports, the Treasury Department would trace this authority to language in Fannie's and Freddie's charters. The Fannie Mae charter provides Fannie Mae the authority to issue obligations "upon the approval of the Secretary of the Treasury, and have outstanding at any one time obligations having such maturities and bearing such rate or rates of interest as may be determined by [Fannie Mae] with the approval of the Secretary of the Treasury." The Treasury Secretary has the same authority over Freddie Mac's securities issuances. The Treasury Secretary has traditionally, although not exclusively, exercised the approval authority with regard to Fannie's and Freddie's debt issuances—not to prevent them from issuing such debt but, rather, to time such issuances so that they do not conflict with the Department of the Treasury's own debt issuances. In other words, the Department of the Treasury has traditionally acted as a "traffic cop" with regard to Fannie and Freddie debt issuances as part of an overall effort to coordinate the federal government's debt issuances. As mentioned above, however, reports have circulated that the Treasury Department may seek to exercise its approval authority to regulate the amount of debt that Fannie and Freddie can issue. Analysis The Supreme Court held in Chevron, Inc. v. Natural Resources Defense Council that courts should defer to a reasonable agency interpretation of an ambiguous statute that the agency is charged with administering. Later cases have clarified the scope of Chevron . For example, the Chevron deference is available only to interpretations of an agency to which Congress has delegated the authority to make "rules carrying the force of law." Generally, then, Chevron deference is warranted for agency interpretations after formal adjudication or notice-and-comment rulemaking. Actions pursuant to less formal interpretations are "entitled to respect" under an earlier case, Skidmore v. Swift Co. Because it is not clear how, or even if, the Treasury Department will issue an interpretation, this report analyzes the strength of the Treasury Department's reported proposed interpretation under both Chevron and Skidmore. Chevron Deference Chevron analysis requires a two-step inquiry. First, the court must ask if the statute is ambiguous. If not, then the court simply rules according to the clear meaning of the statute. However, if the statute is ambiguous, the court must determine whether the agency's interpretation is reasonable. If the interpretation is reasonable, the court must then defer to that interpretation. Here, it would seem that the analysis would end after the first prong. The statute is not ambiguous; it vests approval authority in the Secretary of the Treasury. The language in both statutes clearly gives the Treasury Secretary approval authority over Fannie's and Freddie's debt issuances. There appears to be nothing in the statutory language to suggest that this approval authority is limited to the "traffic cop" role through which the Secretary has traditionally exercised this power. The statutory language in both Fannie Mae's and Freddie Mac's charters conditions the issuance of debt obligations upon the approval of the Secretary of the Treasury. The power to approve seems clearly to imply the concomitant power to disapprove . Indeed, the power to approve would be no power at all if an agency did not have the ability to withhold that approval. There is one notable Supreme Court case where the Court, faced with clear statutory language, used superceding congressional and agency action to find ambiguity under the first Chevron prong. In FDA v. Brown & Williamson Tobacco Corp. , the FDA had interpreted its statutory mandate to regulate "drugs" and "devices" to give the agency the power to regulate tobacco. The Supreme Court, however, looked at the FDA's long history of disclaiming authority over tobacco and the fact that Congress had legislatively addressed tobacco regulation separately six times to find a congressional intent contrary to the agency's proposed interpretation. There appears to be no such history here which would force a reviewing court to look beyond the language of the statute. Congress has passed no legislation evincing a different congressional intent from what the language indicates. Further, Congress has not created a separate regulatory scheme for the regulation of Fannie's and Freddie's debt issuances. Moreover, unlike the FDA in Brown & Williamson , the Treasury Department has never disclaimed or receded from its authority to regulate in this area. Although the department has not generally exercised this authority to stop Fannie and Freddie from issuing debt, the statutory authority to do so remains. Given that the Treasury Department has this authority, there appears to be nothing to prevent the department from exercising it in a different way. As the Supreme Court has held, agencies must be allowed to "adapt their rules and policies to the demands of changing circumstances." Although it seems doubtful that a court using the Chevron analysis would even get to the second prong of that analysis, the Treasury Department's reported proposed exercise of authority would very likely be legal under Chevron ' s second prong. Under this highly deferential prong, a court must accept an agency's interpretation so long as that interpretation is reasonable, whether or not the court agrees with it. For the same reasons discussed above, it appears difficult to imagine bases upon which a court would find the Treasury Department's reported proposed interpretation here to be unreasonable. If Congress had wanted to limit the Treasury Department's approval authority, Congress could have done so. Because Congress chose instead to use broad language in describing Treasury's authority, it follows that a broad interpretation of that authority would likely be judged to be reasonable. Skidmore Deference Although Chevron requires a court to defer to an agency interpretation of an ambiguous statute, so long as the interpretation is reasonable, an agency interpretation under Skidmore is merely guidance. The weight of the agency's interpretation depends upon a variety of contextual factors, including the thoroughness evident in the agency's consideration of the interpretation, the validity of its reasoning, its consistency with earlier and later pronouncements, "and all those factors which give it power to persuade, if lacking power to control." In essence, under the Skidmore analysis, the court will determine the statute's meaning, merely taking into account the agency's interpretation as one tool among the many statutory interpretation tools used by courts—unless the agency can convince the court that the agency has some special body of knowledge warranting greater deference. One of the most basic premises of statutory construction is that the statutory language itself should be the initial touchstone for analysis. The Supreme Court has consistently stated that "the meaning of the statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain ... the sole function of the courts is to enforce it according to its terms." As mentioned above, the statutory language at issue here unambiguously grants approval power to the Secretary of the Treasury without any qualifying language limiting the exercise of this power in any way. Further, as the Supreme Court has stated, "legislative history is irrelevant to the interpretation of an unambiguous statute." Although the general rule is that extrinsic aids such as legislative history are only to be used when a statute is unclear and ambiguous, there appears to be no rule that forbids a court from examining legislative history of clear language. Courts have on occasion allowed the admission of legislative history to interpret unambiguous statutes if that history clearly expresses a legislative intent contrary to the language. It is important, then, to examine the legislative history and see if it points strongly against the interpretation that the language appears to command. Fannie Mae has been authorized to issue obligations since 1934. However, it was not until 1954, when Congress re-chartered Fannie Mae as a mixed government and private sector entity, that Congress inserted into Fannie Mae's charter the aforementioned language conditioning the issuance of debt obligations on the Secretary of the Treasury's approval. Although the legislative history is silent as to why the Secretary of the Treasury was given this authority or how Congress expected him to use it, the clear language suggests that the power is a broad one. The statutory language indicates a broad authority vested in the Secretary of the Treasury to regulate Fannie Mae's debt issuances. However, the Secretary has generally used this power not to disapprove of proposed issuances but, rather, to coordinate these issuances so as not to conflict with the Treasury Department's debt issuances. One House committee had this in mind in 1989 when Congress gave Freddie Mac powers similar to those held by Fannie Mae to issue debt. Although the House report that accompanied that legislation stated that one of the overarching purposes of the statute was to give Freddie Mac powers and authority parallel to those enjoyed by Fannie Mae, Part III of the House Report, submitted by the Committee on Banking, Housing, and Urban Affairs, also offered a very different picture of how the committee expected the Secretary of the Treasury to exercise the approval authority: The title also grants the Secretary of the Treasury certain approval authorities over [Freddie Mac's] issuance of unsecured debt obligations and mortgage-related securities. Treasury already possesses such powers over [Fannie Mae] ... The Committee intends that the Treasury shall use these powers solely to ensure that [Freddie Mac's] financing activities are conducted in a way that promotes [Freddie Mac's] statutory purpose. In fulfilling this responsibility, and as is the case with [Fannie Mae], the Committee expects that Treasury will function largely as a " traffic cop " to assure that securities issued or guaranteed by [Freddie Mac] are marketed in an orderly way in appropriate coordination with the financing activities of the Treasury and other government-sponsored enterprises (GSEs) [Emphasis added]. At first glance, it appears possible that Congress had a different intent in mind when it granted this approval authority to the Secretary of the Treasury. Put simply, although the statutory language concerning the Treasury Secretary's authority here is clear, one could argue that Congress's understanding of that authority may have changed between the time that it was granted over Fannie Mae and when it was granted to Freddie Mac, because of the way that the Department of the Treasury had traditionally chosen to exercise this authority. For a variety of reasons, however, the above-quoted report language from 1989 would not likely be enough to convince a court that the Secretary of the Treasury's power is limited here. First and foremost, the language represents the opinion of one committee, not the entire Congress. The Supreme Court has made it clear that a committee's direction cannot be equated with a statute passed by Congress. Under the Constitution, federal statutes must pass both Houses of Congress and be signed by the President to have legal effect. As the Supreme Court has stated, "unenacted approvals, beliefs, and desires are not laws." This is not to suggest that committee reports are not important interpretive tools. On the contrary, these reports are among courts' favorite sources of interpretation. Such sources, however, cannot be divorced from the statutory language. "Courts have no authority to enforce [a] principle gleaned solely from legislative history that has no statutory reference point." In this case, Congress could have chosen to enact language explicitly limiting the Treasury Secretary's authority to the "traffic cop" function described above. Congress chose not to do so, however. Even if the report language were to be given greater weight, however, the language itself does not evince an intent completely to constrain the Treasury Secretary's authority. The language describes an expectation that, concerning securities and debt issuances, the department would function " largely as a 'traffic cop.'" This use of the word " largely, " as opposed to " only ," suggests that there are other, unenumerated ways in which Treasury could exercise that authority. Consequently, the legislative history does not provide a clear Congressional intent that courts should depart from the clear statutory language. In addition to the clear language, as mentioned above, a reviewing court using the Skidmore analysis would give weight to the Treasury Department's opinion that the Treasury Secretary possesses the power to regulate debt issuances by Fannie and Freddie. The likely final result under the Skidmore analysis, then, appears to be the same as that under Chevron deference.

The Department of the Treasury is developing a more formalized approach for approving Fannie Mae's and Freddie Mac's debt issuances. Although the Department of the Treasury has traditionally used its approval authority merely to coordinate the timing of debt issuances, the department may seek to regulate the amount of debt that Fannie Mae and Freddie Mac may issue. This report analyzes the Department of the Treasury's legal authority over Fannie Mae and Freddie Mac and concludes that a court would likely hold that the department possesses the power to regulate the amount of debt issued by these two organizations.

Introduction Over the past several years youth have experienced a dramatic decline in employment. This includes during the summer months, when youth labor force activity tends to be higher than other times of the year. One potential policy option for addressing youth employment is providing support for summer job programs, which are generally administered by cities with funding from both the public and private sectors. Though information on these programs is limited, they appear to serve a very small number of youth who are in the labor force. The intent of summer employment is to provide income to youth and potentially meet broader goals, such as developing the professional and social skills youth need to succeed in the workplace. The current federal workforce law, the Workforce Innovation and Opportunities Act (WIOA, P.L. 113-128 ), was enacted in 2014 and shifted summer employment from being an optional to a mandatory activity under the Youth Activities program. This program provides funding to localities across the United States for youth job training and employment activities. Other recent federal programs and initiatives have sought to expand employment opportunities for youth during the summer months. This report provides information about summer youth employment, including for those youth who are low-income and face challenges with securing employment. It starts by examining trends in employment among young people. It then describes how cities and other localities operate summer job programs, as well as recent federal programs and initiatives to fund these local efforts. The report concludes with considerations for Congress about the federal role in supporting summer employment. For purposes of this report, youth refers to individuals ages 14 through 24 except in reference to workforce data (which is collected on individuals ages 16 or older who are in the labor force). Individuals as young as 14 are included because the Youth Activities program begins serving youth at this age. Older youth, up to age 24, are included because they are often still in school and/or living with their parents. The Youth Activities program also serves youth up to this age. Youth in the Labor Force3 Federal data on employment are collected in a survey each month by the Bureau of Labor Statistics (BLS), and include individuals ages 16 or older in the civilian, noninstitutionalized population. These data can be used to assess the extent to which youth are participating in labor market activity (i.e., employed or looking for work). The youth labor force participation rate (LFPR) is the share of the youth population (16 to 24 year old individuals) that is either employed or actively looking for work (i.e., unemployed). The youth e mplo yment-to- population (E/P) ratio is the proportion of the youth population that is employed. The youth unemployment rate is the share of youth in the labor force (i.e., the sum of employed and unemployed youth) who are unemployed. Together, these indicators help to gauge labor market conditions for young workers. Data for July are used in this report to represent labor force trends during the summer. In July 2016, approximately 38 million individuals in the civilian, noninstitutionalized U.S. population were ages 16 to 24. Of these youth, slightly more than half (approximately 20 million) were in the labor force. Figure 1 includes monthly labor force participation rates, E/P ratios, and unemployment rates for youth ages 16 to 24 from July 1996 through July 2016. The figure shows the following: Youth labor force activity increased during the summer months within each year, with the LFPR and E/P ratio peaking in July of most years. Youth labor force participation and the youth E/P ratio have declined since the late 1990s. For example, the LFPR was 73.3% in July 1996 and 53.2% in July 2016. The E/P ratio was 64.1% in July 1996 and 53.2% in July 2016. The youth LFPR and E/P ratio declined markedly following the recessions of 2001 and December 2007 to June 2009. The LFPR and E/P ratio did not fully recover following the 2007-to-2009 recession, but the E/P ratio showed some improvement. Neither indicator recovered to pre-2000 rates. Rates of unemployment were similar in July 1996 (12.6%) and July 2016 (11.5%). The intervening years show a slight upward trend, most notably following the recession of 2011 and during and following the recession of 2007 to 2009. The unemployment rate remained elevated following the most recent recession until approximately 2013. Figure A-1 and Figure A-2 in Appendix A break out monthly labor trend data for teenagers ages 16 to 19 and young adults ages 20 to 24, respectively, from July 1996 through July 2016. They show that teens experienced striking declines in their labor force participation (a decline of 33.3%, from 64.8% to 43.2%) and E/P ratio (a decline of 33.1%, from 54.0% to 36.1%) over this time period. Labor force indicators for young adults experienced downward, but less precipitous, trends. The labor force participation rate for young adults decreased from 80.6% to 73.1% (a decline of about 9%) and their E/P ratio declined from 72.8% to 66.4% (a decline of about 9%). Unemployment rates for the two groups were roughly the same in both July 1996 and July 2016: about 16% for teens and 9% for young adults. The research literature has not fully explored the labor force participation of low-income youth during the summer. One analysis found that the summer employment rate of teens ages 16 through 19 increases with household income. In the summer months of 2013 and 2014, about one out of every five teens with family incomes below $20,000 were employed. This is compared to about 28% of teens with household incomes of $20,000 to $39,000; and 32% to 41% of teens in households with higher incomes. Overview of Summer Employment Programs Summer job programs are generally run at the city or county levels with public and private funding. These programs offer employment experiences and other activities for young people who are usually between the ages of 14 and 24. Activities can include exploring career options, project-based learning whereby youth learn about work through in-depth study, simulated work environments, training in employment skills, mentoring and assistance in finding unsubsidized positions, and internships. There is not a census of youth who are employed in summer jobs. A survey of 40 cities found that nearly 116,000 youth were placed in such jobs in 2015. Figure 2 shows common characteristics of youth summer employment programs. Generally, these programs are targeted to young people in high school and some older youth who have little job experience and may lack strong family or community connections. Given concerns about youth employment rates, mayors and other municipal leaders have recently taken steps to expand summer employment programs. There is scant information about how localities fund their summer employment programs. They likely use a combination of funding from public (federal, state, and local) and private (foundations and businesses) sources. Private sector support encompasses both funding to cities to expand summer youth initiatives and providing job placements for youth. For example, the Boston Private Industry Council, the city's workforce development board, secured more than 2,600 unsubsidized jobs from local employers in the summer of 2015. Businesses like JP Morgan Chase, Bank of America, and Citi have provided financial support to multiple cities for summer jobs and created work placement programs for low-income youth across their various business locations. Further, there is little information about the cost of operating these programs, though cities report that the largest share of the programs' budgets are for subsidized wages. The typical cost per participant is approximately $1,400 to $2,000. Summer employment programs are generally intended to serve young people and their families, and potentially meet broader objectives. The rationale for these programs may include the following: providing income to youth and their families; encouraging youth to develop "soft skills" and professional skills that can help them navigate their environments and work well with others; improving the academic outcomes and prospects for employment of youth in the future; deterring youth from activities that could lead to them getting in trouble or being harmed; and providing greater economic opportunities to youth in areas with few employment prospects. Recent Federal Efforts Federal workforce laws since 1964 have included summer job training and employment activities. These laws have targeted such activities to low-income and other vulnerable youth. Over time, summer employment has gone from a stand-alone program under the Job Training Partnership Act (JTPA, P.L. 97-300 ), enacted from 1982 to 1998; to a required activity under the Workforce Investment Act (WIA, P.L. 105-220 ), enacted from 1998 to 2014; and then to an optional activity under WIOA, enacted in 2014 and effective as of July 1, 2015. WIOA authorizes the Youth Activities program, the major federal workforce program for youth. The program received FY2016 appropriations of $873 million. Funding under the program is allocated to states based on relative income and employment factors. States then allocate funds to localities, through what are known as local workforce development boards (governmental entities that administer local workforce development funds), based on similar factors. Localities are to provide education and employment activities to youth who have barriers to employment, and at least three-quarters of participants must be out of school. As noted, summer employment is an allowable, but not required, activity under the program. Data are not yet available on the number of youth who have participated in summer employment under WIOA. The Workforce Investment Act (WIA, P.L. 105-220 ) preceded WIOA, and directed local areas to offer summer employment activities to low-income youth via the Youth Activities program. Approximately 18,000 to 20,000 eligible youth annually participated in summer employment activities under the WIA Youth Activities program in recent years. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 , ARRA, or Recovery Act), which was enacted to bolster the economy during the 2007-2009 recession, had a focus on summer employment. In the accompanying conference report for the law, Congress specified that the $1.2 billion in ARRA funds for the WIA Youth Activities program should be used for both summer youth employment and year-round employment opportunities, particularly for youth up to age 24. Approximately 40% of ARRA dollars for the Youth Activities program was used for employment during the summer months, and a total of 374,489 youth participated in summer employment opportunities. In light of changes to workforce law with regard to summer employment opportunities, recent federal initiatives have sought to bolster the summer employment prospects for young people, as summarized in Table 1 . Summer Opportunity Project The Obama Administration's Summer Opportunity Project, launched in February 2016, worked with states, localities, and other stakeholders in providing youth with employment, academic opportunities, and supportive services during the summer months. The Administration and its partners developed the Summer Opportunity Resource Guide to help communities navigate federal resources and supports in each of these three areas. Further, the Administration provided on-the-ground support to 16 communities under the "summer impact hubs" initiative to help disadvantaged youth connect to school and work and receive supportive services. In each of these communities, a federal representative helped to coordinate partnerships and leverage federal funds. The Summer Opportunity Project also included assistance from the private sector. For example, the online professional networking service LinkedIn worked to connect businesses with local and state organizations to help young people, including disadvantaged youth, in accessing summer jobs in 72 cities. Summer Jobs and Beyond: Career Pathways for Youth As part of the Summer Opportunity Project, DOL provided $21 million in FY2016 appropriations for the Summer Jobs and Beyond initiative. The initiative supports 11 communities in developing and expanding work opportunities for youth during the summer. The initiative is authorized under the FY2016 appropriations law ( P.L. 114-113 , Division H), which specified that appropriations for Section 168(b) and Section 169(c) of WIOA can be used to provide technical assistance and demonstration projects, respectively, for new entrants in the workforce and incumbent workers (i.e., workers already employed). DOL interprets "new entrants" to include youth ages 16 to 24 who are in or out of school and have never participated in the workforce or have limited work experience. According to DOL, the Summer Jobs and Beyond grants are intended to support local workforce development boards (WDBs, which administer workforce programs in communities) in expanding existing summer employment programs and year-round work experience and implementing innovative practices. The grants require WDBs to partner with local summer employment programs (including those already operated by the WDB); employers; local education agencies; and re-engagement centers, where they exist. DOL intends for the grants to help inform how best to serve in-school youth given the limited funding for this population under WIOA; grant partners can more effectively reach out-of-school youth and assist them in transitioning to positions that extend beyond the summer months; and to leverage multiple funding streams (e.g., TANF) in serving youth and improve performance outcomes in high-crime, high-poverty communities that offer limited economic mobility for youth. The 11 communities that received Summer Jobs and Beyond funding are pursuing projects that include providing in-school youth who are refugees with summer jobs and academic support; providing courses and summer jobs in health care, information technology (IT), and manufacturing and infrastructure; and providing employment-related services to eligible Native American youth with limited work experience, among other activities. Grantees will be evaluated based on the share of program participants who, during the course of the program year, are in an education or training program that leads to a recognized postsecondary credential or employment and who are achieving measurable skill gains toward such a credential or employment. Summer Jobs and Beyond builds upon DOL's Urban Youth Employment Demonstration Grants, which provided $22.5 million from FY2014 appropriations for seven communities facing high poverty and high unemployment to connect youth and young adults (ages 16 to 29) with job opportunities both during the summer and year-round. These grants involve partnerships between cities and community and faith-based organizations, educational institutions, foundations, and employers. They are designed to help prepare young people for work in health care and other growing industries. They also support services, including financial literacy, apprenticeship training, leadership development, and mental health/substance abuse counseling. Coordinating Federal Programs In recent years, the executive branch has sought to expand summer employment opportunities by coordinating DOL youth workforce programs with other federal programs. The Department of Health and Human Services (HHS) administers TANF, which funds a wide range of benefits and services for low-income families with children. Beginning with the enactment of ARRA in February 2009, HHS has encouraged states to use TANF funding to expand summer employment opportunities for eligible low-income youth. ARRA created a $5 billion Emergency Contingency Fund (ECF) within TANF to provide states, territories, and tribes with additional financial aid during the economic downturn under selected categories of TANF spending. HHS and DOL issued a joint letter in January 2010 to encourage states to use the ECF for subsidized youth employment. Over the two-year period that ECF funds were available, 24 states and the District of Columbia used these funds to operate summer employment programs targeted to over 138,000 youth. A study of 10 local sites that expanded summer employment programs via the ECF found that state and local workforce and TANF agencies built new partnerships or expanded existing ones to serve youth. The programs were primarily operated by local workforce boards (now known as workforce development boards), with support from the local TANF offices. HHS and DOL have since encouraged states, territories, and tribes to use TANF funds to support their summer efforts through other joint letters, technical assistance, and webinars. In a 2013 joint letter, HHS and DOL noted that "it is critically important for state and local TANF agencies to work with WIBs to explore ways to combine resources in developing or expanding subsidized employment programs and related supportive services [for low-income youth]." The executive branch has further encouraged coordination of summer employment efforts through two programs administered by HHS (the Community Services Block Grants [CSBG] and the Chafee Foster Care Independence Program [CFCIP]) and public housing dollars administered by the Department of Housing and Urban Development (HUD). CSBG provide federal funds to states, territories, and tribes for distribution to local agencies to support a wide range of community-based activities to reduce poverty. HHS has encouraged local and state CSBG offices to engage local CSBG-funded entities in securing government-sponsored and private sector summer jobs for low-income youth. Further, HHS has noted that CSBG entities may support employment opportunities directly or offer additional supports (e.g., mentoring, financial education) for youth in TANF and applicable federal workforce programs. The CFCIP delivers funding to child welfare agencies to provide services and supports for older youth in foster care and those who have recently emancipated from foster care. The Administration has encouraged partnerships between workforce programs and child welfare agencies as a possible way to mitigate poor employment and education outcomes for foster youth. In this same vein, the Administration has encouraged local housing authorities, which receive federal funding for public housing assistance, to work alongside youth service and workforce programs to develop summer job opportunities for low-income youth. Engaging Multiple Sectors Beyond using federal programs to expand summer employment opportunities, the executive branch has created partnerships with the private, nonprofit, and other sectors for this purpose. In 2012 and 2013, the Summer Jobs+ and Youth Jobs+ initiatives engaged partners—elected officials, local businesses, nonprofit organizations, and faith institutions—to help provide employment opportunities for young people. As part of the Summer Jobs+ initiative in summer 2012, the Obama Administration encouraged public and private sector entities across the country to provide a total of more than 300,000 summer job opportunities, including more than 100,000 paid positions. The initiative included the Summer Jobs+ bank, an online search tool for youth to access postings from participating employees. The Youth Jobs + initiative followed in 2013, with the Administration reaching out to engage these same stakeholders to provide paid positions, life-skills training, and work skills for youth. In February 2014, President Obama established the My Brother's Keeper Task Force (MBK Task Force) to assess the public and private efforts that are needed to enhance positive outcomes for boys and young men of color. The MBK Task Force was formed with representatives from various federal agencies that have programs and activities to support vulnerable youth. In a June 2014 report, the MBK Task Force developed a set of recommendations that identify roles for government, business, nonprofit, philanthropic, and other partners. The recommendations focused on ensuring that young men of color are ready for school, achieve in school, complete post-secondary education or training, and successfully enter the workforce. One of the recommendations was to strengthen evidence on summer employment as an intervention for young men of color and other vulnerable youth. In its April 2016 follow-up report, the MBK Task Force described selected federal and other initiatives aimed at improving the educational and employment outcomes for young men of color under the auspices of the MBK initiative. For example, MBK efforts in Detroit seek to provide 15,000 new summer jobs over the next 10 years. Considerations for Congress In considering whether to further support localities in their efforts to expand summer employment, Congress may want to examine the efficacy of summer employment programs and promising approaches to serving young people in these programs. As shown in Figure 2 , summer employment programs are short-term interventions that vary in their intensity and support for youth. Thus, summer jobs may not necessarily lead to changes in behavior or may have unintended consequences. For example, youth may stay out of trouble during working hours but engage in criminal behavior in the evenings or on weekends. The research literature on the effectiveness of summer employment programs is limited. Some studies have examined the experiences of youth in the programs and whether youth showed improvements over the summer and beyond. DOL conducted studies on how youth engaged in summer employment funded under ARRA in summer 2009. Approximately three-quarters (76%) of youth demonstrated work readiness skills after participating, but the study did not determine impacts on youth. Further, few studies have been conducted that involve youth randomly assigned to summer employment programs. Rigorous evaluations of federally funded summer employment programs that operated in communities from the 1960s through the 1980s found that some had short-term impacts for selected outcomes; however, they did not have impacts on most outcomes over the long term, or failed to overcome methodological challenges. More recent research shows that selected summer employment programs are showing promising results. Evaluations of the One Summer Plus (OSP) program in Chicago and the Summer Youth Employment Program (SYEP) in New York City indicate that summer jobs can reduce violent crime committed by youth participants, reduce the probability of incarceration or death, or improve academic outcomes. The results of the evaluations are summarized in Table B-1 . According to a 2016 study by the Brookings Institution, there are multiple challenges to developing and expanding summer employment programs for youth. A major obstacle is funding, both the level of funding needed to operate a program and the uncertainty of when and how much local and state funding will be available. Municipal and other program leaders often do not have a budget until the spring, when a program is well underway. In addition, program staff must take on many tasks simultaneously, including recruiting participants and employers, matching youth with worksites, and monitoring implementation of the program. Some summer programs do not have adequate levels of employees to take on tasks such as matching youth to appropriate worksites and preparing supervisors for their roles. In addition, some summer programs are not able to reach or assist the most vulnerable youth who have additional barriers to work such as unstable housing. Nonetheless, the 2016 study identifies promising features for achieving successful summer employment programs: program design , and capacity and infrastructure . P rogram design encompasses many elements, including (1) recruiting employers and worksites to provide the maximum number of job opportunities; (2) matching young people with opportunities that are well aligned with their abilities and skills; (3) preparing young people to succeed with professional training and financial literacy skills; (4) supporting youth and supervisors, such as having staff that provide coaching at the worksite; and (5) ensuring that youth connect to other opportunities in the community, such as year-round employment and programs to prepare youth for employment the following summer. C apacity and infrastructure includes ensuring a level of staff sufficient to carry out high-quality programming, and technology systems that can facilitate better program file and records management, communication with young people, and payroll automation. Promising programs have also developed tools, like guidebooks, that consolidate information about the program for program staff, youth, and workplace supervisors. Appendix A. Monthly Labor Force Trends for Youth Appendix B. Recent Evaluations of Summer Job Programs for Youth

Labor force activity for youth ages 16 to 24 has been in decline since the late 1990s. This trend has been consistent even during the summer months, when youth are most likely to be engaged in work. Labor force data from the month of July highlight changes in summer employment over time. For example, the employment rate—known as the employment to population (E/P) ratio—for youth was 64.1% in July 1996 and 53.2% in July 2016. Congress has long been concerned about ensuring that young people have productive pathways to adulthood, particularly for those youth who are low-income and have barriers to employment. One possible policy lever for improving youth employment prospects is providing jobs and supportive activities during the summer months. Generally, cities and other local jurisdictions carry out summer employment programs in which youth are placed in jobs or are otherwise participating in activities to facilitate their eventual entry into the workforce. Summer employment may serve multiple policy goals, including supporting low-income youth and their families, encouraging youth to develop "soft skills" that can help them navigate their environments and work well with others, and deterring youth from activities that could lead to them getting in trouble or being harmed. Data are limited on the number of youth engaged in summer employment. A survey of 40 cities reported that nearly 116,000 youth had summer jobs in 2015. This represents a small portion of the approximately 20 million youth ages 16 to 24 in the U.S. labor force during the summer. Localities fund summer employment activities with public and private dollars. Federal workforce laws since 1964 have authorized funding to local governments for their summer employment activities, primarily for low-income youth with barriers to employment; however, the laws' provisions about summer employment have shifted over time. The existing federal workforce law, the Workforce Innovation and Opportunities Act (WIOA, P.L. 113-128), was enacted in 2014 and made summer employment an optional activity under the Youth Activities program. This program provides the major federal support for youth employment and job training activities throughout the United States. The Workforce Investment Act (WIA, P.L. 105-220) and other prior laws required localities to use Youth Activities funding for summer youth employment. Other recent federal efforts have sought to bolster the summer employment prospects for young people. Under the Summer Jobs and Beyond grant, the Department of Labor provided $21 million in FY2016 for 11 communities to expand work opportunities for youth during the summer. The executive branch has also encouraged other federal programs, including the Temporary Assistance for Needy Families (TANF) program, to provide employment to eligible youth during the summer. Separately, the Obama Administration forged partnerships with the private and nonprofit sectors to expand summer jobs. For example, the My Brother's Keeper initiative has engaged the private sector in providing job and other opportunities for young men of color. Summer youth employment is short in duration and can range in intensity for youth participants. Therefore, it may not necessarily lead to changes in behavior or employment outcomes. In considering whether to further support localities in expanding summer employment, Congress may want to examine the efficacy of existing summer employment programs and promising approaches to serving young people in these programs. A small number of rigorously evaluated summer job programs show promise on selected youth outcomes, including programs in Chicago and New York City. A recent study has identified features of high-quality summer employment programs. Such features include a focus on recruiting and supporting youth and employers, a well-trained staff that coordinates with employers and other partners, and technologies to administer the program and facilitate communication with stakeholders.

Introduction There is a broad agreement in the scientific community that the earth's climate is changing and that the primary cause over the past few decades is an increasing concentration of greenhouse gases (GHGs) in the atmosphere. Most climate scientists have concluded that human activities—e.g., fossil fuel combustion, land clearing, and industrial and agricultural operations—have played a central role in climate change, particularly in recent decades. A variety of efforts that seek to address climate change are currently underway or being developed on the international, national, and sub-national level (e.g., individual state actions or regional partnerships). These efforts cover a wide spectrum, from research initiatives to GHG emission reduction regimes. If Congress establishes a federal program to manage or reduce GHG emissions, the emission requirements would likely impact different states differently. However, predicting the different impacts of policies is a complicated task, because multiple factors play a role. Such factors include alternative design elements of a GHG emissions reduction program, the availability and relative cost of mitigation options, and the regulated entities' abilities to pass compliance costs on to consumers. Underlying climate change policy discussions are GHG emissions and the factors that determine their levels and growth. One of the primary factors is GHG emissions intensity. In this report, GHG emissions intensity is a measure of GHG emissions from state sources divided by the state's overall economic output, or gross state product. Because carbon dioxide (CO 2 ) is the primary GHG in the vast majority of states, the report focuses on CO 2 emissions intensity and its determining factors. These factors vary significantly across state lines. An analysis of these factors and how they compare among the states may contribute to a more informed debate regarding potential policy approaches. Greenhouse Gas Emission Drivers Three broad factors influence GHG emission levels in a nation or state: population, per capita income, and GHG emissions intensity of the economy. A state's GHG emission levels can be approximated by multiplying together these three variables. Equation 1 expresses this relationship: The equation indicates that each of the variables can play a significant role in shaping a state's GHG emissions. For instance, if one of these variables increases, while the other two remain constant, GHG emissions will increase. The three emissions drivers do not operate independently of one another: a change in one variable may influence another variable. The three variables—population, per capita income, and GHG emissions intensity—differ substantially among the states and play varying roles when determining a state's GHG emissions. Table 1 shows this relationship for the 10 U.S. states with the highest GHG emission levels in 2003. These 10 states accounted for almost 50% of total U.S. GHG emissions in 2003. A similar table for all 50 states is included in the Appendix to this report. Table 1 provides a snapshot of information. Annual changes (or growth rates, which can be either positive or negative) in the GHG emission drivers will influence whether GHG emissions rise or fall. In order to reduce emissions, the sum of the three variable rates—population, income, and intensity—must be negative. To put this goal in perspective, consider the annual average rates of change for the United States between 1990 and 2000 ( Table 2 ): Table 2 reveals that the growth rates were positive for both U.S. population and per capita income during the 1990s. Although GHG intensity decreased during that time period, the decline was not enough to offset the increases from the other two variables, and GHG emission levels increased by 1.4% annually. Annual growth rates for GHG emissions and the emission drivers vary significantly among the U.S. states. The Appendix contains a table listing the growth rates for all 50 states. In some states, GHG intensity declines were well above average declines, but these annual reductions were offset by increases in population, per capita income, or a combination of the two. Greenhouse Gas Emissions Intensity Of the three GHG emission drivers—population, per capita income, and GHG emissions intensity—the most relevant in terms of climate change policy is GHG intensity. Decreases in population and/or per capita income would contribute to lowering a state's GHG emissions. However, growth in population and personal income is generally considered a positive social outcome, and policies that would seek to directly limit these emissions drivers are essentially outside the bounds of public policy. GHG intensity is a simple measure of GHG emissions per unit of output. Although most GHG reduction regimes address actual emissions, the national target in the United States—as announced by the Bush Administration—aims to reduce the GHG emissions intensity of the national economy. In 2002, the Bush Administration set a voluntary target of reducing the ratio of U.S. GHG emissions to the U.S. Gross Domestic Product (GDP) by 18% by 2012. According to the Administration, meeting this target would reduce intensity beyond that of intensity reductions expected under a business-as-usual scenario. Based on data available in 2002, GHG emissions intensity was projected to decline by 14% under a business-as-usual scenario. Critics of the Administration's intensity target have pointed out that (1) the intensity target is more precisely quantified at 17.5%; and (2) more recent data indicate that the U.S. intensity declined by 16.2% between 1990 and 2002. Thus, some observers have described the effect of the intensity target as "negligible." Intensity targets are sometimes viewed with skepticism, because the intensity target proponents may imprecisely describe (or overstate) how reductions in emissions intensity would affect actual emission levels. For example, the Administration has stated that meeting the U.S. emissions intensity target would lead to GHG emission reductions. Arguably, such a description can be misleading, because the reductions would occur within the context of increasing U.S. emissions. In other words, U.S. emissions would continue to increase, but if the intensity target is met, the emissions increase would be less than business-as-usual. Moreover, there is some uncertainty as to whether the "reductions" will be achieved at all. The Administration's projected reductions are based on GDP forecasts. If the GDP increases at higher than projected rates, absolute emissions can increase beyond business-as-usual scenario, while still meeting the intensity target. Although some have questioned the environmental efficacy of intensity targets (i.e., their ability to lower GHGs), the effectiveness of an emissions target depends primarily on its stringency, not whether it applies to emissions intensity or absolute emissions. Meeting an aggressive intensity target can result in actual emission reductions, if the intensity decrease outpaces the combined increases in population and per capita income. In fact, if the United States is to reduce its emissions, while maintaining population and per capita income growth rates, a stringent reduction in GHG emissions intensity would be required. Greenhouse Gas Emissions Intensity in the States The GHG intensity levels display a considerable range among the 50 states. Table 3 lists the states with the five highest and five lowest GHG intensity values (based on 2003 data). The table shows that the ends of the spectrum differ by more than an order of magnitude. What factors determine a state's intensity and lead to the wide variances among the states? In the United States, carbon dioxide (CO 2 ) emissions have historically accounted for 85% of the nation's GHG emissions, excluding land use changes and forestry. In all but four states, CO 2 emissions accounted for at least 80% of the state's GHG emissions in 2003. As the dominant GHG, the intensity of CO 2 emissions significantly impacts the overall GHG intensity. If Table 3 were to rank states based on CO 2 emissions intensity, the results would be nearly identical. Due to the dominance of CO 2 emissions in the vast majority of states, this report focuses on its role in driving overall GHG emissions intensity, and thus GHG emissions. (Note that the Appendix contains a table listing CO 2 emissions intensity and its drivers for all 50 states). Carbon Dioxide Intensity and Its Drivers Approximately 98% of the U.S. CO 2 emissions in 2003 were from energy use. The primary factors that determine CO 2 emissions intensity in a state are its energy intensity and the carbon content of its energy use (or fuel mix). The relationship between CO 2 emissions intensity, energy intensity and carbon content of energy use is shown in Equation 2 . Energy Intensity Energy intensity is the amount of energy a state consumes—typically measured in tons of oil equivalent (toe)—per its level of economic output (gross state product). Table 4 shows the states with highest and lowest energy intensity levels in 2003. A comparatively high energy intensity figure indicates a states uses more energy (toe) per economic output (GSP) than other states. There is wide gulf (a factor of five) between states at either end of the spectrum. Multiple factors influence a state's energy intensity. This section of the report compares energy intensity levels with five potential drivers: economic structure, transportation use, public policy, state climate, and gross state product. An overall assessment of the factors and their interactions with energy intensity is provided at the end of this section. Economic Structure A state's economic structure likely plays an important role. For instance, a primary economic factor is whether the state's economy is based more on high-energy industries or low-energy industries. A state with a GSP based on a high ratio of high-energy industries is likely to have a higher overall energy intensity than a state with proportionately more low-energy sectors (e.g., finance, professional services). Table 5 lists (1) the five states with the highest percentages of their GSP resulting from high-energy intensive industries; and (2) the five states with the highest percentages of their GSP based on low-energy intensive industries. A comparison of Table 4 and Table 5 indicates a correspondence between energy intensity and a state's economic structure. The top-three highest energy intensity states are also the top-three in percentage of their GSP from high-energy sectors; three of the top-five lowest energy intensity states are also among the top-six states for GSP based on low-energy sectors. Of the 25 states with the highest percentages of their GSPs based on high-energy sectors, 19 of these states are ranked in the top-25 for energy intensity. Personal Transportation The transportation sector accounts for over a quarter (28%) of total energy consumption in the United States. Within the transportation sector, personal transportation—i.e., cars, light trucks, and motorcycles—accounts for the majority of energy use (64% in 2004). A measure that tracks personal transportation use in a state is vehicle miles traveled (VMT) per person. A state's per capita VMT is another factor that likely impacts a state's energy intensity. As Table 6 indicates, there is a significant range between states with the most and least VMT/person. The five states—New York, Hawaii, Alaska, Rhode Island, and New Jersey—on the low end of the spectrum averaged 7,598 VMT/person in 2003; the five states—Wyoming, Vermont, Alabama, Oklahoma, and Mississippi—on the other end averaged 14,186 VMT/person in 2003. There is a general correspondence between a state's per capita VMT and energy intensity. Of the 25 states with the lowest energy intensity levels, 17 of them are also in the group of 25 states with the fewest VMT/person. However, there are several dramatic exceptions to this correlation. For example, Alaska ranks third for lowest VMT/person, but second for highest energy intensity. Conversely, Vermont has the second highest VMT/person, but has a relatively low energy intensity (ranks 15 th ). Such exceptions demonstrate that multiple factors play a role and that energy intensity drivers may have varying impacts in different states. Public Policy States can seek to reduce energy intensity through public policy action. Some states have enacted policies or regulations that are more stringent or broader in scope than federal standards, supporting improvements in efficiency standards for electricity generation, buildings, and/or appliances. For example, 12 states have established energy efficiency standards for appliances that are more stringent than federal requirements. The American Council for an Energy-Efficient Economy (ACEEE) published an energy efficiency scorecard that ranks the states based on their energy efficiency policies. The ACEEE scores show a relationship with highest and lowest energy intensity levels among the states. Of the states with low energy intensity levels, all were ranked highly by the ACEEE scorecard. Conversely, the states with high energy intensities received low ACEEE rankings. In addition, of the 25 states ranked highly by ACEEE for public policy, 19 of the states are among the 25 states with the lowest energy intensities. State Climate Natural factors, such as a state's climate, may influence energy intensity in some states, but the degree of influence is difficult to determine. A state's overall climate helps determine the amount of energy needed to heat or cool residential, commercial, and industrial buildings. A measurement used to evaluate this concept is the "degree day," which includes heating degree days (HDDs) and cooling degree days (CDDs). In the United States, HDDs outnumber CDDs by a factor of five to one, thus states in colder climates generally have the most degree days. An examination of energy intensity and degree days for all 50 states does not indicate an overall correlation between these two measures. While several states rank highly for both degree days and energy intensity, many of the states with low energy intensities—e.g., New York, Connecticut, and Massachusetts—are among the top 25 states in terms of degree days. In addition, many of the states with few degree days are among the top 25 states in terms of energy intensity. The lack of an overall correlation between degree days and energy intensity does not rule out the influence of climate. Climate may play a supplemental role that is perhaps obscured by more influential factors. Gross State Product The size of a state's economy (the denominator of energy intensity) can be an important part of the equation. Of the states with the 25 lowest GSPs, 17 of the states are in the top-25 for energy intensity. A sudden increase/decrease in a variable that alters energy consumption will likely yield a more pronounced effect in states with lower GSPs. In contrast, the effects of drastic changes may be less pronounced in states with larger GSPs. Four of the states with high energy intensities rank near the bottom in terms of absolute GSP (in 2003): Alaska (45 th ), Wyoming (50 th ), North Dakota (48 th ), and West Virginia (40 th ). Conversely, California and New York, which are among the top five states with lowest energy intensities, are ranked first and second, respectively. However, in the other states listed above ( Table 4 ), the size of GSP may play a lesser role. For example, Louisiana, the state with the highest energy intensity, ranked 24 th for total GSP in 2003. Conclusions Other than a state's climate, each of the factors discussed above shows a relationship with energy intensity. Most of the states with high energy intensity levels are at the extreme end of the range for more than one of the underlying factors; many of the states with low intensities also have corresponding rankings with one or more underlying factors. However, there are sometimes dramatic exceptions. The exceptions highlight the diversity among the states and indicate the difficulty in making conclusions that apply in all states. In addition, for states that have multiple factors steering towards higher energy intensity, it is difficult to determine which factor is dominant. Perhaps the most extreme example of this difficulty is Wyoming, which has the third highest energy intensity. Wyoming ranks first for percentage of energy-intensive industries, first for VMT/person, fourth for number of degree days, last (50 th ) for absolute GSP, and 49 th in ACEEE's public policy scorecard. All of these rankings point towards increased energy intensity, thus creating a challenge to identify the primary influence in states such as Wyoming. Carbon Content of Energy Use The second driver of CO 2 emissions intensity is the carbon content of energy use in a state. Energy sources vary in the amount of carbon released per unit of energy supplied (e.g., British Thermal Unit). A state that uses a greater proportion of high-carbon energy sources will have higher CO 2 emissions per unit of energy use than a state that utilizes more low-carbon energy sources. Table 7 shows the states with the five highest and five lowest carbon contents of energy use (measured in tons of CO 2 per tons of oil equivalent, toe). Electricity Generation A state's electricity sector is especially important in the context of a state's carbon content of energy use. The electricity sector produces a substantial portion of CO 2 emissions in many states and is the highest emitting sector in the United States, accounting for approximately 40% of U.S. CO 2 emissions. Electricity can be generated from a variety of energy sources, which vary significantly by their ratio of CO 2 emissions per unit of energy. A coal-fired power plant emits almost twice as much CO 2 (per unit of energy) as a natural gas-fired facility. Some energy sources—e.g., hydropower, nuclear, wind, or solar—do not directly release any CO 2 emissions. Although the transportation sector contributes a significant percentage of CO 2 emissions in most states (and 33% of U.S. CO 2 emissions in 2003—the second highest sector), this sector utilizes a more homogenous fuel portfolio. In contrast to fuels used to generate electricity, transportation fuels do not demonstrate as much variance in their CO 2 emissions per unit of energy. Thus for the purposes of examining a state's carbon content of energy use, this report focuses on the electricity sector. Compared to the other states, the five states with high carbon contents in their fuel mix utilized a relatively large percentage of coal for electricity generation in 2003. Conversely, the five states with the lowest levels generated electricity from a relatively high percentage of zero-emission energy sources in 2003. In general, hydropower and nuclear power dominate the zero-emission subcategory in terms of use, but the zero-emission sources also include wind, solar, geothermal, and the sources that fall within the Energy Information Administration's (EIA) "other renewables" category. Table 8 lists the states that utilized the greatest percentages of coal to generate electricity and the states with the highest percentages of zero-emission energy sources. Electricity Exports/Imports Another important factor that affects a state's carbon content of energy use is whether the state is a net importer or exporter of electricity. States consume fuels (e.g., coal, natural gas, etc.) to generate electricity, but the electricity may be exported to and used in another state. The method for accounting for these exchanges influences the level of a state's carbon content of energy use. In the above carbon content of energy data ( Table 7 ), if one state uses an energy source (e.g., coal) to generate electricity and then sells the electricity to a consumer in a second state, the CO 2 emissions are attributed to the generating state, but the energy use is attributed to the consuming state. Table 9 lists the states in which electricity exports accounted for high percentages of energy use. Likewise, the table lists the states in which imported electricity accounted for high percentages of energy use. The import/export factor is especially prominent for states with high carbon content levels. The top four states for carbon content of energy use in 2003—West Virginia, Wyoming, North Dakota, and Montana—exported substantial portions of electricity in that year. Of the five states with low carbon content levels, the import/export factor appears most relevant in Idaho, where imported electricity accounted for 41% of its total energy use in 2003. Some may argue that this characteristic of the data artificially inflates the carbon content of energy use in exporting states, while artificially lowering the measure in states that import a significant amount of electricity. Consider Wyoming and Idaho, two states at opposite extremes of the carbon contents of energy use range. Two coal-fired power plants located in Wyoming are partially owned by electricity providers that serve customers in Idaho. Idaho customers are receiving some amount of coal-fired electricity from Wyoming (and Oregon and Nevada). This electricity is counted as energy use in Idaho, while the CO 2 emissions are attributed to Wyoming (or Oregon or Nevada). From another perspective, the example is less a critique of the carbon content of energy measure, and more a highlight of how electricity generation and use is measured. There is no system in place to physically track electricity upon generation. Therefore, it is impossible to precisely attribute imported electricity to its energy source. Moreover, exported electricity may come from energy sources other than coal. States may export electricity generated from low- or zero-carbon energy sources, such as hydropower or nuclear. This factor adds another layer of complexity to the accounting. As the above Wyoming/Idaho example demonstrates, rough approximations might be established based on ownership data, but it may be difficult (if not impossible) to precisely assign the CO 2 emissions from an exporting state to the importing state. Thus, states that appear to be using low-carbon energy sources, may be importing high-carbon energy, in the form of electricity. Consequences of Differences in State Emissions Drivers in the Context of a Federal Greenhouse Gas Emissions Reduction Program As noted above, the states have, in some cases, vastly different levels of GHG emissions intensity and related underlying variables. If Congress were to enact a federal GHG emissions reduction program, these differences may lead to a wide range of impacts in the states. The range of impacts would depend on the logistics of the emissions reduction program and the ability of regulated entities to spread compliance costs. If Congress creates a mandatory GHG emissions reduction regime, the program would assign (directly or indirectly) a cost to emissions of carbon (or carbon-equivalents in the case of some GHGs). The stringency, scope, and design of the reduction regime would play a large role in determining costs and how the costs are distributed. For instance, Congress could include specific provisions—e.g., a safety-valve or revenue recycling—that would control costs or ease the burden on particular groups. Regardless of how Congress might design a GHG reduction program, a mandatory GHG reduction regime would affect states differently. In particular, the states' different energy intensities and carbon content of energy use indicate the states would experience different effects. States with relatively high levels of carbon content in their energy use ( Table 7 ) would likely see higher energy prices. These states typically use a high percentage of coal to generate electricity, thus electricity prices would likely increase in these states. The consumers' responses to these price increases would help determine impacts. Consumers may choose to conserve energy use or switch to alternative sources. The carbon price imposed by the emission reduction regime would provide incentives to switch from high-carbon to low-carbon fuel (e.g., from coal to natural gas). However, such a switch may be limited by the technology and infrastructure existing in a state, particularly in the electricity generation sector. Conventional coal-fired power plants in operation today, which account for approximately 50% of all electricity generation, cannot simply switch to another fuel source. The producers of coal-fired electricity may be able to pass along the additional carbon costs to consumers, but some state regulations may hinder a company's ability to include the additional costs in electricity prices. Differences in the states' regulatory structures may influence which groups ultimately pay for the additional carbon costs. In states with tighter regulatory control over prices, power companies may bear a relatively higher cost; in other states, consumers of electricity may bear a higher percentage of the costs, where companies are less constrained in passing costs along to customers in the form of higher prices. Depending on particular design elements of the emissions reduction program, some of these potential disproportionate effects might be alleviated. For example, if producers are expected to pay a higher percentage of the additional carbon costs, some of the emission allowances might be provided for free. If consumers are anticipated to pay a higher proportionate cost, the allowances could be auctioned. The auction's revenues could be returned to consumers, particularly to low-income households, which would be especially impacted by higher electricity bills. As discussed above, a state's import/export ratio of electricity may influence its carbon content of energy use (or fuel mix). This component adds a further layer of complexity when assessing the potential impacts of a carbon price. For example, depending on how emission allowances might be distributed under a federal cap-and-trade system, states that are net energy providers may receive financial gains, at least in the short-term. For instance, if power plants can pass along the mitigation costs (of carbon reduction) in higher electricity prices and receive their emission allowances for free (often referred to as "grandfathering") the companies may benefit financially. These potential gains to the likely regulated entities (e.g., coal-fired power plants) have been described as "windfall profits," and have been recently observed in the European Union's Emission Trading System. The gains would be temporary, because under most cap-and-trade proposals, the cap decreases over time; thus, regulated entities would receive fewer allowances as the program progresses. If Congress enacts an emissions reduction program, states with high levels of energy intensity are likely to face higher costs than states with low energy intensity levels. As Table 4 shows, the high and low energy intensity levels can differ by a factor of four, which suggests that the impacts between the states at the ends of the spectrum could vary dramatically. Energy intensity levels are shaped by multiple factors. Some of these factors may be based on behavior or actions. These factors may be altered through public policy. For example, states could initiate policies or support programs that seek to change the driving behavior (i.e., VMT) of its citizens. Other factors—especially a state's ratio of high and low carbon intensive industries—are more structural, and thus more difficult (if not impractical) to alter through public policy. In addition, depending on the degree to which a state's energy intensity is influenced by its climate, a newly-imposed carbon price may have a greater impact. In these states, the demand for energy may be less elastic (i.e., responsive to price changes) than other states, because energy is more critical for daily life necessities, such as home heating. Low-income citizens may face a disproportionate burden, as a share of income, of price increases in states with substantial heating and/or cooling needs. States with high energy intensity may have a high percentage of carbon-intensive industries (e.g., manufacturing). These industries would likely see an increase in their operational costs due to the new carbon price, but they may be able to include the additional carbon costs in the price of their products (e.g., paper, cement, steel), thus spreading the costs to consumers in other states. However, passing along the carbon price to consumers may not be financially viable for producers. The ability of producers to pass along the carbon price would be determined by the competitiveness of the market and consumers' willingness to pay higher prices or forego purchases for a particular good. Consumers may seek out product substitutes or lower cost suppliers (which could include foreign producers not subject to a domestic carbon price). From another perspective, higher levels in emissions drivers, particularly the energy intensity variable, may suggest a state has comparatively more "low hanging fruit" or lower-cost options to meet emission reduction requirements. As noted above, the states with high energy intensities were also ranked poorly by ACEEE's energy efficiency scorecard. Although these states' energy intensity levels are primarily due to economic structure, there may be room for improvement—via "no regrets" energy efficiency policies—within the framework of their economic structure. Along these lines, states that currently use a substantial percentage of high-carbon fuels for energy purposes (particularly for electricity generation) may have more options in a carbon-constrained regime than states that are already utilizing a high percentage of low-carbon energy sources. For instance, if states in both categories were required to reduce current emissions by a set percentage, states using high-carbon fuels may seek low-carbon fuel substitutes, but states using low-carbon fuels would be limited in this regard. This comparison does not suggest that switching to low-carbon fuels will be easy (or inexpensive), but these states may have more ways to find emission reductions. Moreover, low-carbon fuel substitutes may not be distributed evenly across the states. Some states that currently use large proportions of high-carbon energy sources may be in better positions—in terms of natural resource endowments and geography—than other states looking for low-carbon substitutes. For example, there is more wind energy potential in the western and mid-western states than in states in the Southeast. The above comparison also highlights the importance of selecting a baseline year for an emission reduction program. If emissions caps are compared to 1990 levels, it would reward states for reductions made during the 1990s. If the reduction program's baseline is 2000, for example, the reductions made before that year would not count, and these states may have more difficulty finding lower-cost options. Greenhouse Gas Intensity Levels in the Context of an Emissions Reduction Program Several members in the 110 th Congress have introduced proposals that would establish a nation-wide GHG reduction program. Any emissions reduction regime would necessitate declines in GHG intensity. The declines needed would depend on the level of absolute reductions mandated by the enacted program. To stabilize national GHG emission growth, the entire United States would need to achieve annual reductions in GHG intensity of approximately 3% (assuming population and income continue to grow at a combined rate of 3%). Only four states—Delaware (3.7%), New Mexico (3.7%), Utah (3.4%), and Arizona (3.3%)—exceeded this annual rate of decline between 1990 and 2003; the average decline among all states was 1.7%. Reducing GHG emissions in the United States would necessitate further declines in GHG intensity. Several legislative proposals in the 110 th Congress would require GHG emissions to return to 1990 levels by 2020. To meet this objective, national GHG intensity would need to decline annually (starting in 2010) by 5.0%. To put this goal in perspective, consider the 10 states that emitted the most GHGs in 2003 (accounting for approximately 50% of total U.S. emissions) and the GHG intensity annual average rates of change (between 1990 and 2003) for these states ( Table 10 ). These states would likely need to make further reductions in GHG intensity if the national GHG intensity levels are to decline annually by 5% starting in 2010. Many of these states would need to more than double their current annual GHG intensity declines to reach a negative growth rate of 5%. Appendix. Select Tables with Data for All 50 States Equation 1:

Instituting policies to manage or reduce greenhouse gas (GHG) emissions would likely impact different states differently. Understanding these differences may provide for a more informed debate regarding potential policy approaches. However, multiple factors play a role in determining impacts, including alternative design elements of a GHG emissions reduction program, the availability and relative cost of mitigation options, and the regulated entities' abilities to pass compliance costs on to consumers. Three primary variables drive a state's human-related GHG emission levels: population, per capita income, and the GHG emissions intensity. GHG emissions intensity is a performance measure. In this report, GHG intensity is a measure of GHG emissions from sources within a state compared with a state's economic output (gross state product, GSP). The GHG emissions intensity driver stands apart as the main target for climate change mitigation policy, because public policy generally considers population and income growth to be socially positive. The intensity of carbon dioxide (CO2) emissions largely determines overall GHG intensity, because CO2 emissions account for 85% of the GHG emissions in the United States. As 98% of U.S. CO2 emissions are energy-related, the primary factors that shape CO2 emissions intensity are a state's energy intensity and the carbon content of its energy use. Energy intensity measures the amount of energy a state uses to generate its overall economic output (measured by its GSP). Several underlying factors may impact a state's energy intensity: a state's economic structure, personal transportation use in a state (measured in vehicle miles traveled per person), and public policies regarding energy efficiency. The carbon content of energy use in a state is determined by a state's portfolio of energy sources. States that utilize a high percentage of coal, for example, will have a relatively high carbon content of energy use, compared to states with a lower dependence on coal. An additional factor is whether a state is a net exporter or importer of electricity, because CO2 emissions are attributed to electricity-producing states, but the electricity is used (and counted) in the consuming state. Between 1990 and 2000, the United States reduced its GHG intensity by 1.6% annually. Assuming that population and per capita income continue to grow as expected, the United States would need to reduce its GHG intensity at the rate of 3% per year in order to halt the annual growth in GHG emissions. Therefore, achieving reductions (or negative growth) in GHG emissions would necessitate further declines in GHG intensity.

Expedited Removal Authority at Department of Veterans Affairs Section 707 of the Veterans Access, Choice, and Accountability Act of 2014, P.L. 113-146 , enacted on August 7, 2014, creates new authority for removing an individual in a senior executive position in the Department of Veterans Affairs. Section 707(a) of P.L. 113-146 adds a new Section 713 to Title 38 of U.S. Code. Section 713(a)(1) authorizes the Secretary of Veterans Affairs to remove an individual employed in a Senior Executive Service (SES) position if the Secretary determines that the individual's performance or misconduct merits removal. The Secretary may remove the individual from federal service or transfer him or her to a General Schedule (GS) position for which the individual is qualified and determined appropriate. Section 713(g)(1) defines an "individual in a senior executive position" as not only a career appointee in the Senior Executive Service, but also a departmental SES equivalent (i.e., a health care professional such as a physician or dentist in an administrative or executive position in the Department's Veterans Health Administration who was appointed under 38 U.S.C. Sections 7306(a) or 7401(1)). Sections 713(d)(2)(A) and (B) provide that any removal or transfer may be appealed to the Merit Systems Protection Board (MSPB or Board) if an appeal is filed not later than seven days after the removal or transfer date. The Board is required to refer any appeal to an administrative judge, who must expedite it and issue a decision not later than 21 days after the appeal date. If an administrative judge cannot issue a decision within that time, the Secretary's removal or transfer decision is final. Under Section 713(e)(4), the MSPB or administrative judge may not stay (i.e., suspend) any removal from federal service or transfer to a GS position. A senior executive who is transferred to a GS position, beginning on the transfer date, receives the annual pay rate applicable to that position only if he or she reports for duty. While an appeal is pending, the senior executive may not be paid if placed on administrative leave or any other category of leave which otherwise would be paid. During the period beginning on the date that the senior executive appeals a removal from federal service and ending on the date that an MSPB administrative judge issues a final decision, he or she may not receive any pay, awards, bonuses, incentives, allowances, differentials, student loan repayments, special payments, or benefits. Authority provided by 38 U.S.C. §713 does not preclude the Secretary from using other authorities to transfer career SES members to GS positions or remove them from federal service; Section 713(f)(1) states that authority provided by Section 713 is in addition to authority provided by 5 U.S.C. § 3592 or §§ 7541 , 7542 , and 7543 , which relate to removing career members from the SES or adverse actions to remove them from federal service, respectively. Nevertheless, Section 713(d)(1) provides that if the Secretary exercises authority under 38 U.S.C. §713 rather than regular adverse action authority for removing a career member of the SES from federal service, the procedures in 5 U.S.C. §7543(b) shall not apply. This subsection entitles a career SES member to (1) at least 30 days of advance written notice; (2) a reasonable time, but not less than seven days to answer orally or in writing; (3) representation by an attorney or other representative at the senior executive's expense; and (4) a written decision from the agency with specific reasons therefor at the earliest practicable date. Moreover, a career senior executive may appeal an agency decision to the Merit Systems Protection Board (MSPB). A decision of the MSPB may be subject to judicial review under 5 U.S.C. §7703. Section 713(b)(2) provides that Section 3592(b)(1) of U.S. Code Title 5 shall not apply to the expedited removal procedure. This paragraph, designed to apply to situations including changes in administrations, states that a career senior executive may not be removed involuntarily from the SES within 120 days after an appointment of an agency head or the career appointee's most immediate supervisor if that supervisor is a noncareer SES appointee and has authority to remove the career appointee. Section 707(b) of P.L. 113-146 directs the Merit Systems Protection Board within 14 days after enactment to issue regulations to implement Section 713's authority. On August 19, 2014, the Board published Part 1210 of Title 5 of the Code of Federal Regulations as an interim final rule with request for comments. It published a technical correction on August 21, 2014. MSPB responded to comments, rejected them, and adopted the interim final rule, as corrected, as a final rule on October 22, 2014. MSPB's regulations address practices and procedures such as discovery, hearings, and standards of proof. They provide that an administrative judge may uphold or reject a Secretary's decision to remove or transfer a senior executive based on the reasonableness of the Secretary's decision, but may not mitigate it. Section 707(c) of P.L. 113-146 authorizes the Secretary of Veterans Affairs to initiate an adverse action under the regular procedure in 5 U.S.C. §7543 to remove an individual from the Senior Executive Service, notwithstanding 5 U.S.C. §3592(b) or any other provision of law. Subsection(c) of Section 707 of P.L. 113-146 waives the time limitation on removing career senior executives. As noted above, Section 3592(b) prohibits removing a career senior executive within 120 days after the appointment of an agency head or the career appointee's most immediate supervisor if that supervisor is a noncareer SES appointee and has the authority to remove the career appointee. Section 707(d) of P.L. 113-146 provides that nothing in Section 707 or 38 U.S.C. §713, as added by Section 707(a), shall be construed to apply to an appeal of a removal, transfer, or other personnel action that was pending before that public law was enacted. It adds that the authority provided in 38 U.S.C. §713 is in addition to authority provided by 5 U.S.C. §3592, which relates to removing a career SES member from the Senior Executive Service, or subchapter V of U.S. Code Title 5 Chapter 75 (i.e., Sections 7541-7543) which relate to adverse action removal from federal service or suspension of more than 14 days of a career member of the Senior Executive Service. Due Process Considerations Generally Because Section 713 of Title 38 authorizes the Secretary of Veterans Affairs to remove an individual in a senior executive position from that position or from federal service, it appears to raise a constitutional question. The Fifth Amendment of the Constitution provides, in relevant part, that, "No person shall be ... deprived of life, liberty, or property without due process of law;.... " Some Supreme Court cases have interpreted this language to determine (1) whether a nonprobationary government employee who is removable for cause, as distinguished from at-will, has a constitutionally protected property interest in continued government employment; (2) whether due process applies to deprivation of such an interest; and (3) if due process applies, what kind of process is constitutionally sufficient? In Board of Regents v. Roth , the Court noted that, "To have a property interest in a benefit, a person must ... have a legitimate claim of entitlement to it.... Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as ... law—rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." The Court acknowledged that a public employee under some circumstances has a property interest in continued employment that is safeguarded by due process. In Arnett v. Kennedy , a nonprobationary federal Office of Economic Opportunity (OEO) employee in the competitive service named Kennedy was removed from federal service in an adverse action proceeding under the standard in the Lloyd-La Follette Act: "such cause as will promote the efficiency of the service." He allegedly slandered his supervisor by accusing him of bribing or attempting to bribe a community organization's representative with an OEO grant in exchange for signing a statement against Kennedy. Kennedy argued that removing him from federal service before OEO held a hearing deprived him of a property right to continued employment that was protected by the Due Process Clause and that the "such cause" standard was vague because it did not apprise him of the kind of speech that could result in removal. The Supreme Court upheld Kennedy's removal, reversing a decision by a three-judge district court that had accepted his constitutional challenge. The district court in Kennedy v. Sanchez held that Kennedy had a property right to continued employment that was protected from deprivation by the Due Process Clause because he was a nonprobationary employee in the competitive service who was removable for cause. It added that to comply with the Clause, OEO should have granted Kennedy a hearing before removing him from federal service. The district court based its conclusion on the Supreme Court's decision in Goldberg v. Kelly , which held that a recipient could not be deprived of welfare benefits before receiving a hearing on eligibility for continued benefits. It also held that the "for such cause" standard was vague. All Supreme Court justices agreed with the district court that Kennedy had a property right in continued employment subject to the Due Process Clause. Because OEO's regulations and practice provided that a removed employee was entitled to a trial-type hearing a fter removal either at OEO or the Civil Service Commission, the predecessor to the Merit Systems Protection Board, the Court focused on whether a hearing before or after removal provided adequate due process under the Clause. By a vote of 5 to 4, the Court concluded that a hearing after removal sufficed and that the "such cause" standard was not vague. Although this conclusion garnered a majority, the justices disagreed on the reason for it. A plurality opinion representing views of three justices held that, [W]here the grant of a substantive right is inextricably intertwined with the limitations on the procedures which are to be employed in determining that right, a litigant in the position of the appellee must take the bitter with the sweet. . . . To conclude otherwise would require us to hold that although Congress chose to enact what was essentially a legislative compromise, and with unmistakable clarity granted governmental employees security against being dismissed without 'cause,' but refused to accord them a full evidentiary hearing for the determination of 'cause,' it was disabled from making such a choice. We would be holding that federal employees had been granted, as a result of the enactment of the Lloyd-LaFollette Act, not merely that which Congress had given them in the first part of the sentence, but that which Congress had expressly withheld from them in the latter part of the same sentence. Neither the language of the Due Process Clause nor our cases construing it require any such hobbling restrictions on legislative authority in this area. . . . Here, the property interest which the appellee had in his employment was conditioned by the procedural limitations which had accompanied the grant of that interest. The government might, then, under our holdings dealing with government employees in Roth supra and Sinderman , supra , constitutionally deal with appellee's claims as it proposed to do here. This "bitter with the sweet" formulation appears to link the procedures that a legislative body has established for removing a government position to the nature of the right to continue to hold it. It, in effect, would appear to allow a summary or expedited removal authority to transform public employees who are removable for cause into employees who can be terminated pursuant to whatever removal authorities that a legislative body provides. In an opinion that concurred in the plurality opinion's conclusion but not its reasoning, Justice Powell wrote that, The plurality opinion evidently reasons that the nature of appellee's interest in continued federal employment is necessarily defined and limited by the statutory procedures for discharge and that the constitutional guarantee of procedural due process accords to appellee no procedural protections against arbitrary or erroneous discharge other than those expressly provided in statute. The plurality would thus conclude that the statute governing federal employment determines not only the nature of appellee's property interest, but also the extent of the procedural protections to which he may claim. It seems that this approach ... would lead directly to the conclusion that whatever the nature of an individual's statutorily created property interest , deprivation of that interest could be accomplished without notice or a hearing at any time . (Emphasis supplied.) Justice White addressed the authority of Congress to confer or not to confer a property right in continued government employment in an opinion that concurred in part and dissented in part in the plurality opinion. "While the state may define what is and what is not property, once having defined those rights, the Constitution defines due process, and as I understand it six members of the Court are in agreement on this fundamental proposition." In this passage, Justice White referred to the six members of the Court who did not subscribe to the bitter with the sweet formulation in the plurality opinion. The Court expressly rejected this formulation in Cleveland Board of Education v. Loudermill . It held that, the "bitter with the sweet" approach misconceives the constitutional guarantee. If a clearer holding is needed, we provide it today. The point is straightforward: The Due Process Clause provides that certain substantive rights—life, liberty, and property—cannot be deprived except pursuant to constitutionally adequate procedures. The categories of substance and procedure are distinct. Were the rule otherwise, the Clause would be reduced to a mere tautology. Property cannot be defined by the procedures provided for its deprivation any more than can life or liberty. The right to due process "is conferred not by legislative grace, but by constitutional guarantee. While the legislature may elect not to confer a property interest in public employment, it may not constitutionally authorize the deprivation of such an interest, once conferred, without appropriate procedural safeguards.' While Justice Powell's formulation adopted in Loudermill superficially may appear to differ from the "bitter with the sweet" formulation, the two do not appear to be diametrically opposite; in many situations they could overlap. As Justice Powell said in his Arnett concurrence, to accept the latter formulation for a nonprobationary government employee who is removable for cause would permit the government to deprive that employee of notice of charges, an opportunity to respond, and a hearing at any time . Where these procedures are provided, applying the bitter with the sweet formulation in many cases would not appear to yield a conclusion that would differ from one reached by applying Justice Powell's formulation. The Court in the Loudermill case balanced interests it had asserted in Mathews v. Eldridge : (1) the individual's private interest in retaining employment or a benefit, (2) the government's interest in expeditiously removing an unsatisfactory employee or benefit and avoiding administrative burdens; and (3) the risk of an erroneous termination of employment or a benefit. Eldridge concluded that a hearing after termination of disability benefits provided sufficient due process. The Court in Eldridge added that, " ... [d]ue process, unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances.' Cafeteria Workers v. McElroy, 367 U.S. 886, 895 (1961) . '[D]ue process is flexible and calls for such procedural protections as the particular situation demands.' Morrissey v. Brewer, 408 U.S. 471, 481 (1972) ." In Loudermill , the Court concluded that, The tenured public employee [ i.e. a nonprobationary employee who is removable for cause rather than at-will] is entitled to oral or written notice of the charges against him, an explanation of the employer's evidence, and an opportunity to present his side of the story.... To require more than this prior to termination would intrude to an unwarranted extent on the government's interest in quickly removing an unsatisfactory employee. The Court indicated that the Due Process Clause requires that these procedures, which do not need to be elaborate, must be afforded before removal provided that a removed employee receives an evidentiary hearing within a reasonable time after removal. It cited an earlier opinion, Armstrong v. Manzo , to note that this post-removal hearing must be given "at a meaningful time" and "in a meaningful manner." In a case decided after Loudermill , Gilbert v. Homar , the Court reiterated Loudermill's conclusion that a public employee who can be dismissed only for cause is entitled to a limited hearing prior to termination to be followed by a more comprehensive termination hearing after it. Application to Section 713 Section 713 of Title 38, as added by Section 707 of the Veterans Access, Choice, and Accountability Act of 2014, does not expressly provide for notice and an opportunity to respond. In fact, Section 713(d)(1) states that these procedures, which are provided to a career member of the Senior Executive Service in Section 7543(b) of Title 5 for regular adverse actions, "... shall not apply" in a proceeding under Section 713 of Title 38. If viewed in isolation, this section's lack of those procedures would appear to contravene the Due Process Clause of the Fifth Amendment as interpreted in the Loudermill case and reaffirmed in Gilbert . Nevertheless, the Department of Veterans Affairs has issued guidelines which mandate that an individual in a senior executive position whom it seeks to remove from federal service or from such a position pursuant to 38 U.S.C. §713 will receive prior notice of five days and an opportunity to respond to charges in writing in advance of removal. These guidelines acknowledge that, "Unlike many private sector employees who may be terminated 'at-will,' career federal employees whether at the VA or other federal agency, have a constitutionally protected right in continued employment." The implication is that the Fifth Amendment requires that this right cannot be deprived without due process. Section 713(d)(2)(A) of Title 38 provides that an individual whom the Secretary seeks to remove from federal service or transfer to a non-senior executive position may file an appeal with the Merit Systems Protection Board within seven days after removal or transfer. The Board must assign this appeal to an administrative judge for a hearing. An administrative judge must decide the appeal within 21 days, that decision is final and not subject to further appeal. Section 713(e)(2)(3) states that if an administrative judge cannot issue an opinion in that period, the Secretary's decision becomes final. This post-removal hearing along with the notice and opportunity to respond in writing procedures mandated by the Department's guidelines comply with the basic elements of due process prescribed in the Loudermill case and reaffirmed in Gilbert : The focus, then, turns to whether a court would consider these procedures "meaningful" if it should agree to adjudicate a due process challenge to Section713 of Title 38. In the Manzo case cited in Loudermill , the Court said that a post-termination hearing must be provided not only at a meaningful time, but also in a meaningful manner. While the due process elements are present, the time limits in 38 U.S. C. §713 differ from those in the adverse action procedures that apply to career members of the Senior Executive Service in 5 U.S.C. §7543(b). This subsection states that a career member of the Senior Executive Service is entitled to (1) generally advance notice of 30 days; (2) a reasonable time, but not less than seven days, to answer orally and in writing and to furnish affidavits and other documentary evidence in support of an answer; (3) be represented by an attorney or other representative; and (4) a written decision and specific reasons therefor at the earliest practicable date. In MSPB Removal Appeals Two senior executives who were removed from federal service pursuant to the expedited removal authority in 38 U.S. C §713 filed appeals with the MSPB and raised due process arguments to administrative judges. In Helman v. Department of Veterans Affairs , the former Director of the Phoenix Veterans Administration Health Care System asserted that the Department denied her a pre-removal right to due process by failing to give her meaningful notice and an opportunity to respond to the action against her and that the post-removal proceeding before the administrative judge violated her right to due process because of its abbreviated nature. She elaborated that the Department may have removed her because of pressure from Members of Congress and that the Department's five day notice period was not long enough for her to prepare an adequate defense. The administrative judge rejected these pre-removal due process arguments. With respect to the assertion of a post-removal due process violation, the judge ruled that the Board lacks authority to declare 38 U.S.C. §713 unconstitutional. In Talton v. Department of Veterans Affairs , the former Director of the Central Alabama Veterans Administration Health Care System maintained that the Department contravened his right to due process by failing meaningfully to consider his reply to the proposed removal notice and that the Secretary's expedited removal authority in 38 U.S.C. §713 should have been exercised by the Secretary himself and should not have been delegated to the Deputy Secretary. The administrative judge rejected both of these arguments. Another senior executive, the former Director of the New York Stratton Veterans Administration Medical Center, was removed from federal service pursuant to 38 U.S.C. §713. She appealed her removal and challenged it on grounds other than denial of due process. In Weiss v. Department of Veterans Affairs , the administrative judge sustained the Department's charge of misconduct, specifically, that she failed to take timely action to transfer from direct patient care a nursing assistant whom a review board found to have mistreated patients. The penalty of removal from federal service, however, was reversed because the administrative judge determined that it was not reasonable based on the information in the record. The administrative judge concluded that he would have mitigated this penalty, but because the expedited removal procedure in Section 713 did not allow mitigation, he only had authority to approve or disapprove the Department's penalty. Weiss reportedly has retired. Two senior executives who were removed from the Senior Executive Service and transferred to lower paying positions in the General Schedule appealed their demotions. In Graves v. Department of Veterans Affairs , the former Director of the St. Paul Regional Office of the Veterans Benefits Administration (VBA) argued that the Department denied due process to her by failing to give full and impartial consideration to her reply to its charge and to all evidence in the record. The Department had charged that she created an appearance of impropriety by recommending reassignment of a senior executive who was the Director of VBA's St Paul Regional Office to Baltimore and then taking the vacated St. Paul position herself. Pursuant to Section 713 of title 38, the Department imposed a penalty of removal from the Senior Executive Service and transfer to a General Schedule position. The administrative judge rejected her due process contention and sustained the Department's charge. Nevertheless, the administrative judge reversed the Department's penalty as not reasonable on the ground that it subjected her to disparate treatment; the Department also should have brought the same charge against some other senior executives who were involved in the reassignment and placement and, like Graves, did not question the propriety of these actions. In Rubens v. Department of Veterans Affairs , the former Director of VBA's Philadelphia Regional Office, like Graves, contended that the Department denied her due process; it did not give fair and impartial consideration to her reply and to all evidence in the record. She was charged with failing to exercise sound judgment when she participated in facilitating a reassignment of the Director of VBA's Regional Office in Philadelphia to the one in Los Angeles and assuming the vacated Philadelphia position. The administrative judge rejected her due process contention. The penalty, however, was reversed as unreasonable because the Department did not seek to discipline other senior executives who were involved in this reassignment and placement. In both the Graves and Rubens cases, the administrative judges ordered the Department to cancel their removals from the Senior Executive Service and transfers to General Schedule positions, restore them to their former positions, and pay the correct amount of back pay and interest on back pay. They were notified that they could apply for fees for attorneys and expert witnesses and litigation costs where applicable. The Department reportedly reinstated them in their former positions in St. Paul and Philadelphia. Following these Merit Systems Protection Board decisions, the Deputy Secretary of the Department of Veterans Affairs noted that administrative judges upheld the Department's charges that Graves and Rubens created appearances of impropriety, but reversed their penalties as unreasonable because other senior executives who were involved in reassignments and placements were not charged. He ordered an investigation to determine whether the Department should bring the same charge against other senior executives and charge Graves and Rubens a second time. Judicial Review Section 713(e)(2) of Title 38 states that, Notwithstanding any other provision of law, including section 7703 of [U.S. Code] Title 5, the decision of an administrative judge [of the MSPB] shall be final and shall not be subject to any further appeal. Could an individual in a senior executive position at the Department of Veterans Affairs who is removed from federal service or transferred to a non-senior executive position pursuant to the Secretary's expedited authority in 38 U.S.C. §713 obtain review to challenge the constitutionality of that authority? Pending Appeal This question currently is before the U.S. Court of Appeals for the Federal Circuit because the former Director of the Phoenix VA Health Care System appealed her removal from federal service. On April 27, 2015, the Department of Veterans Affairs filed a motion to dismiss this appeal for lack of jurisdiction. It acknowledged that the court generally has jurisdiction to hear an appeal from an MSPB final decision under 28 U.S.C. §1295(a)(9) and 5 U.S.C. §7703(b)(1) and (d), but maintained that the finality provision in 38 U.S.C. §713(e)(2), quoted above, precludes an appeal of an MSPB administrative judge's decision on an expedited removal. Responding to this motion, Helman cited three constitutional arguments. First, the expedited removal procedure in 38 U.S.C. §713, on its face and as applied to her, violates her Fifth Amendment due process right by severely limiting the pre-removal and post-removal processes that she received. Second, Section 713, facially and as applied, contravenes the Appointments Clause, Article II, Section 2, Clause 2 of the Constitution. It allows an MSPB administrative judge, an employee who is not appointed by the President and confirmed by the Senate, to render a final decision of the United States without any review by the presidentially appointed, Senate- confirmed members of the Board or any other executive officer. Third, Section 713, facially and as applied, violates Helman's Fifth Amendment right against self-incrimination and her due process rights. This section, she alleged, forced an immediate appeal of her removal to MSPB and provided that her removal would be final within 21 days even though a criminal investigation into the same conduct was pending at that time and the administrative judge denied a motion to postpone the appeal. In a reply to Helman's arguments, the Department asserted that preclusion of judicial review is clear from the language, objectives, and legislative history of 38 U.S.C. §713. It added that the court does not have jurisdiction because Helman failed to present colorable constitutional claims and has no constitutionally protected interest in her continued employment. Moreover, even if Helman has a property right to continued employment, she would have no colorable due process claim to receive an opportunity for discovery and the right against self-incrimination and to assert that Section 713 violates the Appointments Clause or Article III of the Constitution. On July 15, 2015, the court issued an order directing Helman to file a brief on jurisdiction. In her principal brief filed on October 9, 2015, Helman argued that the Court of Appeals for the Federal Circuit has jurisdiction to review the decision of the MSPB administrative judge. She added that Section 713 of Title 38 does not deny the court all jurisdiction and does not clearly strip the court of jurisdiction to review constitutional claims. According to Helman, if Section 713 precludes all judicial review, it violates Article III of the Constitution, which vests federal judicial power in the Supreme Court and in such inferior courts as Congress may establish, whose judges must be appointed consistent with the Appointments Clause. She maintained that the MSPB administrative judge who approved the Secretary's removal decision lacked constitutional authority to preside at her removal hearing because he was not appointed in the manner prescribed in the Appointments Clause of the Constitution, relating to the appointment of principal and inferior officers who exercise significant authority of the United States. Moreover, the removal restrictions on administrative judges violated separation of powers principles. Finally, Helman asserted that her removal contravened the Due Process Clause of the Fifth Amendment because she had a constitutionally protected property interest in continued federal employment that could not be deprived without due process of law and that the pre-termination and post-termination processes did not adequately provide due process. Generally Does the finality language in 38 U.S.C. §713(e)(2) quoted above preclude an appeal beyond a decision by an administrative judge issued within 21 days only within MSPB (i.e., to the three-member Board), or does it also preclude any judicial review? The intent to preclude Board review appears straightforward. The conference report states that, The substitute requires that the expedited review by the MSPB be conducted by an administrative judge at the MSPB, and if the MSPB administrative judge does not conclude their review within 21 days then the removal or demotion is final. The substitute does not allow for any further appeal beyond the administrative judge, and does not allow for a second level review by the three-person board at the MSPB . (Emphasis supplied.) On January 22, 2015, after the administrative judge upheld the department's decision to remove Helman from federal service, she submitted a request for an extension of time to file an appeal to the Merit Systems Protection Board. The Board on January 26 informed her that the administrative judge's decision was final and that it would not accept further submissions on this case. Whether this finality passage in 38 U.S.C. §713(e)(2) would preclude any judicial review is more complicated. Before reaching that question, it might be asked whether Congress constitutionally can preclude judicial review. The answer appears to be a qualified yes. Article III, Section 1 of the Constitution states, in relevant part, that, "The judicial power of the United States shall be vested in one Supreme Court and in such inferior courts as the Congress may from time to time establish." The power that this section grants Congress to establish inferior courts implies that it may preclude jurisdiction over certain subjects. Article III, Section 2 identifies subjects of the Supreme Court's original jurisdiction and adds that, "... in all other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make." This provision suggests that Congress may limit the Supreme Court's appellate jurisdiction, but not its original jurisdiction which the Constitution itself bestows. In the Reconstruction era case E x parte McCardle , the Court dismissed an appeal of a circuit court's denial of a habeas corpus petition because Congress had enacted over the President's veto a provision that repealed the act authorizing the appeal. In the modern era, the Court in Felker v. Tur p in upheld a statutory limitation on its jurisdiction to review second or successive habeas corpus petitions appealed from courts of appeals. It also held that this limitation did not deny the Court authority to consider petitions that were submitted to it as original matters because the statutory limitation did not attempt to preclude them. Would a court interpret Section 713's finality language quoted above effectively to preclude any judicial review? Its operative language is preceded by "[n]otwithstanding any other provision of law, including Section 7703 of Title 5." Section 7703 is the judicial review provision of the Civil Service Reform Act of 1978 that generally authorizes judicial review of MSPB final orders and decisions by the U.S. Court of Appeals for the Federal Circuit. It also provides for trials de novo in district courts for cases subject to antidiscrimination statutes. The intent of including the phrase "[n]otwithstanding any other law" may have been to waive other jurisdictional statutes including 28 U.S.C. §1295(a)(9), which grants the Federal Circuit jurisdiction over final MSPB action. Some Supreme Court cases have analyzed whether statutory language that appears intended to preclude judicial review legally achieves this effect. In Webster v. Doe , the Court addressed whether Section 102(c) of the National Security Act of 1947, which authorized the Director of Central Intelligence summarily to remove an employee from federal service, precluded judicial review. This subsection stated that, Notwithstanding the provisions of section 6 of the Act of August 24, 1912 (37 Stat. 555), or the provisions of any other law, the Director of Central Intelligence may, in his discretion, terminate the employment of any officer or employee of the Agency whenever he shall deem such termination necessary or advisable in the interests of the United States.... The employee asserted that his removal pursuant to this provision, among other things, deprived him of a property right to continued employment without due process of law mandated by the Fifth Amendment. The Court held that this section did not preclude judicial review of his colorable constitutional claims. We do not think section 102(c) may be read to exclude review of constitutional claims. We emphasized in Johnson v. Robison , 415 U.S. 361 (1974), that where Congress intends to preclude judicial review of constitutional claims its intent to do so must be clear. Id. , at 373-374. In Weinberger v. Salfi , 422 U.S. 749 (1975), we reaffirmed that view. We require this heightened showing in part to avoid the "serious constitutional question" that would arise if a federal statute were construed to deny any judicial forum for a colorable constitutional claim. See Bowen v. Michigan Academy of Family Physicians , 476 U.S. 667, 681 (1986). In the Johnson case, an individual who had completed conscientious objector service and was denied veterans' educational benefits filed a constitutional challenge under the equal protection component of the Fifth Amendment to a statute that limited those benefits to veterans who had served on active military duty. The statute governing this denial provided, in relevant part, that, the decisions of the Administrator on any question of law or fact under any law administered by the Veterans Administration providing veterans to benefits ... shall be final and conclusive and no ... court of the United States shall have power or jurisdiction to review any such decision.... The Court concluded that this language did not bar judicial review under the federal question jurisdictional statute in 28 U.S.C. §1331 of a challenge to the constitutionality of the statute. It reasoned that the district court would not review a decision of the Administrator in denying the benefits, but rather whether Congress had enacted an unconstitutional condition on them. This approach has been termed a collateral challenge. In another case cited in the Webster case, Weinberger v. Salfi , which involved a challenge to the constitutionality of a Medicare provision in the Social Security Act, the Court reaffirmed its holding in Johnson . Nevertheless, it held that the claimants could not obtain jurisdiction pursuant to the federal question jurisdiction statute in 28 U.S.C. §1331 because another provision of the act granted court jurisdiction only after administrative remedies were exhausted. Consequently, the claimant in the Salfi case, unlike the Johnson claimant, would receive a judicial forum to hear a constitutional challenge to the act and did not need to obtain jurisdiction under the federal question statute. The Court in Webster also cited the Michigan Academy case, which stated that a "serious constitutional question" would arise if it should construe a statute to deny any judicial forum for constitutional claims. The Court in Michigan Academy quoted this phrase from Salfi , which took it from a passage in Johnson in which the Court declined to accept an interpretation that would have denied any judicial review of a constitutional challenge to the applicable statute. Doing so, it said in Johnson , "... would, of course, raise serious questions and in such a case it is a cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the [constitutional] question[s] may be avoided." This passage illustrates the doctrine of constitutional avoidance. The Court has reached conclusions similar to those in the Webster case and the other cases it cited. In McNary v. Haitian Refugee Center , for example, the Court considered whether the Immigration Reform and Control Act of 1986 precluded judicial review of Immigration and Naturalization Service denials of special status for individuals except those related to deportation orders. The Court held that this limitation on reviewing denials did not preclude district courts from hearing suits brought to determine whether the agency's procedures for reviewing denials contravened the act and the Due Process Clause. In Lindahl v. Office of Personnel Management , the Court held that 5 U.S.C. §8377(c), which stated that decisions of the Office of Personnel Management on retirement matters "are final and conclusive and are not subject to review" barred judicial review of OPM's factual determinations. It did not, however, deny jurisdiction to the Court of Appeals for the Federal Circuit to review whether there had been a substantial departure from important procedural rights or whether the governing legislation had been misconstrued. The Court said that when Congress intends to preclude any kind of judicial review, it "typically employs language far more unambiguous and comprehensive than the text of section 8347(c)." It quoted the following language from 5 U.S.C. §8128(b), relating to compensation for work injuries, as an example of unambiguous preclusive language: The action of the Secretary [of Labor] or his designee in allowing or denying a payment under this subchapter is—(1) final and conclusive for all purposes and with respect to all questions of law and fact: and (2) not subject to review by another official of the United States or by a court by mandamus or otherwise. In a recent case, Elgin v. Department of the Treasury , the Court addressed issues that would appear relevant to whether a court may have jurisdiction to hear a case challenging the constitutionality of the expedited removal authority in 38 U.S.C. §713. Elgin and the other petitioners were removed from federal service because they failed to register with the Selective Service prior to reaching age 26. Section 3328 of U.S. Code Title 5 bars from executive agency employment an individual who has knowingly and willfully failed to register for the Selective Service as required by the Military Service Act. They challenged their removal pursuant to this statutory bar before an MSPB administrative judge on the ground that it was unconstitutional. They argued that the registration requirement contravened the equal protection component of the Fifth Amendment because it did not apply to women and the Constitution's prohibition against bills of attainder (i.e., a legislative punishment). They sought reinstatement with back pay. Asserting that the Board did not have jurisdiction to hear this challenge because removal was based on a statutory bar, the administrative judge dismissed it. The judge also maintained that the Board did not have power to declare a federal statute unconstitutional. Rather than file a petition for review, that is, an appeal, of this initial decision to the three member Merit Systems Protection Board pursuant to 5 U.S.C. §7701 or to the Court of Appeals for the Federal Circuit, as they could have done under 5 U.S.C. §7703, Elgin and some other Supreme Court petitioners filed an equitable claim in district court. They asserted that the court had jurisdiction to hear their case pursuant to the federal question jurisdictional statute, 28 U.S.C. §1331. They added that the Court in Webster v. Doe held that a suit challenging the constitutionality of a statute is subject to judicial review. The Supreme Court in a 6-3 decision concluded that the district court did not have federal question jurisdiction because the petitioners could have sought judicial review of a final MSPB decision before the Court of Appeals for the Federal Circuit under 5 U.S.C. §7703. It rejected the petitioners' argument that despite the Federal Circuit's jurisdiction, they were not barred from also challenging a statute's constitutionality in a district court. The Court added that the scheme provided in the Civil Service Reform Act, particularly 5 U.S.C. §7703, is the exclusive avenue to judicial review when a qualifying employee challenges the constitutionality of a federal employment statute. In reaching this conclusion, the Court declined to accept the petitioners' contention that a statute does not preclude district court federal question jurisdiction unless Congress explicitly directs otherwise. To support their contention, the petitioners cited language from the Webster case which said that a statute will not be found to preclude district court review without a "heightened showing" that Congress intended to preclude it. The Court stated that the petitioners' argument overlooked a "necessary predicate" to applying Webster's heightened standard: To obtain judicial review under 28 U.S.C. §1331, a statute must purport to deny any judicial forum for a colorable constitutional claim. " Webster's standard does not apply where Congress simply channels judicial review of a constitutional claim to a particular court." The Court appears to have adopted a distinction that had been proffered in the government's brief between the level of congressional intent that must be shown before a court will find preclusion. A statute that channels or postpones judicial review will be held to preclude judicial review if Congress's intent is "fairly discernable." A statute that purports to preclude any judicial review, however, will not be held to preclude it without a "heightened showing" (i.e., "clear and convincing evidence") of that intent. The reasoning that the Court's applied in the Elgin case appears to have been strongly influenced by its significant decision in United States v. Fausto , a statutory construction case. A nonpreference eligible employee in the excepted service filed suit in the Court of Claims for back pay under the Back Pay Act alleging that his agency violated its regulations when it suspended him. The Court held that the Court of Claims did not have jurisdiction to hear his claim because at that time the Civil Service Reform Act (CSRA) provision that defined an employee who was eligible for judicial review of agency action did not include a nonpreference eligible in the excepted service such as Mr. Fausto; it limited review to competitive service employees and to preference eligibles in the excepted service. The Court in Fausto said that the act's purpose, entirety of text, and structure all indicated congressional intent to "replace the haphazard arrangements for administrative and judicial review that had built up over almost a century." It rejected the contention that Congress's decision not to grant an MSPB administrative appeal right and judicial review of Board decisions to nonpreference eligible excepted service employees was an oversight. The Court viewed this noninclusion as manifesting a considered congressional judgment that they should not have statutory entitlement to these forms of review and, therefore, that pre-CSRA judicial access to courts for matters covered by the act were repealed impliedly. The Court added that the structure of the CSRA gave a preferred position to competitive service employees and to excepted service preference eligibles. It also gave primacy to the Merit Systems Protection Board for administrative resolution of adverse personnel action disputes and primacy to the Court of Appeals for the Federal Circuit for judicial review. These structural elements permitted the Board to develop a unitary and consistent executive branch position on personnel matters. Moreover, the Federal Circuit's primacy avoided an unnecessary layer of judicial review in lower federal courts and encouraged more consistent judicial decisions than would have been true if district courts could hear them with appeals to regional courts of appeals. Although the finality clause in 38 U.S.C. §713(e)(2) quoted above waives Section 7703 of Title 5 of the U.S. Code, which grants judicial review of MSPB final decisions, as well as "any other provision of law," it does not expressly preclude any judicial review. It provides that a decision of an administrative judge "shall be final and shall not be subject to any further appeal." In this respect, it lacks the clarity of the finality language in the Johnson case which stated, in relevant part, that "... no court ... of the United States shall have power or jurisdiction" to review a decision of the Administrator of the Veterans Administration in denying benefits. This language, the Court in Johnson held, did not preclude judicial review of a challenge to the constitutionality of a statute that limited educational benefits to veterans of active military service. The Court reasoned that it was not reviewing a decision by the Administrator regarding whether or not to grant benefits, but rather whether Congress had enacted an unconstitutional statute (i.e., a collateral issue). In the Webster case, the Court reviewed the CIA Director's summary removal authority. Citing Johnson and some other cases, it held that judicial review of colorable constitutional claims including deprivation of continued employment without due process of law in contravention of the Fifth Amendment could not be precluded without a "heightened showing" of Congress's intent to preclude. It reached this conclusion to avoid a "serious constitutional question" that would arise if a federal statute were to be construed to deny any judicial forum for a colorable constitutional claim. The Elgin case narrowed the scope of the holding in Webster , saying that it applied to cases that precluded any judicial review. Without judicial review, a senior executive who is removed pursuant to Section 713 would have no opportunity to challenge removal as a deprivation of a property right to continued employment without meaningful due process of law. The only review would be in an administrative proceeding before an MSPB administrative judge. A court would have to decide whether the language of the finality clause in Section 713(e)(2) clearly and convincingly provides evidence of that intent. A court's determination arguably could be influenced in part by the legislative history of that clause. The conferees generally accepted the Senate provision, which would have authorized the Merit Systems Protection Board to hear a timely filed appeal from a removed senior executive. This provision would have directed the Board to expedite adjudicating an appeal within 21 days, but if it could not complete action in that time, it would have to notify Congress why it could not do it. Significantly, the Senate language provided no express sanction for failing to complete an appeal in that time; the Board arguably may have been able to continue to adjudicate an appeal until completing it. The Senate provision, however, did have a finality provision which stated that, "A decision made by the Merit Systems Protection Board with respect to a removal or transfer under subsection (a) shall not be subject to any further appeal.'' In the conference, the conferees amended the Senate appeal provision by substituting an MSPB administrative judge in place of the Board itself and adding language about 5 U.S.C. §7703 so that Section 713(e)(2) provides that, "Notwithstanding any other provision of law, including section 7703 of title 5, the decision of an administrative judge under paragraph 1 [directing the MSPB to refer an appeal to an administrative judge] shall be final and shall not be subject to any further appeal." The conferees also added the following language in Section 713(e)(3): "In any case in which the administrative judge cannot issue a decision in accordance with the 21-day requirement under paragraph (1), the removal or transfer is final....." By waiving the judicial review provision in 5 U.S.C. §7703 and "any other law" as well as making the Secretary's decision final if an administrative judge did not issue an opinion within 21 days, the conferees strengthened the finality language in the Senate provision. A court would have to decide whether these changes when compared to the earlier version provided clear and convincing evidence of congressional intent to preclude any judicial review. Legislation H.R. 1994 and a companion, S. 1082 , both named the Department of Veterans Affairs Accountability Act of 2015, and S. 1117 , Ensuring Veterans Safety Through Accountability Act, have been introduced in the 114 th Congress. They would extend to all officers and employees in the Department of Veterans Affairs the expedited removal-demotion authority that 38 U.S.C. §713 grants to the Secretary for individuals in senior executive positions. Hearings have been held on these bills. On July 15, 2015, the House Committee on Veterans Affairs reported H.R. 1994 to the House. The Senate Committee on Veterans Affairs reported S. 1082 to the Senate on July 22, 2015. On July 28, 2015, senior advisors recommended that the President should veto H.R. 1994 . The House agreed to H.R. 1994 by a vote of 256 to 170 on July 29, 2015. No floor action has been taken on S. 1082 .

This report discusses selected legal issues relating to the authority for summary removal of individuals in senior executive positions at the Department of Veterans Affairs. Section 707 of the Veterans Access, Choice, and Accountability Act, P.L. 113-146, enacted on August 7, 2014, created this authority by adding Section 713 to Title 38 of the United States Code. It authorizes the Secretary of Veterans Affairs to remove an individual in a senior executive position from federal service or transfer him or her to a position in the General Schedule if the Secretary determines that the individual's performance or misconduct warrants removal. This report addresses whether this authority raises a constitutional question under the Due Process Clause of the Fifth Amendment as a deprivation of a property right to continued federal employment and whether a court would have jurisdiction to hear a case brought by a senior executive who had been removed pursuant to it. The Supreme Court has held that a nonprobationary government employee who is removable for cause, as distinguished from at-will, has a property right in continued employment. The Fifth Amendment of the Constitution states that property may not be deprived without due process of law. According to the Court, an agency may not remove such an employee from government employment without due process rights of notice and an opportunity to respond to charges. The employee also is entitled to a hearing either before or after removal. A hearing must be provided at a meaningful time and in a meaningful manner. Section 713 of Title 38 does not expressly provide for notice and an opportunity to respond, but the Department of Veterans Affairs has issued guidelines that grant advance notice of five days and an opportunity to respond to charges in writing. Section 713 provides for a hearing after removal by an administrative judge of the Merit Systems Protection Board if a decision can be issued in 21 days and that this decision is not subject to further appeal. If an administrative judge does not issue a decision in that period, the Secretary's removal or transfer is final. A senior executive whose removal from federal service pursuant to this authority was upheld by an administrative judge has filed an appeal to the Court of Appeals for the Federal Circuit. This appeal alleges that these limited time periods for notice and an opportunity to respond to charges, as well as for an appeal to an administrative judge, do not provide meaningful due process. The court is considering whether to accept jurisdiction of this case because the Department of Veterans Affairs, citing the finality clause in Section 713, asserts that an administrative judge's decision is not subject to judicial review. In challenging the constitutionality of Section 713, the removed senior executive also maintains that granting an administrative judge of the Merit Systems Protection Board authority conclusively to determine whether or not to uphold a removal contravenes the Appointments Clause of the Constitution. She asserts that to comply with the Clause, an administrative judge's decision should be supervised or be subject to review by members of the Merit Systems Protection Board or another officer or officers who are principal officers of the United States whom the President appoints and the Senate confirms. An administrative judge is an employee who is not appointed in the manner that the Appointments Clause prescribes, she contends. This report will be updated to reflect later developments.

Overview Congress and the Administration have increased their interest in foreign assistance programs in the post-9/11 environment, prompting a re-examination of the purposes of assistance, and how best to achieve those objectives. The renewed interest occurs as the Administration has initiated many new programs that introduced performance-based assistance in the form of the Millennium Challenge Account, and sector-specific assistance, largely directed at health programs in Africa. The Administration also unveiled in early 2006 a restructuring of foreign aid programs administered by the Department of State and the U.S. Agency for International Development (USAID). The restructuring is meant to link aid programs with strategic objectives and to provide more coordination and coherence. In addition, a number of recent studies have made specific recommendations for both policy and organizational reforms. Congress has been considering these reforms as part of the annual appropriations process. The 111 th Congress may consider some far-reaching reforms in authorizing legislation in 2009 at a time when the Obama Administration has expressed interest in aid reform. Criticisms of Current Foreign Aid Structures and Programs The current structure of U.S. foreign aid entities and the conduct and effectiveness of aid programs have come under increasing scrutiny on a number of fronts. Programs have been described as fragmented and cumbersome, and lacking in flexibility, responsiveness, and transparency. Aid policy is considered lacking in focus and coherence. There is ambiguity with regard to who develops aid policy, not just between the State Department and USAID, but among the 26 other government departments, agencies, and offices that provide some type of foreign aid. In general, some disillusionment with foreign aid results from a perceived lack of progress in some countries that have been aid recipients for decades. Other criticism results from an outdated aid apparatus developed during the Cold War that has been reformed in a piecemeal fashion, often adding conflicting and competing priorities, and that has not been updated to reflect current world conditions and challenges. Specific points of contention include: the level of U.S. assistance, usually in relation to other international donors, and the composition of aid, generally the ratio of humanitarian and development aid to security assistance, by region; the coordination of aid among programs in USAID, the State Department, and independent agencies, such as the Millennium Challenge Corporation, the Trade and Development Agency, the Overseas Private Investment Corporation, and several regionally focused funds, such as the Inter-American Foundation, and the African Development Foundation; the coordination of aid among numerous domestic agencies, such as the Department of Health and Human Services (HHS) and the Center for Disease Control (CDC), that administer some type of foreign assistance program; the coordination of bilateral and multilateral assistance; the coordination of aid with other international donors; the involvement of the Department of Defense in aid programs that some observers believe should be carried out by civilian agencies; the perceived ambiguity with regard to who sets foreign aid policy among the State Department and USAID; the effectiveness of aid programs, especially in light of a steady diminution of technical expertise at USAID, and the increasing reliance on contractors both in Washington and in the field to carry out aid programs; and the lack of a foreign assistance strategy to guide and justify the provision of aid generally, and one that deals with programs, specifically, that responds simultaneously to recipient country needs and U.S. priorities. Some of these issues are longstanding; others are responses to more recent changes, such as new aid initiatives, new offices administering assistance, and a general increase in the foreign aid budget. Current Aid Platforms and Funding Aid Platforms The State Department and USAID are the lead agencies that provide foreign assistance. Both are funded in the annual State Department and Foreign Operations appropriations bills. In FY2007, the State Department controlled about 64% of bilateral and multilateral assistance, while USAID accounted for approximately 20%. The remainder is managed by other independent agencies such as the Millennium Challenge Corporation, the Trade and Development Agency, and the Peace Corps. Some funds are co-managed by the State Department and USAID, such as the Economic Support Fund, although major policy decisions are often retained by State. Some observers maintain that restructuring initiatives beginning in 2006 have further removed USAID from policy decisions. The accounts managed by USAID largely pertain to long-term development, health programs, and disaster relief, although the Office of the Global AIDS Coordinator, which administers the largest U.S. initiative on human immunodeficiency virus and acquired immunodeficiency syndrome (HIV/AIDS), is located in the State Department. The State Department aid portfolio, in addition to HIV/AIDS funds, comprises accounts related to military assistance (implemented by the Department of Defense), narcotics and law enforcement, migration and refugees, anti-terrorism, peacekeeping operations, and accounts focusing on democratic transitions in states of the former Soviet Union, and eastern Europe and the Baltics. Prior to 2006 reforms (see section below on recent reforms), there was little coordination at the budget and policy development level between State and USAID. There are, however, a number of independent agencies administering foreign assistance that remain outside of State and USAID, and that are also funded in the annual foreign operations appropriations bills. These include the Millennium Challenge Corporation, the Trade and Development Agency, the Peace Corps, the Overseas Private Investment Corporation, and the Export-Import Bank. These agencies develop their own budgets, and critics argue that their activities are not well coordinated with those of State and USAID. In addition to these entities, there are aid programs administered by approximately 14 different departments and agencies. The largest portfolio belongs to the Department of Defense, which manages programs providing humanitarian assistance, civic action activities, training and equipping of foreign militaries, and even some health-related assistance. (See page 27 for a complete list of agencies reporting assistance in calendar year 2006.) These organizations have provided as much as 40% in official development assistance in recent years. Each of these agencies develops its own budget and those funds are appropriated in domestic funding bills. These programs remain outside of the jurisdiction of foreign operations appropriations subcommittees and foreign affairs authorizing committees that have oversight of foreign assistance. In addition, there is no central reporting mechanism for these programs, making it difficult to ascertain the full amount that the United States is providing in foreign assistance in any given year. Proponents of aid reform point to this situation as one of the main symptoms of a fragmented aid structure that impedes coherent, government-wide foreign assistance policy and implementation. Current Funding Since the events of 9/11, amounts requested and approved by Congress for foreign assistance generally have trended upward. The foreign operations FY2009 budget request is $26.1 billion, or an increase of 8.8% over the $24 billion estimate (including supplements only within P.L. 110-161 ) in foreign assistance programs for FY2008. The actual FY2007 funding level for FY2007, including supplemental funds, totals $26.4 billion. The estimated level for FY2008, approved in the FY2008 Consolidated Appropriations Act, Division J ( H.R. 2764 , P.L. 110-161 ), represents 1.2% of the total U.S. budget. Part of the trend in increases is due to the greater use of supplemental appropriations measures to fund international affairs spending, including foreign assistance. Table 1 provides funding levels for foreign operations since FY1999 in both current and constant dollars, and includes both regular and supplemental funds. (It is difficult to ascertain with much precision the appropriated levels for programs located in domestic agencies' budgets. See Figure 6 for an indication of these funding channels.) Statutory Basis of Foreign Assistance The main statutory basis of foreign aid programs is the Foreign Assistance Authorization Act of 1961 (FAA), as amended (P.L. 87-195; 22 U.S.C. 2151). The FAA has been amended numerous times since its initial enactment, but it has not been comprehensively reauthorized since 1985. Instead, Congress has enacted a series of statutes to authorize specific aid programs. These include the FREEDOM Support Act ( P.L. 102-511 ); the Support for East European Democracy (SEED) Act ( P.L. 109-102 ); the Afghanistan Freedom Support Act of 2002 P.L. 107-327 ; the U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 ( P.L. 108-25 ); the Millennium Challenge Act of 2003 ( P.L. 108-199 ), and various Security Assistance Acts since 1999. Over the years, most aid reform studies have recommended that the FAA and related statutes be replaced with new legislation that would update the statutory basis to eliminate the emphasis on the Cold War and communism and reflect current international conditions, thereby bringing coherence to numerous aid programs. Historical Rationales for Foreign Assistance2 Since the start of U.S. foreign aid programs, the rationale for such assistance has been posited in terms of national security, humanitarianism, and commercial interest. From a beginning in rebuilding Europe after World War II and assisting newly independent states in Africa, aid programs reflected Cold War tensions that continued through the 1980s. U.S. assistance programs were viewed in a national security context, as a way to prevent the incursion of Soviet influence in Latin America, Southeast Asia, and Africa. In the immediate aftermath of the dissolution of the Soviet Union, aid programs lost their Cold War underpinnings. With the end of the Cold War, foreign aid programs reflected less of a strategic focus on a global scale, and instead responded to regional issues such as Middle East peace initiatives, supporting the transition to democracy of eastern Europe and republics of the former Soviet Union, addressing international drug production and trafficking in the Andes, and stemming illegal immigration. Foreign aid lost its anti-Communism rationale, and decreasing foreign aid budgets in the 1990s reflected the lack of an overarching theme. Even during periods when aid programs were justified in the context of the Cold War, and more recently in the context of anti-terrorism, foreign aid programs also were justified for commercial and humanitarian reasons. Foreign assistance has long been defended as a way to either promote U.S. exports by creating new customers for U.S. products, or by improving the global economic environment in which U.S. companies compete. At the same time, a strong current has existed that explained U.S. assistance as a moral imperative to help poverty-stricken countries and those trying to overcome disasters or conflict. Providing assistance for humanitarian reasons or in response to natural disasters has generally been the least contested within the American public and policymakers alike. The purposes of aid are thought to fit within these rationales. By promoting economic growth and reducing poverty, improving governance, addressing population growth, expanding access to basic education and health care, protecting the environment, promoting stability in conflictive regions, protecting human rights, curbing weapons proliferation, and addressing drug production and trafficking, the United States would achieve its goals of promoting national security, ensuring a global economic environment for American products, and demonstrating the humanitarian nature of the U.S. people. Some observers have returned to the view that poverty and lack of opportunity are the underlying causes of political instability and the rise of terrorist organizations, much as poverty was viewed as encouraging a breeding ground for communist insurgencies in the 1960s, 1970s, and 1980s. At the same time, the rise of disease pandemics that have the ability to spread with increasing speed has also brought focus to U.S. aid programs. The present national security rationale for foreign affairs programs has transitioned from a largely anti-communist orientation for some 40 years following World War II to a more recent focus on anti-terrorism in the post September 11, 2001, environment. In 2002, President Bush released his National Security Strategy that for the first time established global development as the third pillar of U.S. national security, along with defense and diplomacy. Development was again underscored in the Administration's re-statement of the National Security Strategy released on March 16, 2006. The Bush Administration has also announced significant initiatives relating to diplomacy and foreign aid. A new transformational diplomacy initiative, announced in 2006, would reposition diplomats to global trouble spots, create regional public diplomacy centers, localize small posts outside of foreign capitals, and better train diplomats in language, public diplomacy, and democracy-promotion skills. Also announced in 2006 was the creation of a new position at the State Department, the Director of Foreign Assistance (DFA), who serves concurrently as USAID Administrator. Heading up the new "F bureau" at State, the DFA has created a new Strategic Framework for Foreign Assistance with the objectives of providing more coordination, coherence, transparency, and accountability for aid programs. New presidential initiatives, including the Millennium Challenge Account (MCA), the President's Emergency Plan for AIDS Relief (PEPFAR), and the President's Malaria Initiative (PMI) have resulted in large increases in the foreign aid budget. Pledges for increased aid, to Africa, for example, as well as reconstruction costs in Afghanistan and Iraq, are also driving the recent increases. Trends in Foreign Assistance Funding Historic Trends Spending for U.S. foreign assistance programs, that began in earnest in the 1940s with a four-year $13 billion (current dollar) investment in rebuilding Europe under the Marshall Plan, has fluctuated in response to world events. After the Marshall Plan ended in the early 1950s, U.S. assistance focused on Southeast Asia to counter Soviet and Chinese influence. Under President Kennedy, aid levels rose to their highest historic levels (as measured as a percentage of national income) since the Marshall Plan, with the Alliance for Progress in Latin America, and assistance to newly independent states in Africa. Aid spending leveled off in the 1970s, even with spending for Middle East peace initiatives, and then rose again in the 1980s to address famine in Africa, continuing peace efforts in the Middle East, and the U.S. response to insurgencies in Central America. The 1990s saw aid levels fall to their lowest levels, averaging approximately 0.14% of national income. New Presidential Initiatives U.S. aid programs have recently focused on a number of initiatives relating to health funding and assistance to Africa. Proponents of these new initiatives believe that aid programs need to be responsive to current global conditions, such as disease outbreaks and regional instability, while critics argue that these new focuses are diverting resources from some regions, are neglecting other needs, such as infrastructure, or long-term development and poverty alleviation, and are further contributing to the fragmentation and stovepiping of aid programs. Beginning in 2003, the Administration launched new initiatives with sector or region specific focus. HIV/AIDS . Under a new five-year initiative in 2003, the President's Emergency Plan for AIDS Relief (PEPFAR), President Bush pledged a total of $15 billion by FY2008 for HIV/AIDS prevention and treatment. Africa, with 12 of the 15 PEPFAR focus countries, is the primary beneficiary. With the FY2008 budget request, this pledge would be exceeded. On May 30, 2007, the President announced a follow-on plan to provide a total of $30 billion through FY2013. Malaria . The Administration announced a President's Malaria Initiative (PMI) in 2006, pledging that the United States would spend an additional $1.2 billion over a five-year period (FY2006-FY2010) on malaria prevention and treatment. Congress appropriated $122 million in FY2006 and $248 million in FY2007. The request for FY2008 is $388 million, keeping the pledge on track. Africa . Prior to the 2005 G-8 Summit, the Administration announced that it would double U.S. assistance to Africa by 2010. The FY2008 request keeps the doubling pledge on track. Excluding Millennium Challenge Corporation (MCC) assistance, bilateral aid to the region would increase by 53%, largely driven by HIV/AIDS funds. MCC . In announcing the creation of the independent Millennium Challenge Corporation, the President initiated a new aid platform to reward recipient countries for sound economic and governance policies, and pledged $5 billion in annual funding by FY2006. In fact, requests have never topped $3 billion a year, which is also the amount of the FY2008 request. Congress has consistently cut the MCC request, with some Members expressing concern that the program was slow to get started, and has not disbursed much of its existing funding. Funds are appropriated for three- or five-year compacts, although grants are obligated on an annual basis. Education in Africa. Announced in 2002, the Africa Education Initiative pledged to spend more than $600 million on basic education over five years. Funding is to train new and existing teachers, provide textbooks and other teaching materials, and offer tuition scholarships. Regional Distribution of Aid The distribution of foreign assistance by region has varied depending on world events. Since the Administration announced the President's Emergency Plan for AIDS Relief (PEPFAR), the regional distribution has been skewed in favor of Africa, where 12 of the plan's 15 focus countries are located. Since 2001, aid to Africa has more than quadrupled, from $1.3 billion to $5.5 billion in FY2008. In the same period, aid to South and Central Asia has increased ten-fold, from $205 million in FY2001 to nearly $2.2 billion proposed for FY2008. Assistance to Europe and Eurasia has fallen by 60% as a result of some countries graduating from SEED and FSA programs. Decreases in the Near East reflect reductions in aid to Israel. Figure 2 shows the percentage share of bilateral aid in three selected years. A major focus of the FY2008 budget is a continuation of funding to address the HIV/AIDS pandemic in many countries with high prevalence rates. The 15 PEPFAR focus countries are the main beneficiaries, although Child Survival and Health (CSH) funds are used in non-focus countries as well. A concern of some aid analysts is the effect that this focus has on other types of development assistance and in other regions. The largest effect can be seen in Africa. If Global HIV/AIDS Initiative (GHAI) funds are excluded, then Africa would see a 27% increase in funding since FY2001, rather than a quadrupling. Sector Distribution of Aid From a historical view, U.S. aid programs have emphasized different approaches. With the Marshall plan, aid planners sought to rebuild infrastructure in European societies that had previously attained healthy development levels. With a growing number of communist insurgencies and political instability in Asia, Latin America, and Africa, the focus turned in the 1960s to rapidly improving economic growth by addressing urban poverty. This approach segued in the 1970s to issues of rural poverty with programs that attempted to provide integrated assistance in such sectors as agriculture, education, and health. At the same time, under President Carter, human rights considerations entered into foreign aid policy. In the Clinton Administration, sustainable development became popular, and aid programs also encompassed issues of human rights and democracy, as the United States helped eastern and central European nations transition to democracy. Many observers describe current U.S. programs as giving priority to health and security assistance. This perception is largely driven by the large increase of funding for HIV/AIDS prevention and treatment, and the costs of reconstruction in Afghanistan and Iraq. Health funding, including all USAID and State Department programs, comprised approximately 6% of the foreign aid budget in FY1995, but has risen to nearly 30% in FY2008. Security assistance, on the other hand, has increased slightly from 36% in FY1995 to 44% in FY2008. Use of Supplementals Supplemental appropriations for Foreign Operations programs, which in FY2004 exceeded regular Foreign Operations funding, have become a significant channel of funds for U.S. international activities, especially those related to reconstruction efforts in Iraq and Afghanistan. Supplemental appropriations bills have often also been used as vehicles to provide additional funding to respond to unanticipated emergencies or natural disasters. There has been some criticism that the Administration has relied too heavily on supplementals and that some items, particularly relating to Iraq, should be incorporated into the regular appropriations cycle. The Administration counters that given the nature of rapidly changing overseas events and unforeseen emergencies, it is necessary to make supplemental requests for unexpected and non-recurring expenses. Funds in supplemental appropriations bills are generally declared emergency, and do not fall under discretionary budget caps. Figure 3 shows the growing reliance on Foreign Operations supplemental appropriations. Congress approved a FY2007 supplemental bill ( H.R. 2206 / P.L. 110-28 ) providing $6.146 billion in international affairs spending, of which $4.42 billion is foreign aid. For FY2008, the Administration submitted an emergency request with the regular budget that totaled $3.3 billion for international affairs spending, of which $1.37 billion is proposed for foreign aid programs. A second request was sent to Congress on October 22, 2007 for an additional $1.96 billion in foreign assistance, for a total of $3.328 billion in supplemental FY2008 funding. In June 2008, Congress passed FY2008 and FY2009 supplemental funding in H.R. 2642 / P.L. 110-252 , which provides an additional $4.16 billion in foreign operations funding for FY2008 and $2.87 billion for FY2009. Issues for Congress Congress will likely play an integral role in any type of foreign aid reform, by authorizing a new aid infrastructure, appropriating funds for refocused aid programs, or both. The challenges facing Congress include weighing the justifications for foreign aid programs in relation to benefits to the United States that may be provided by such assistance, and to a variety of domestic needs that often put budgetary pressure on foreign aid. This entails scrutiny of the current level of assistance and proposals to increase aid. A foreign aid reform effort likely necessitates a review of the current organization of the numerous departments and agencies that provide international assistance programs with an eye toward providing coordination. This may involve a re-evaluation of the existing statutory framework provided by the Foreign Assistance Act of 1961, as amended (P.L. 87-195; 22 U.S.C. 2151, et seq.), and other authorizing legislation, depending on the extent of the reform. There are a variety of organizational reforms that can be undertaken. Those chosen would depend on what Congress perceives to be the major problems besetting U.S. foreign assistance policy, whether those problems are related to goals and strategy; implementation and effectiveness; or coordination and coherence. The following section outlines the criticisms of current aid programs and issues that Congress faces in reforming them. The next section provides a review of proposals for policy options and organizational reform in how foreign aid policy is formulated and how aid programs are administered and managed. Revisiting the "Why" of Foreign Aid Many analysts contend that the rationale of foreign aid has centered on security concerns for most of its existence, with security most often defined in an anti-communism or anti-terrorism context. Another rationale—to reflect the humanitarian nature of the American people—has also been prominent. A third rationale—to promote U.S. exports—has been prominent at some points. Further, some aid proponents have justified aid as a means to reduce illegal immigration to the United States by addressing the economic motivations for migration, or to reduce the illegal flow of narcotics. Others have cited the need for the United States to exercise leadership in the aid field commensurate with its economic, political, and military standing in the world. It is likely that U.S. foreign aid policy will continue to be predicated on all of these rationales. There are a number of other considerations, however, that policy makers may address in any redesign of U.S. foreign aid. Should U.S. assistance be based on the political and economic performance of recipients (i.e., tied aid)? There is a strong belief in the development community that countries with democratic institutions have greater capacity to absorb and benefit from foreign aid. Critics argue that a focus on performance-based criteria neglects countries in dire need of assistance, but that are not able, for one reason or another, to achieve U.S.-determined benchmarks. Should U.S. assistance emphasize poverty alleviation without regard for the nature of the recipient country government? Critics of aid point out that U.S. aid has been given to countries with repressive regimes, and may signal tacit support for such regimes. The poverty of its citizens cannot be overcome by foreign assistance, if repressive and corrupt regimes exploit the provision of aid. On the other hand, some observers believe that there is a moral obligation to find the means to help people in need, most of whom are the victims of repressive regimes. Should U.S. assistance be focused on countries that have the best chance of graduating from aid? Such a focus would reduce the number of countries in which the United States conducts development activities, as "best cases" are identified, and as countries graduate from assistance. On the other hand, it would omit countries that have not reached a level of development that approaches sustainability. Should development serve as its own distinct purpose, or should it be seen as a tool of diplomacy? Those who favor a strong development policy based on a humanitarian rationale believe that development is distinct from diplomacy and should not be subsumed by it. Others believe that the American public will not support foreign aid budgets unless it can be demonstrated that aid serves strategic U.S. foreign policy objectives. Recent Foreign Aid Reform The latest reform effort, begun in January 2006, is the Secretary of State's reorganization creating a new position and new bureau to coordinate aid. The changes were made in the context of achieving the Administration's development initiatives. To that end, she created a new State Department position, Director of Foreign Assistance (DFA), and a new Bureau of Foreign Assistance (F). The DFA serves concurrently as Administrator of USAID. When established, it was argued that the dual-hatted nature of the position, along with a rank equivalent to Deputy Secretary, would allow for the better coordination of aid programs. The DFA has authority over assistance programs managed by the State Department and USAID, and provides guidance for foreign assistance delivered through other government agencies. While the FY2008 foreign operations budget request was written under his direction, the DFA has had very little input, except informally, over the aid provided by other agencies and departments, that according to one USAID document now totals more than 50 government entities. This situation was, arguably, not unexpected since the DFA has no statutory authority, except that delegated to the office from the Secretary of State. In 2006, the DFA presented a new Strategic Framework for Foreign Assistance that links aid programs to U.S. strategic objectives. Countries are grouped into five categories representing common development challenges. Rebuilding countries are those in, or emerging from, internal or external conflicts. Transforming countries include low and lower-middle income countries that meet certain performance criteria based on good governance and sound economic policies. Developing countries are those low and lower-middle income countries that are not yet meeting performance criteria. Sustaining Partnership countries include upper-middle income countries with which the United States maintains economic, trade, and security relationships beyond foreign aid. Restrictive countries include authoritarian regimes with significant freedom and human rights issues, most of which are ineligible to receive U.S. assistance except for humanitarian purposes. Programs in these countries operate through non-governmental organizations or through entities outside the country. A sixth category was created to encompass global or regional programs that transcend any one country's borders. Countries are expected to graduate from one category to another, and then eventually from aid entirely. Each category represents common development challenges around which aid programs are to be designed, and linked to strategic objectives. Those objectives include peace and security; governing justly and democratically; investing in people; economic growth; and humanitarian assistance. Countries in each category may receive assistance under several or all objectives. The initial reception to the Framework and the DFA position within the development community is mixed. Some observers hail the effort as a timely and necessary attempt to provide some coherence to a growing number of assistance programs. These analysts see the effort as a good first step to address a fragmented assistance structure. They also argue, however, that the reform does not go far enough in addressing the weakened state of technical expertise at USAID in the context of decreasing operating budgets. USAID staff numbers have been cut in half since the early 1980s as most development activities are carried out by private contractors and the non-governmental organization community, with many observers remarking that instead of development experts, the agency now has contract managers. Others criticize the new Framework for being inadequate. They contend that unless the DFA has authority over all U.S. assistance programs, the serious problem of lack of coordination and coherence will not be solved. If one examines the sources of official development assistance, as reported to the Organization for Economic Cooperation and Development (OECD), programs under the jurisdiction of the DFA—that is all State Department and USAID programs—accounted for 58% of U.S. aid in calendar year 2006. The actual amount may be much less as it appears that the Office of the Global HIV/AIDS Coordinator, which administers the PEPFAR program, is not a part of the F bureau. Proposed Levels of Foreign Assistance A number of international forums have highlighted the needs of the developing world and the role of rich countries. Annual events, such as the G-8 summits and international meetings on the subject of development, have produced pledges to increase aid in overall terms, for specific regions, and for particular purposes. The proliferation of pledges raises the question of what is an appropriate level of assistance that will bring about sustainable development while being cognizant of the capabilities, both political and financial, of donor countries. Some international aid goals are wide-ranging and ambitious, such as the U.N.'s Millennium Development Goals (MDG), while others are more focused, such as doubling aid to Africa by 2010. The U.N. Millennium Project established eight development goals to be achieved, some partially, by 2015. The U.N. Development Program (UNDP) estimates that global aid levels from all donors would need to climb to $195 billion by 2015 in order to reach these goals. With aid levels in 2004 at $79 billion, this would mean more than doubling assistance in roughly a 10-year period. While this goal would necessitate an increase from the current level of 0.25% of donor countries' income to about 0.54% by 2015, the United Nations has had a longstanding goal of donor countries providing 0.7% of national income. As of 2006, only five countries had reached that goal (Denmark, Luxembourg, the Netherlands, Norway, and Sweden). The number of pledges made by the United States and other donor countries is cause for a consideration of the burden that each should shoulder. There are two ways to measure levels of foreign aid—as a percentage of a country's Gross National Income (GNI), or as a percentage of a country's budget. Advocates of increasing foreign aid have called for the United States to reach specific goals with regard to both. Critics believe that neither quantifiable measurement is appropriate and that large increases in assistance are not necessary. Figure 4 represents the current level of foreign aid spending proposed for FY2008 compared to a one percent increase, and an increase to 0.7% of national income. 0.7% of GNI A popular target for donor country assistance is 0.7% of GNI. This target has developed over time as a lobbying tool for increasing foreign assistance, and some countries have committed to working toward the goal by 2015. The United States has never committed to the 0.7% target. U.S. aid levels were 0.17% in 2006, or approximately $23.5 billion. In 2005, U.S. aid reached $27.9 billion, or 0.22% of GNI, reflecting high levels of debt relief and aid disbursements in Iraq and Afghanistan. The European Union vowed to reach a collective level of 0.56% of national income by 2010, and to hit the 0.7% target by 2015. Historically, U.S. foreign aid as a percentage of national income has been higher than present levels. During the 1960s, the annual average was 0.51%, falling to 0.26% in the 1970s, 0.22 % in the 1980s, and 0.14% in the 1990s. The value of the 0.7% target, or any percentage target, as the correct level of aid that will produce measurable development results has never been firmly established. Based on GNI of roughly $14 trillion projected for 2008, a U.S. foreign aid budget that is 0.7% of GNI would total $98 billion, representing more than a tripling of aid levels from the $27.6 billion disbursed in 2005. Increase by 1% of Budget Another measurement is the ratio of assistance to the overall annual budget. At $24.3 billion proposed in FY2008, current U.S. foreign aid comprises 1.2% of the budget. This level is a decrease from previous levels that averaged 1.4% during the 1990s and 1.8% during the 1980s. Some advocates of higher levels of aid have proposed increasing foreign aid spending by an additional one percent of total budget authority, or to approximately 2.2%. Since 1980, U.S. aid levels have reached 2.2% in just five years: 1980, 1981, 1984, 1985, and 1993. In terms of the FY2008 budget, a one percent increase would amount to an additional $29 billion for a total foreign aid budget of $53 billion. This would represent a near doubling of assistance. Critics of both proposals counter that foreign aid is measured in such a way that it excludes some U.S. government and private sector activities. Official development assistance (ODA) consists of aid activities of a development nature. While this includes some Department of Defense assistance, such as DOD's HIV/AIDS assistance to some foreign militaries, humanitarian assistance, and counter-narcotics programs, it excludes the State Department's Foreign Military Financing (FMF) and International Military Education and Training (IMET), as well as costs of U.S. military activities that proponents argue promote stability around the world. Funding for FMF and IMET programs alone has totaled roughly $4.6 billion in each of the last three fiscal years. Other critics point out that ODA data also exclude private giving. The State Department estimates that these charitable contributions from organizations totaled $8.6 billion in calendar year 2005, and that if one includes private capital flows totaling $69.2 billion, the ratio of total revenue flows to GNI would come to 0.84%. The Hudson Institute's Index of Global Philanthropy 2007 estimates that contributions from individuals and organizations amounted to $33.5 billion in 2005, not including another $61.7 billion in remittances (cash transfers by immigrants to individuals in their countries of origin). If both are included, they say, U.S. aid levels would reach 0.98% of GNI. Some observers do not believe private assistance, whether from charitable contributions or corporations should be counted since both can fluctuate from year to year, and in the case of corporate investments, occur in more advanced economies, such as China and India. Further, there is disagreement within the development community on the effects of remittances in recipient communities. Maintain Current Aid Levels Regardless of the debate on what should be included in ODA figures, some observers do not believe that U.S. aid should be measured in terms of GNI or annual budgets. They point out that the United States is the largest provider of foreign assistance in monetary terms among all donors, often providing a quarter of all ODA disbursements tracked by the DAC. Critics of large increases in foreign aid believe that many developing countries lack the capacity to absorb large inputs of assistance, and that such levels could overwhelm weak government institutions, including health care and education systems. For example, some USAID missions have expressed concern that the health care systems in some PEPFAR countries are not capable of sustaining the large amount of HIV/AIDS funds that have increased precipitously in recent years, and are proposed to climb further under the President's pledge to double funding in the FY2009-FY2013 time frame. Observers also contend that large increases in aid run the risk of creating recipient country dependency from ill-designed projects created in the immediate aftermath of large infusions of funds to aid programs. Such a situation does not square with the underlying notion that nations should eventually graduate from assistance. They believe, instead, that U.S. aid agencies should focus on quality programs that reward countries taking the necessary steps to promote their own development. In other words, aid policy should be concerned with outcome rather than input, a criticism also shared by those advocating aid increases. Others believe that the budget should be based on need and demand, rather than on any arbitrary formula. This would entail a demand-driven approach with greater field involvement. Policy Options The topic of foreign aid reform and reorganization has existed nearly as long as foreign aid programs themselves. In fact, the creation of USAID in the Kennedy Administration was partly an effort to bring coordination to aid programs that had developed across government agencies. Since then, there have been numerous studies of how best to organize foreign aid in order to increase its effectiveness and to support U.S. interests. There are at least three paths Congress can consider with regard to policy options. One is to maintain the status quo, with all the attributes described herein. A second is to maintain the Foreign Assistance Act of 1961, as amended, but further amend it to reflect the challenges of the 21 st Century, and possibly to support a different mix of assistance by refocusing goals, strategies, and programs. As outlined below, those include refocus assistance; change or better define the role of the Department of Defense; change the use of multilateral instruments and organizations; and create a unified budget. Another path, and arguably a more ambitious one, is to reorganize the current aid infrastructure to achieve congressional objectives. This could entail a re-write of the Foreign Assistance Act of 1961. As outlined below, structural reform options include elevate USAID to a cabinet-level department; merge USAID into the State Department; create a new aid agency with increased jurisdiction; and improve interagency coordination. Reform Options Refocus Assistance With the growth in objectives, priorities, and programs, some reform proponents have suggested that donor countries should refocus their programs on more defined goals. They suggest that a country's aid programs should focus on particular sectors, regions, or objectives, preferably based on the strengths a donor has to offer recipient countries. Other donor countries have undertaken reforms to refocus their foreign assistance, or have initiated reviews of their programs. Sweden recently announced that it would reduce the number of recipient countries from 70 to 33 while maintaining the same level of funding. Programs will focus on three categories of countries: those in need of long-term development, largely poverty reduction projects in Africa; those in conflict or post-conflict situations, such as Afghanistan, Colombia, Iraq, Liberia, and Sudan; and eastern European countries in order to deepen cooperation and European integration. France's new government has proposed linking its aid to the good governance practices of recipient nations. Government officials have said that France's aid programs should be streamlined with clear priorities and limited scope, and should focus on "one or two strategic aims." A refocused U.S. aid program could be one that identifies a limited number of objectives or priorities, and then directs funding for those objectives. The objectives chosen would have implications for the regional distribution of aid, as for example, an objective to alleviate poverty would benefit Africa at the expense of other regions. At its most extreme, this approach would entail a dramatic scaling back of U.S. aid activities that do not support the chosen focus, and could also mean a reduction in the number of countries receiving U.S. assistance. A less drastic refocusing could be similar to the process undertaken in 2006 that produced the Strategic Framework for Foreign Assistance that linked assistance to five strategic objectives. This approach, as currently managed, does not overcome problems of coherence and coordination among U.S. government agencies. Change/Define Role of Defense Department The role of the Department of Defense in foreign aid activities has increased in recent years, largely in response to stabilization and reconstruction activities in Iraq and Afghanistan. The proportion of DOD foreign assistance has increased from 7% of bilateral official development assistance in calendar year 2001 to an estimated 20% in 2006. Defense activities include the provision of humanitarian assistance and training in disaster response, counter-narcotics activities, and capacity building of foreign militaries. Much of this assistance is managed by the Defense Security Cooperation Agency (DSCA). The increased role of DOD in foreign assistance has been debated both within military and civilian circles. Secretary of Defense Robert Gates has stated that U.S. civilian development assistance agencies need to be reinvigorated, and that until they are strengthened, the military will have to engage in reconstruction activities. Advocates of a greater role for DOD argue that the military is often in the best position, with personnel on the ground, to provide timely assistance in conflict and post-conflict situations, and in response to natural disasters. Further, they say, DOD has more flexibility in the allocation of assistance. Finally, DOD has the resources and technical capacity to provide timely assistance in many cases. Those who are concerned about the increased DOD profile warn that it results from a diminution of personnel expertise at USAID and State, and that it will further contribute to this problem. Critics believe that DOD is supplanting and eroding the traditional role of the State Department and USAID, agencies that critics argue should be in charge of these types of policy decisions. Further, they caution that there may not be the degree of coordination among these three entities that they argue is necessary to achieve U.S. foreign policy objectives. Others believe, however, that requirements that involve the Secretary of State in the decision-making process ameliorate this concern. Still others contend that DOD programs can be duplicative and are better carried out by civilian agencies. Finally, many believe that aid programs detract from DOD's primarily military function. Any redesign of foreign aid programs would likely take into account the role of the Defense Department. Options for addressing the role of DOD include making the Defense Security Cooperation Agency a co-managed entity between the Department of Defense and the Department of State, or moving the DSCA into a new aid agency. Another option is to bring the DSCA under the control of an interagency coordinating mechanism. Change Use of Multilateral Organizations In addition to bilateral assistance, the United States contributes to multilateral institutions that carry out development activities. These institutions include international and regional organizations, such as the United Nations and the Organization of American States, and multilateral banks, such as the World Bank, Inter American Development Bank, Asian Development Bank, African Development Bank, and European Bank for Reconstruction and Development. Since FY2000, the share of funds that the United States provides (not including assessed dues to some international organizations) has averaged a little less than 8% of the total amount appropriated for foreign assistance programs. The lowest point occurred in FY2003 with 6.8%. Previous to the 2000s, the United States contributed a higher share. The average during the 1980s was nearly 11%, and nearly 13% in the 1990s. Figure 5 shows the ratio of multilateral aid to total foreign aid since 1981. Decreases since 2003 can be attributed to the large increase in bilateral assistance in light of new initiatives such as PEPFAR and MCC. Congress may consider the desired level of U.S. contributions to multilateral institutions. There have been disagreements between the Administration and Congress on the use of multilateral institutions. The debate on funding levels for the U.S. contribution to the Global Fund for AIDS, Tuberculosis and Malaria is one example, where Congress has consistently provided more funds than requested by the Administration. Proponents of a greater use of multilateral institutions believe that these organizations are better suited to carry out development activities because they can pool the resources of member nations and, as a result, can bring more funds to any particular country or problem. They argue that these organizations often fund large infrastructure projects, activities in which USAID no longer engages. Others believe that they can tackle long-term development issues with a longer and more consistent commitment of resources. Some also contend that multilateral institutions often have better credibility in recipient countries and are not burdened by possibly poor relations that may exist between some donor and recipient countries. Those who advocate greater flexibility observe that multilateral assistance often is not subject to as many statutory restrictions in both appropriations and authorization legislation. Critics of multilateral institutions argue that they lack accountability and transparency in how funds are spent and how policy decisions are made. They believe that the United States would not have enough say in how assistance is provided and to whom, possibly resulting in situations where U.S. funds are going to support governments with which the United States has serious policy differences. Others contend that a greater use of multilateral institutions will mean that the United States will not get acknowledgment from the recipient countries for its foreign aid contributions. Create a Unified Budget In the parlance of the U.S. budget, international affairs comprises Function 150 spending, while the defense budget is considered Function 050. Function 150 is appropriated through the annual State Department, Foreign Operations, and Related Programs appropriations bill, while Function 050 is largely appropriated through the Defense and Military Construction appropriations bills. Programs in domestic agencies that provide some type of foreign assistance are not included in Function 150. Instead, those funds are requested and approved within their own budgets. This situation has led observers to criticize U.S. aid as being uncoordinated and lacking transparency, as there are no central reporting requirements. It is difficult to ascertain how much the United States spends in some sectors that receive assistance from various agencies, such as health (USAID, State, HHS, CDC), education (State, USAID, Department of Education), or environment (State, USAID, Department of the Interior, Department of Agriculture, EPA, NOAA, U.S. Forest Service, U.S. Fish and Wildlife Service), for example. There are several related proposals to create some sort of unified budget. Unified Function 150 Budget or Budget Presentation One proposal is to include all foreign assistance spending in Function 150 with the budgeting process coordinated by the lead aid agency, although program specifics would be developed by the agency providing the assistance. Under this scenario, funds would still be part of the various agencies, but the budget request would be unified and presented by the head of the aid agency. A related option is to maintain the current function categories, but have the Administration present a congressional budget justification that includes all foreign assistance programs government-wide. Proponents believe such a unified budget, or presentation, would provide Congress with a fuller picture of the totality of foreign aid, and assist in making policy decisions. This option would also offer the possibility of being able to identify redundancies and inconsistencies in programs. Critics would argue that reorganizing budget functions would be time consuming, and that the issue of coordination could be achieved through other means. Unified National Security Budget Another option is to combine Functions 050 and 150 into a national security budget. While the Defense base budget request for FY2008 totals $483.2 billion, the foreign aid budget of $24.4 billion pales in comparison. Combining the two would offer the advantage of coordinating the programs and funding levels among the three main agencies providing assistance. Proponents believe that this option would increase transparency, and reduce duplication of aid programs. Critics argue that including foreign assistance in a national security budget that consists mostly of defense spending would present the wrong image for USAID as an independent civilian agency, and one whose mission is fundamentally different from that of DOD. In addition, critics do not believe that the proposal would result in additional foreign assistance, unless the foreign aid budget is fenced within a national security budget. Restructuring Options Elevate USAID to Cabinet-Level Department The impetus behind the proposal to create a cabinet-level department is to put foreign assistance on an equal footing with diplomacy and defense, consistent with its elevation as a pillar of U.S. national security. In addition, other donor countries have, in recent years, given their aid agencies increased standing on a par with their foreign and defense ministries, the most often cited being the United Kingdom's Department for International Development (DFID). As a cabinet department, it is believed that a Secretary for Development would be better able to work as an equal with other department heads in order to coordinate aid programs government-wide. It would also operationalize the rhetoric of elevating the importance of global development. In addition, there is the possibility that a department would attract experienced development professionals, who have left USAID as its operating budget has continued to decline. Some critics oppose the idea on the grounds that other equally important agencies are not in the cabinet, and that USAID should remain under the foreign policy direction of the Secretary of State. Others believe that even as a cabinet agency, USAID would not be equal to the more powerful Departments of State and Defense. Some would also argue that USAID controls just 20% of foreign assistance, with the remaining controlled by the State Department and other independent aid agencies, such as the Millennium Challenge Corporation. In addition, the option does not formally provide for better government-wide coordination. Merge USAID into State Department As currently structured, USAID is an independent agency, but as provided in reorganization legislation in 1998, it takes foreign policy guidance from the Secretary of State. Some observers have suggested that the F bureau's location in the State Department has made USAID a subordinate entity in terms of both policy and budgeting. Some have termed these events as a stealth merger. A previous attempt to merge USAID into the State Department failed in 1998, when the U.S. Information Agency (USIA) and the Arms Control and Disarmament Agency (ACDA) were abolished and their functions folded into State ( P.L. 105-277 ). During the debate that unfolded over several years, proponents contended that better coordination could not be accomplished with USAID remaining an independent agency. As separate agencies, the State Department and USAID at times have had conflicting agendas, duplicative functions; USAID programs, according to reformers, did not at times properly reflect national priorities. They also maintained that having foreign assistance managed by the State Department would result in a better use of scarce resources. Both arguments are relevant in the current debate. Proponents note that the State Department's aid budget already dwarfs that of USAID, controlling nearly 64% of funds provided by foreign operations appropriations for FY2007. In addition, supporters contend that having the Secretary of State in charge of foreign assistance would raise its profile, and result in better coordination of programs located in other agencies. Current merger proposals call for the official in charge of aid at the State Department to have a high rank, and for a merger of the two foreign services so that USAID officials could be considered for ambassadorships. Opponents countered, then as now, that the State Department and USAID have different and distinct missions. The State Department primarily focuses on resolving short-term crises through diplomacy, while USAID pursues long-term development achievements that could be compromised by the Department's need to shift funds for crisis management. Critics believe that aid policy would be diminished within State, pointing out that moving USIA into State in 1998 did nothing to raise the profile of public diplomacy, and many would argue, did the exact opposite. Critics also argue that the State Department lacks both an interest in aid programs and the expertise in managing them, a view that was confirmed by a recent GAO report. Finally, a merger does not formally address the coordination of aid programs government-wide, instead relying on the level of prestige and interest of the Secretary of State. Create Aid Agency with Increased Jurisdiction Another possibility is to create an aid agency by giving it jurisdiction over all U.S. foreign assistance, including that provided by the State Department and domestic agencies. Under such a scenario, it may not be necessary to elevate it to the cabinet; its importance would derive from it having the full range of aid programs in its portfolio. To be successful, it is believed that a new agency would need to have all current USAID and State Department programs, including PEPFAR, as well as those of independent agencies under its umbrella, such as the Millennium Challenge Corporation, the Peace Corps, the Overseas Private Investment Corporation, and the Trade and Development Agency. Organizationally, it is suggested that the agency would have bureaus that correspond to functions, such as humanitarian assistance and disaster response, long-term development, health, security and military assistance, trade, and innovative programs, such as MCC and the Global Development Alliance (GDA). While it may be politically difficult to move the programs of domestic agencies into this new entity, a system of liaison offices could be instituted instead. For example, say proponents, a Centers for Disease Control and Prevention (CDC) and a Health and Human Services Department (HHS) liaison office co-located in the health bureau would increase coordination and program formation. With all aid programs in its portfolio, it is believed that the agency would be in a better position to monitor and evaluate program effectiveness. In this view, it would also be able to provide the coordination necessary to avoid duplication and programs working at cross purposes. Proponents say that a re-invented aid agency would be able to enhance its human capital capacity by bolstering its cadre of development experts, and that the agency would become the lead government entity on policy, implementation, and research. On the other hand, the proposal could be criticized for creating a large new bureaucracy that may be no better at managing foreign assistance than the current structure. Without a clearly thought out strategy and objectives to guide foreign aid, the organization of aid delivery would matter little. Others believe that independent agencies have been created with a specific mission and that those missions could well be downgraded or neglected in a larger organization. Still others contend that development assistance, with its focus on poverty alleviation and long-term development, should not be co-located with security and military assistance, much for the same reasons, they would argue, that USAID should not be merged with the State Department. Improve Interagency Coordination There have been previous attempts to improve interagency coordination of aid programs; the most often cited are the Development Coordination Committee (DCC) and the International Development Cooperation Agency (IDCA). Both were considered unsuccessful. However, there are other examples of interagency coordinating mechanisms outside of the aid field, such as the National Security Council, the Director of the Office of National Drug Control Policy, and the Council on Environmental Quality. The need for some type of coordination is evidenced by the growth in the number of agencies and departments that administer some type of foreign assistance program. There is little coordination or joint policy development among these entities, leading many observers to characterize U.S. aid programs as fragmented and vulnerable to programs and agencies working at cross-purposes. In many cases, existing departments have adopted an aid component. In other cases, new independent agencies have been created with specific mandates, the most recent being the Millennium Challenge Corporation, created in 2004. The U.S. report to the OECD provides information on the contributions of various government entities providing aid. Those entities totaled 28 in calendar year 2006. The percentage of ODA provided in calendar year 2006 ( Figure 6 ) from agencies other than the Department of State and USAID totaled 42%. The following entities, excluding the State Department and USAID, are drawn from the DAC report: Cabinet-level departments. Agriculture. Defense. Commerce. Energy. Health and Human Services. Interior. Justice. Labor. Treasury. Sub-cabinet organizations. Centers for Disease Control and Prevention (CDC) National Institute of Standards and Technology (NIST). U.S. Patent and Trademark Office (PTO). National Oceanic and Atmospheric Administration (NOAA). U.S. Fish and Wildlife Service (USFWS). U.S. Forest Service (USFS). Independent Agencies. Millennium Challenge Corporation. Environmental Protection Agency. Peace Corps. African Development Foundation. Inter-American Development Foundation. Trade and Development Agency. Export-Import Bank. Overseas Private Investment Corporation. U.S. Institute of Peace. National Science Foundation. The other category includes Departments of Commerce (0.04%), Energy (0.16%), Labor (0.29%), and the Interior (0.81%); African Development Foundation (0.08%); Inter-American Development Foundation (0.08%); Trade and Development Agency (0.22%); Environmental Protection Agency (0.31%); Export-Import Bank (6.7%); Millennium Challenge Corporation (0.65%); and the U.S. Institute of Peace (0.01%). It should be noted that ODA does not include military assistance programs such as Foreign Military Financing, and International Military Education and Training, managed by the State Department; nor does it include the costs of military operations. There are a number of options available to policy makers to improve interagency coordination. These options range from maintaining the current foreign aid structure, with possible modifications to improve coordination; creating a coordinating entity with the authority to marshal the resources of various government entities, or elevate USAID, or a successor aid agency, within the National Security Council structure. Create a Coordinating Entity This option would be similar to the Development Coordination Committee (DCC), or the International Development Cooperation Agency (IDCA). The DCC was authorized by Sec. 640B as an amendment to the Foreign Assistance Act of 1961 to advise the President on the coordination of policies and programs affecting developing countries. The DCC was established by executive order in 1973, with the USAID Administrator as chair, and was later revoked by executive order in 1999. The DCC reportedly did not function well for a variety of reasons, including a lack of White House commitment to foreign aid programs, and the difficulty in having an agency (USAID) trying to coordinate the activities of Cabinet departments. The International Development Cooperation Agency was inspired by proposed legislation to coordinate all government foreign assistance programs. The agency created by President Carter in 1979 by executive order was a much weaker organization than that envisioned by its chief legislative sponsor, Senator Hubert Humphrey. Considered understaffed and with a jurisdiction limited largely to just USAID, the IDCA ceased to function in the Reagan Administration. Any new coordinating entity would need a commitment from the White House, and strong leadership at its helm with the authority to coordinate across department jurisdictions. Consideration could also be given to providing the position with authority to coordinate the foreign aid budgets of all ODA-contributing agencies. Elevate Aid Agency Within NSC Structure The National Security Council (NSC) serves as the President's principal forum for considering national security and foreign policy issues, and coordinating policies among government agencies. The NSC was established by the National Security Act of 1947 (Stat.496; U.S.C. 402). By statute, members include the President, Vice President, Secretary of State, and Secretary of Defense, and by executive designation, the Secretary of the Treasury and the Assistant to the President for National Security Affairs. The Chairman of the Joint Chiefs of Staff is the statutory military advisor, and the Director of National Intelligence is the intelligence advisor. Other various department heads are invited to attend meetings as appropriate. USAID participates at the NSC through the Policy Coordination Committee (PCC), which is a unit of the NSC charged with policy coordination. The proposal to elevate a U.S. aid agency within the structure of the NSC is predicated on three observations. First, the U.S. National Security Strategy, as articulated in 2002 and restated in 2006, elevates global development as a third pillar, along with defense and diplomacy, of national security. Yet, little structural change has been made to reflect this elevation in the importance of USAID's work. Second, the lack of success in past attempts has been attributed to either a lack of interest on the part of the White House, and to the USAID Administrator lacking the rank necessary to coordinate other cabinet departments. Third, the current participation of USAID at the Policy Coordination Committee level may not be high enough to accomplish effective coordination. There are numerous possible mechanisms to raise the status of development within the NSC structure. Congress could statutorily designate the head of a U.S. aid agency, whether or not it is cabinet-level, to NSC membership. As such, this person would participate in all national security-related debates. Alternatively, Congress could designate an aid coordinator within the NSC with the authority to convene regular meetings with the relevant agency heads. Several committees exist within the NSC, such as the Committee on Transnational Threats, and the Committee on Foreign Intelligence. A possible option is to create a committee on foreign assistance with the central mission of developing aid policy and providing government-wide coordination. Maintain Status Quo With or Without Minor Modifications Some policy makers may eschew the idea of a formal coordinating mechanism as creating an additional level of bureaucracy that would do little to improve aid effectiveness. Coordination exists at the field level among agencies represented at U.S. embassies. At a policy planning level, they can point to the development of interagency coordination that has arisen among Defense, State and USAID. At least two combatant commands (Southcom and Africom) are integrating civilian agencies at headquarters with the objective of coordinating aid activities better. At the newly operational Africom, plans are for a senior State Department foreign service officer to hold the position of deputy to the commander for civil-military activities. With the increase in DOD providing aid, both the State Department and USAID have created offices (Office of Political-Military Affairs at State, and the Office of Military Affairs at USAID) to manage the relationship. Advocates of a less formal coordinating approach contend that aid levels of other agencies are a small fraction compared to that provided by USAID, State, and DOD combined, which reached 76% of ODA in calendar year 2006. There is also the possibility that the DFA's mandate could be expanded to include all U.S. foreign assistance, although such an approach, led by a sub-cabinet officer, may not result in the full cooperation of all cabinet departments. Re-write the Foreign Assistance Act An issue in the current debate on foreign aid reform is whether it is necessary or practicable to replace the current law governing U.S. aid programs, the Foreign Assistance Act of 1961, (FAA) as amended. The debate may be resolved based on the degree of proposed reforms. The more ambitious, such as a Cabinet-level aid agency, would call for authorizing legislation. To refocus assistance, whether by region, sector, or purpose, may not require a new FAA. The Foreign Assistance Act of 1961 has not been comprehensively reauthorized since 1985. Instead, Congress has considered and enacted single-issue foreign aid legislation, some of which have been incorporated into the Foreign Assistance Act. These laws have authorized assistance to the former Soviet Union (FREEDOM Support Act), eastern Europe (SEED Act), and established new funding platforms, such as the President's Emergency Plan for AIDS Relief (PEPFAR), and the Millennium Challenge Corporation. Supporters of a comprehensive re-write of the FAA argue that the 1961 law is largely a Cold War document that is out of date with current issues and absent the policy direction needed to guide U.S. foreign assistance in the 21 st Century. Many point out that the Act identifies over 33 major objectives, 75 priorities, and 247 directives for U.S. aid, many added through subsequent reauthorizations and amendments, but does not prioritize them. The history of changes to the FAA has also produced what many believe is a list of program restrictions, conditions, and reporting requirements that can be either outdated, conflicting, or both. They further argue that other statutes passed by Congress as stand-alone legislation (i.e., they were not incorporated into the FAA), complicate efforts to revise and update current law, to fully understand the implications of new legislation or the obstacles that exist in existing provisions, and to provide coordination and coherence to the complete complement of U.S. aid programs. Others believe that a complete re-writing of the FAA is not necessary, and that the political difficulties in passing such legislation may doom needed aid reforms. For any priority listed in the FAA, there are likely supporters who would oppose its removal, or a lessening of the priority accorded to it. Instead, they argue, reform efforts should focus on policy development, coordination, and implementation of existing programs. Even more ambitious reforms, except for the creation of a new assistance entity, could be accomplished within the existing statutory framework that grants the President the necessary authorities to administer foreign aid programs, and with single-issue legislation to authorize new initiatives. Major Reform Report Recommendations The recognition that foreign aid serves important national interests, together with annual increases in foreign aid budgets since 9/11, has produced several government- and non-governmental-sponsored studies of how to raise the profile of foreign assistance, provide better coordination, and improve aid effectiveness. In the last year, several reports from three organizations have generated a considerable amount of interest. For clarity and comparability, each entity's recommendations, provided below, have been organized by the subject areas of budget, structure, and policy options, although some recommendations have implications for all three areas. HELP Commission The HELP Commission was created by the Helping to Enhance the Livelihood of People Around the Globe Commission Act (HELP Commission Act, 22 USC 2394b). Introduced by Representative Frank Wolf in October 2003, and passed by Congress as Sec. 637 of the Consolidated Appropriations Act, FY2004 ( P.L. 108-199 ), the Act called for a commission to study and report on U.S. foreign development assistance programs. The Commission began operations in 2005 and issued its report, Beyond Assistance , in December 2007. The Commission was composed of 21 members: 6 appointed by the President, 4 each appointed by the Speaker of the House and Senate Majority Leader, and 3 each appointed by the House Minority Leader and Senate Minority Leader, with the Administrator of the U.S. Agency for International Development serving as an ex officio member. The Commission was charged with identifying past and present objectives of U.S. development assistance, analyzing whether such assistance should be used as a means to achieve U.S. foreign policy objectives, and considering how to evaluate the performance of aid programs. The Act called for a comprehensive review of policy decisions, delivery obstacles, and best practices. The Commission held a series of meetings with development experts, and conducted study missions to aid recipient countries. It looked at both the efficiency and effectiveness of aid programs government-wide, including development, security, humanitarian, and food assistance. Major HELP Commission recommendations include the following: Policy In general, the HELP Commission recommends that there be a recognition that security and development reinforce each other. Rewrite the Foreign Assistance Act of 1961 to reflect current and anticipated world conditions. Build vibrant private sectors by increasing U.S. technical assistance and funding for small and medium businesses that do not have access to private capital. Renew efforts to improve agricultural productivity and related industries in the developing world, including taking actions to minimize the effects of domestic agricultural subsidies and to encourage G-8 countries to do the same. Increase the local purchase of food aid. Form partnerships with local public and private entities to increase demand-driven programs. Leverage non-governmental actors and growth in philanthropy and private investment through programs like the Global Development Alliance (GDA). Align U.S. trade and development policies. One suggestion is to allow duty-free, quota-free provisions for MCC-eligible countries and for the poorest countries with a per capita Gross Domestic Product below $2,000. Establish a Quadrennial Development and Humanitarian Assistance Review. Structure The HELP Commission did not reach a consensus on an organizational structure, although the majority of commissioners supported a redesigned Department of State. A strong minority also supported the creation of a cabinet-level department for global development. Create a new combined USAID and Department of State called the International Affairs Department to reflect the elevation of development as a pillar of national security. The new department would have four sub-cabinet agencies reporting to the Secretary: economic affairs, development, and trade; humanitarian services and stabilization; political and security affairs; and public diplomacy and consular affairs. The report argues that this is not to "simply move USAID into the current Department of State. It would completely reorganize these and other agencies and departments by functions to ensure a coordinated, coherent approach." (Page 15, Executive Summary.) Establish an entity to conduct research and development modeled on the Defense Advanced Research Projects Agency (DARPA) that would create and commercialize technological products that would benefit developing countries. Establish a high-level mechanism to coordinate aid policy for all government agencies in the Executive Office of the President, possibly within the National Security Council. Strengthen the Office of the Coordinator for Reconstruction and Stabilization, and implement the Administration proposal for a Civilian Response Corps. Budget The HELP Commission recommends increases for the international affairs budget that could result in a doubling of foreign assistance funding. Create a unified national security budget combining Functions 050 and 150, and fencing as much as 10% for international affairs activities. Ten percent of such a budget would result in a doubling of current foreign aid levels. Improve the monitoring and evaluation, human resources, and procurement and contracting capabilities of U.S. international affairs agencies. This includes strengthening staff resources devoted to development and doing away with the Operating Expense account. Agree on uniform procedures for reprogrammings and congressional holds. Consolidate and realign the foreign aid account structure. Establish a permanent Humanitarian Crisis Response Facility funded at $500 million and a Transitional Security Crisis Fund. Clarify DOD's role in development assistance by ensuring adequate funding for State and USAID programs in areas in which DOD is engaged. Senate Foreign Relations Committee The minority of the Senate Foreign Relations Committee issued two reports in the last two years on aspects of U.S. foreign assistance programs. The first, Embassies as Command Posts in the Anti-Terror Campaign (S. Prt. 109-52), was issued in December 2006 and focused on the growing role of the Department of Defense in foreign assistance programs. The second, Embassies Grapple to Guide Foreign Aid (S. Prt. 110-33), was issued in November 2007 and examined the implementation of the new Strategic Framework for Foreign Assistance from a field perspective. Both reports made reform recommendations. Policy Similar to the HELP Commission report, the SFRC recommends a strategic approach that incorporates both security components and humanitarian programs. Design a foreign assistance strategy that integrates national security needs and a humanitarian imperative. Congress should move expeditiously on ambassadorial nominations and funding decisions; overhaul the Foreign Assistance Act of 1961, and implement a two-year reauthorization schedule; and agree on reprogramming levels below which congressional notification is not required, on a three-year pilot program. Give ambassadors more decision-making authority over military-related assistance programs. Structure The Senate report recommends separating the DFA and USAID Administrator's positions, and to reorganize USAID to give it a voice at higher levels of government, even while the Secretary would have enhanced authority over aid programs. Give the Secretary of State the authority to ensure all aid, government-wide, is in U.S. foreign policy interest. Secretary should provide strategic direction, transparency, and accountability. The F process should be redesigned to make decision-making clearer and more accountable; make the DFA a position on which the Senate would advise and consent as Deputy Secretary of State; give the DFA authority to prepare a unified aid budget and to referee funding disputes; expand DFA's responsibility to all government aid programs, including DOD; and create Deputy Assistant Secretary positions for programs at regional levels, similar to the State Department's SEED Coordinator. USAID should be reorganized to separate the USAID Administrator's position from that of DFA; give the USAID Administrator an independent presence on the President's highest level inter-agency councils on foreign aid issues, while still remaining under the policy guidance of the Secretary of State; and give USAID officers more opportunities to achieve ambassadorships. Ambassadors and Deputy Chiefs of Mission (DCMs) should be trained in foreign assistance. Budget Like the HELP Commission report, the Senate report supports the concept of a unified budget and increased resources for both aid programs and USAID operations. Create a unified aid budget managed by the DFA. Strengthen USAID's in-house expertise and increase its resources, including its Operating Expense account. Increase resources for function 150 accounts to prevent the migration of aid programs to the Department of Defense. Executive-legislative relations and communication should be improved as a way to lessen the need or motivation for congressional directives and limitations. Center for Strategic and International Studies (CSIS) The CSIS Commission on Smart Power, chaired by Richard L. Armitage and Joseph S. Nye Jr., issued a report, A Smarter, More Secure America , in November 2007. The report's findings and recommendations are far-reaching and extend beyond foreign assistance. In general, the report advocates that hard power, as exercised by military might, be integrated with soft power, as conducted through diplomacy and development initiatives, thus resulting in "smart power." Among the recommendations with regard to foreign assistance are the following: Policy The CSIS report recommends a more engaged U.S. foreign policy that encompasses all aspects of international relations. Like both the HELP Commission and SFRC reports, it recognizes the inter-relation between security and development. Make greater investments in multilateral institutions such as the United Nations, the World Bank, and IMF. With regard to the United Nations, the report recommends a greater use of U.N. vehicles in the areas of peacekeeping and peacebuilding, counter-terrorism, global health, and energy and climate issues. Strengthen the G-8 summit process on routinely addressed issues, such as energy and climate, nonproliferation, global health, education, and the world economy. Work with local civil society and the private sector for more agile, innovative, and locally supported aid delivery systems. Structure The CSIS report does not endorse a cabinet-level agency, but does recommend that it have a cabinet-level voice. Like both the HELP and SFRC reports, it endorses the elevation of development within the organizational structure of government in order to improve the coordination of development activities government-wide. Create a cabinet-level voice on global development. Unify all government assistance programs. Create a U.S. Global Health Corporation to build a more unified approach to development and health. Create a smart power deputy under the national security advisor and the director of the Office of Management and Budget. Improve inter-agency coordination by strengthening department executive secretaries with an adjunct standing coordination center. Establish a Quadrennial Smart Power Review. Budget Consistent with both the HELP and SFRC reports, the CSIS report recommends increased funding for foreign assistance programs. Elevate the development mission within the U.S. government by increasing the size of the development and humanitarian budget and increasing aid effectiveness. Other organizations and think tanks have studies in various stages of development. Many hope to be able to offer viable options to a new Administration and Congress. Most of these organizations support both increased resources and an elevated visibility for assistance programs. Disagreement remains on whether a new structure and authorizing legislation is needed, and what any new structure would look like. Appendix. Acronyms

Since the terrorist attacks of September 11, 2001, the role of foreign assistance as a tool of foreign policy has come into sharper focus. The President elevated global development as a third pillar of national security, with defense and diplomacy, as articulated in the U.S. National Security Strategy of 2002, and reiterated in 2006. At the same time that foreign aid is being recognized as playing an important role in U.S. foreign policy, it has also come under closer scrutiny by Congress, largely in response to a number of presidential initiatives, and by critics who argue that the U.S. foreign aid infrastructure is cumbersome and fragmented, and that aid policy is unfocused. In recent years, several initiatives have heightened congressional interest in, and caused a re-examination of, U.S. foreign assistance policy and programs, including organizational structure. In January 2006, Secretary of State Rice announced an initiative to bring coordination and coherence to U.S. aid programs. The Secretary created a new State Department position—Director of Foreign Assistance (DFA)—the occupant of which serves concurrently as Administrator of the U.S. Agency for International Development (USAID). A new Bureau of Foreign Assistance (F) was created to coordinate assistance programs, led by the DFA, who in 2006, developed a Strategic Framework for Foreign Assistance to align U.S. aid programs with strategic objectives. The Framework guided the writing of the FY2008 and FY2009 budgets, and is expected to be reflected in the FY2010 budget request. U.S. foreign aid programs began in earnest with the Marshall Plan to rebuild Europe following World War II. Arguably, the underlying rationale for aid during most of the post-war period was to counter Communist influence in the world. Since the fall of the Berlin Wall and the collapse of the Soviet Union, and particularly since the terrorist attacks of September 11, 2001, aid programs have increasingly been justified within the context of anti-terrorism. Despite changing global conditions and challenges, U.S. foreign aid programs, their organizational structure, and their statutory underpinnings, reflect the Cold War environment in which they originated. These factors are, arguably, motivating the heightened interest in re-evaluating how U.S. aid programs function, and in revamping how they are administered. There is also a growing recognition of the role that foreign assistance can play as a foreign policy tool that is equal to the role of diplomacy and defense within the current international environment characterized by regional conflicts, terrorist threats, weapons proliferation, concerns with disease pandemics, and the difficulty in overcoming poverty. As a result, a number of recent high-profile studies have made recommendations for specific reforms. This report, written by [author name scrubbed], a former CRS Specialist, will be updated by Susan Epstein to reflect continuing developments.

Scope of the Agriculture Appropriations Bill The Agriculture appropriations bill—formally known as the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act—provides funding for: All of the U.S. Department of Agriculture (USDA) except the Forest Service, which is funded in the Interior appropriations bill, The Food and Drug Administration (FDA) in the Department of Health and Human Services, and In the House, the Commodity Futures Trading Commission (CFTC). In the Senate, the Financial Services bill contains CFTC appropriations. In even-numbered fiscal years, CFTC appears in the enacted Agriculture appropriation. Jurisdiction is with the House and Senate Committees on Appropriations, and their respective Subcommittees on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. The bill includes mandatory and discretionary spending, but the discretionary amounts are the primary focus during the bill's development. The scope of the bill can be shown by the major allocations in the FY2016 appropriation ( Figure 1 ). The federal budget process treats discretionary and mandatory spending differently. Discretionary spending is controlled by annual appropriations acts and receives most of the attention during the appropriations process. The annual budget resolution process sets spending limits for discretionary appropriations. Agency operations (salaries and expenses) and many grant programs are discretionary. Mandatory spending —though carried in the appropriation and usually advanced unchanged—is controlled by budget enforcement rules (e.g., PAYGO) during the authorization process. Spending for eligibility and benefit formulas in so-called entitlement programs are set in laws such as the farm bill and child nutrition act. In FY2016, discretionary appropriations totaled 15% ($21.75 billion) of the Agriculture appropriations bill ( P.L. 114-113 ). Mandatory spending carried in the bill comprised $119 billion, about 85% of the $141 billion total. Within the discretionary total, the largest discretionary spending items are for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), agricultural research, rural development, FDA, foreign food aid and trade, farm assistance program salaries and loans, food safety inspection, conservation, and animal and plant health programs ( Figure 1 ). The main mandatory spending items are the Supplemental Nutrition Assistance Program (SNAP, and other food and nutrition act programs), child nutrition (school lunch and related programs), crop insurance, and farm commodity and conservation programs paid through USDA's Commodity Credit Corporation (CCC). SNAP is referred to as an "appropriated entitlement," and requires an annual appropriation. The nutrition program amounts are based on projected spending needs. In contrast, the Commodity Credit Corporation operates on a line of credit; the annual appropriation provides funding to reimburse the Treasury for using the line of credit. Action on FY2016 Appropriations6 The FY2016 Agriculture Appropriation was enacted as part of an omnibus bill on December 18, 2015 ( P.L. 114-113 ). Separate Agriculture bills were reported in both chambers, but neither went to the floor ( H.R. 3049 , S. 1800 ). The fiscal year began under three continuing resolutions. Table 1 summarizes actions on the FY2016 Agriculture appropriation—and each annual appropriation since FY1995—for the subcommittees, full committees, House and Senate chambers, and presidential enactment. Figure 2 is a visual timeline of the dates in Table 1 . The last time an Agriculture appropriations bill was enacted as a stand-alone measure was for FY2010 (in calendar 2009). An Agriculture appropriations bill has not cleared a floor vote in either chamber for four years, since the FY2012 bill, when it was the vehicle for a three-bill "minibus" measure. Committee action for FY2016 was somewhat later than in recent years. Administration's FY2016 Budget Request The White House released its FY2016 budget request on February 2, 2015. The same day, USDA released its 100-page budget summary and multi-volume budget explanatory notes with more programmatic details. The FDA released a one-page budget highlights and its detailed budget justification. The CFTC also released a detailed budget justification. From these documents, the congressional appropriations committees evaluated the request, began considering their bills, and decided how much of the request would be followed. House Action The Agriculture Subcommittee of the House Appropriations Committee held several hearings on FY2016 appropriations with various USDA agencies, FDA, and CFTC during the spring of 2015. The House Budget Committee developed a FY2016 budget ( H.Con.Res. 27 ), and the full House and Senate agreed on a joint budget resolution ( S.Con.Res. 11 ) on May 5, 2015. The House Appropriations Committee divided the budget's "302(a)" allocation for discretionary spending (that at that time was pending in conference committee negotiations) on April 29, 2015, into "302(b)" allocations for each of its 12 subcommittees ( H.Rept. 114-97 ). The House Agriculture appropriations subcommittee approved a draft bill on June 18, 2015, by voice vote. The full House Appropriations Committee reported the bill on July 8, 2015, by voice vote ( H.R. 3049 , H.Rept. 114-205 ). It adopted a manager's amendment and two other amendments. The bill was not considered on the floor. Senate Action The Agriculture Subcommittee of the Senate Appropriations Committee held hearings on the FY2016 appropriations request with various USDA agencies and FDA during the spring of 2015. The Senate Budget Committee developed a FY2016 budget ( S.Con.Res. 11 ) that was agreed to on May 5, 2015, by both the House and Senate after conference negotiations. The Senate Appropriations Committee divided the "302(a)" allocation into "302(b)" allocations for each of its 12 subcommittees on May 21, 2015 ( S.Rept. 114-55 ). The Senate Agriculture appropriations subcommittee approved a draft bill on July 14, 2015. The full committee reported it on July 16, 2015, by a vote of 28-2 ( S. 1800 , S.Rept. 114-82 ). The bill was not considered on the floor. The text of S. 1800 was inserted into a minibus appropriation ( S. 2129 ) that encompassed three subcommittee bills. That bill also was not considered on the floor. Continuing Resolution The fiscal year began under three continuing resolutions that lasted until December 11, 2015 ( P.L. 114-53 ), December 16, 2015 ( P.L. 114-96 ), and December 22, 2015 ( P.L. 114-100 ). Omnibus Appropriation The FY2016 Agriculture Appropriation was enacted as Division A of an omnibus appropriations bill on December 18, 2015 ( P.L. 114-113 ). The Explanatory Statement was printed in the Congressional Record for December 17, 2015, on p. H9693. The House began consideration of the bill on December 17, 2015, and passed it on December 18 by a vote of 316-113. The Senate passed the bill on December 18 by a vote of 65-33. The President signed the bill that same day. Summary of FY2016 Appropriation Amounts The enacted omnibus appropriation uses a budget allocation that was provided in the Bipartisan Budget Act of 2015 ( P.L. 114-74 , November 2, 2015), which was greater than what was available to develop the House- and Senate-reported bills. The final Agriculture appropriation provides $21.750 billion for discretionary amounts ( Table 2 ). Original FY2016 Budget and 302(b) Allocations to Subcommittees The initial FY2016 budget resolution ( S.Con.Res. 11 , May 5, 2015) set the "302(a)" allocation for discretionary spending for all 12 appropriations bills at $1,016.6 billion ($523.1 billion for defense spending, and $493.5 billion for nondefense spending). This level was consistent with the discretionary spending limit that is set in the Budget Control Act of 2011 ( P.L. 112-25 ), and therefore would not have triggered sequestration. This was the budget under which the appropriations subcommittees developed their bills through the summer of 2015. The initial "302(b)" allocation from the full House Appropriations Committee to its Agriculture Appropriations subcommittee was $20.650 billion ( H.Rept. 114-97 ), which was $175 million less than (-0.8%) the comparable amount for FY2015 ($20.825 billion). The Senate Appropriations Committee's initial allocation for its agriculture bill was $20.510 billion ( S.Rept. 114-55 ). Since the Senate allocation did not need to cover the Commodity Futures Trading Commission (CFTC), it effectively was $110 million more than a comparative allocation in the House if CFTC were held constant (+0.5%). It also was $65 million less than the FY2015 amount (-0.3%). Final FY2016 Budget and 302(b) Allocation The Bipartisan Budget Act of 2015 ( P.L. 114-74 , November 2, 2015) increased the FY2016 discretionary allocation for all 12 appropriations bills by $50 billion, to $1,066.6 billion. The increase was offset and divided evenly between defense and nondefense spending. The extra spending allowed by the new allocation was divided among the appropriations subcommittees to develop the omnibus appropriation. The Agriculture subcommittees were allocated $21.75 billion, which was $1.1 billion more than the original House-reported allocation and $990 million more than the original Senate-reported allocation. The final amount for Agriculture is an increase of $925 million over FY2015 (+4.4%). The enacted FY2016 appropriation put CFTC in the Agriculture appropriations bill (a House-jurisdiction basis), as is customary for even-numbered fiscal years. Continuing Resolution In the absence of an FY2016 appropriation before the beginning of the fiscal year on October 1, 2015, continuing resolutions were used to prorate FY2015 funding authority. Exceptions were that one-time emergency disaster and Ebola funding was excluded, and a 0.2108% across-the-board reduction applied. For mandatory programs, the CR allowed sufficient funding to maintain program levels, including for nutrition programs. Two anomalies affected the agriculture appropriation: an increase of about $9 million for the Commodity Supplemental Food Program, and a higher than normal rate of apportionment for the Rural Housing Rental Assistance Program and waiver authority on certain property renewal restrictions. Comparison of Amounts for FY2016 The enacted FY2016 Agriculture appropriations act provides $21.75 billion of discretionary spending, which is an increase of $925 million over FY2015 (+4.4%), after adjusting for CFTC jurisdiction. The higher allocation in the Bipartisan Budget Act allowed the final bill to be $1.1 billion more than the original House-reported bill and $990 million more than the original Senate-reported bill ( Table 2 ). Among agency-level spending differences from FY2015 that exceed $10 million ( Table 3 ) are: The Rural Housing Service receives $301 million more than FY2015 for rental assistance grants (+28%) and $25 million more for housing revitalization and community facilities grants. Food for Peace grants for international food aid receive an extra $250 million. The Agricultural Research Service receives $178 million more than FY2015 (+15%), mostly for buildings and facilities. The Food and Drug Administration (FDA) receives a $132 million boost, including $104 million more to implement the Food Safety Modernization Act. Emergency conservation, watershed, and forestry programs receive $157 million more than in FY2015, some of it offset by a disaster declaration. The Rural Utilities Service receives $57 million more (+12%) for rural water and waste disposal grants. The National Institute of Food and Agriculture receives $37 million more, mostly for Agriculture and Food Research Initiative (+7.7%). The Animal and Plant Health Inspection Service receives $23 million more than in FY2015 (+3%). Among reductions, the Special Supplemental Nutrition Program for Women, Infants, and Children ( WIC ) receives $273 million less than in FY2015. The Environmental Quality Incentives Program , a change to a mandatory spending program, is reduced by $73 million more than its reduction last year. Policy Changes In addition to specifying the amounts of budget authority, the appropriation prescribes various policies or conditions that affect how some agencies may use their appropriation. Among the notable policy-related provisions that are discussed in more detail in the relevant sections later: Some country-of-origin labeling (COOL) laws are permanently repealed. Horse slaughter facility inspection continues to be prohibited for the fiscal year. Imports of processed poultry from China are forbidden for certain nutrition programs. Wh ole grain and sodium requirements in the child nutrition programs are to be implemented with continued flexibility. The appropriation directs some terms for the formation of dietary guidelines . The use of commodity certificates for the marketing loan program is restored, including not being subject to payment limits. However, unlike the House markup, the enacted appropriation does not change the conservation compliance requirements, nor does it limit the applicability of certain tobacco regulations for e-cigarettes. In addition, the explanatory statement indicates that report language accompanying the House- or Senate-reported bills still holds, unless otherwise contradicted or changed by the explanatory statement, and that such report language is considered evidence of congressional intent. Recent Trends in Agriculture Appropriations The stacked bars in Figure 3 represent the discretionary spending authorized for each title in the 10 years since FY2007. The total of the positive stacked bars is higher than the official "302(b)" discretionary spending limit (the line) because of the budgetary offset from negative amounts in the General Provisions title and other scorekeeping adjustments. General Provisions are negative mostly because of limits placed on certain mandatory programs that are scored as savings (see near the end of Table 3 for examples, and the section " Changes in Mandatory Program Spending (CHIMPS) " for background). Increases in the use of CHIMPS and other tools to offset discretionary appropriations have ameliorated recent reductions in budget authority in some of the years since FY2010. For example, the official "302(b)" discretionary total for the bill has been given credit for declining 6.7% from FY2010 to FY2016 ($23.3 billion to $21.75 billion, Figure 3 ), while the total of Titles I-VI has declined only 4.6% over that same period ($23.6 billion to $22.5 billion). The effect is less pronounced in FY2016 than it was in FY2011-FY2015 when the offsets were larger. The offset in FY2016 is relatively smaller, in part, because of additional spending in the General Provisions title for foreign food aid and emergency programs. On an inflation-adjusted basis, FY2016 Agriculture appropriations are 16% below their peak in FY2010 ( Figure 4 ). When expressed in constant dollars, the official FY2016 appropriation has risen 7.2% above the recent low of the FY2013 post-sequestration level, and the subtotal of Titles I-VI has risen 6.1% since FY2013. Since FY2014, on an inflation-adjusted basis, the total Agricultural appropriation has been roughly constant, and on par with FY2012 and in between the amounts in FY008 and FY2009. Over time, changes by title of the bill generally have been proportionate to changes in the total discretionary Agriculture appropriation, though some areas have sustained real increases while others have declined (apart from the peak in 2010). Agencies with sustained real increases since FY2007 include the Food and Drug Administration and CFTC (Related Agencies), and to a lesser extent foreign assistance. Agencies with real decreases since 2007 include discretionary conservation programs and general agricultural programs. Rural development generally had decreased over the period through FY2015, though the FY2016 appropriation may have reversed that trend. Domestic nutrition programs in FY2016 are higher on a real basis than in FY2007, but are lower than in all of the other intervening years. Sequestration Continues on Mandatory Accounts Sequestration is a process of automatic, largely across-the-board reductions that permanently cancel mandatory and/or discretionary budget authority when spending would exceed statutory budget goals. Sequestration is required in the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Although the Bipartisan Budget Act of 2013 ( P.L. 113-67 ) raised spending limits in the BCA to avoid sequestration of discretionary accounts in FY2014 and FY2015—and the Bipartisan Budget Act of 2015 ( P.L. 114-74 ) did it again for FY2016 and FY2017—they do not prevent or reduce sequestration on mandatory accounts. Sequestration on non-exempt mandatory accounts continues in FY2016 and is scheduled to continue through FY2025. Appendix B provides more detail about sequestration at the individual account level. USDA Agencies and Programs About 95% of the total appropriation for the U.S. Department of Agriculture (USDA) is funded through the Agriculture appropriations bill. USDA was created in 1862 and carries out widely varied responsibilities through about 17 agencies and about a dozen administrative offices staffed by nearly 100,000 employees. Funding for about two-thirds of those employees is provided in Agriculture appropriations. The remaining one-third of the employees are in the Forest Service and are funded by the Interior and Related Agencies Appropriations bill. This report is organized in the order that the agencies are listed in the Agriculture appropriations bill. Departmental Administration27 The Agriculture appropriations bill contains several accounts for the general administration of the USDA, ranging from the immediate Office of the Secretary to the Office of Inspector General. For FY2016, the enacted appropriation ( P.L. 114-113 ) increases the administrative account subtotal by about $8.7 million (+2.4%) compared with FY2015, though most accounts are held constant ( Table 4 ). Most of the increase is for buildings and facilities ($8.3 million, +15%), though it is well below the $69 million increase requested by the Administration for long-planned structural improvements to the USDA headquarters complex (Whitten Building and South Building). Agricultural Research, Education, and Extension28 Agricultural research was one of the founding principles when USDA was created in 1862. Contemporary research spans traditional, organic, and sustainable agricultural production; bioenergy; nutrition; food safety; pests and diseases of plants and animals; and economics. Four agencies carry out USDA's research, education, and economics (REE) mission: The Agricultural Research Service (ARS) , USDA's intramural science agency, conducts long-term, high-risk, basic and applied research on food and agriculture issues of national and regional importance. The National Institute of Food and Agriculture (NIFA) distributes competitive grants and formula-based funding to land grant colleges of agriculture to provide partial support for state-level research, education, and extension. The National Agricultural Statistics Service (NASS) collects and publishes national, state, and county statistics. NASS also is responsible for the five-year cycle of the Census of Agriculture. The Economic Research Service (ERS) provides economic analysis of issues regarding public and private interests in agriculture, natural resources, and food. For FY2016, the USDA research mission area receives $2.936 billion, an increase of $211 million over FY2015 ( Table 5 ). Most of the increase is for ARS buildings and facilities ($167 million) and the flagship NIFA competitive grant program (+$25 million), while most other accounts are held constant or nearly constant compared to FY2015. The enacted appropriation, like the House and Senate bills, does not follow most of the proposed changes in priorities in the Administration's request. Agricultural Research Service The Agricultural Research Service is USDA's in-house basic and applied research agency. It operates approximately 90 laboratories nationwide with about 7,400 employees. ARS also operates the National Agricultural Library, one of the Department's primary information repositories for food, agriculture, and natural resource sciences. ARS laboratories focus on efficient food and fiber production, development of new products and uses for agricultural commodities, development of effective controls for pest management, and support of USDA regulatory and technical assistance programs. For FY2016, the enacted appropriation provides $1.144 billion for ARS salaries and expenses, an increase of $11 million over FY2015 (+1%; Table 5 ). The President had requested a 5% increase for salaries and expenses. ARS had proposed increases across several programmatic areas for prioritized research projects, coupled with reductions in funding for several existing programs. Both the House and Senate committees expressly rejected many, if not most, of those specific reductions and reprogramming. The explanatory statement for the omnibus and the individual committee reports address deficient animal welfare conditions that were uncovered at ARS research facilities, particularly at the ARS Meat Animal Research Center in Nebraska. In the appropriations act and via report language, Congress instructs ARS to comply with Animal Welfare Act standards, allow animal welfare inspections by a USDA sister agency (Animal and Plant Health Inspection Service, APHIS), review and update its own animal care policies, and certify progress with the committees. Also, via explanatory statements for the Office of the Secretary, all House and Senate requirements on this issue are to be followed. This therefore includes House report language that further withholds 5% of the ARS appropriation until USDA certifies that it has updated its policies and has functioning Institutional Animal Care and Use Committees. For the ARS buildings and facilities account, the enacted appropriation provides $212 million, an increase of $167 million over FY2015 for an account that had received no appropriation for several years. Like in FY2015, the funding is to be used for priorities that are identified in the "USDA ARS Capital Investment Strategy." ARS's top facilities priorities are the construction of a biocontainment laboratory at its poultry research facility in Athens, GA ($145 million); a foreign disease-weed science facility in Frederick, MD ($70 million); and an animal science, human nutrition, and bee research center in Beltsville, MD ($33 million). National Institute of Food and Agriculture The National Institute of Food and Agriculture provides federal funding for research, education, and extension projects conducted in partnership with the State Agricultural Experiment Stations, the State Cooperative Extension System, land grant universities, colleges, and other research and education institutions, as well as individual researchers. These partnerships include the 1862 land-grant institutions, 1890 historically black colleges and universities, 1994 tribal land-grant colleges, and Hispanic-serving institutions. Federal funds enhance capacity at universities and institutions by statutory formula funding, competitive awards, and grants. For FY2016, the enacted appropriation provides $1.327 billion for NIFA, an increase of $37 million over FY2015 (+2.9%; Table 5 ). The President had requested $1.503 billion for NIFA. USDA had proposed to merge NIFA's three primary accounts (Research and Education, Extension, and Integrated Activities) into a single NIFA-wide account. Congress effectively rejected that proposal by continuing to fund each of the accounts separately as in past years. The Agriculture and Food Research Initiative (AFRI)—USDA's flagship competitive grants program with 25% of NIFA's total budget—receives $350 million, an increase of $25 million. Formula-funded programs are held constant, with the exception of Evans-Allen funding for historically black colleges and universities, which receive a $1.7 million increase (+3%). The appropriation rejects an Administration proposal that would have added a competitive portion to the normally formula-funded "capacity awards" programs such as the Hatch Act. The House report noted a lack of state matching funding for some historically black colleges and universities and directed USDA to develop a plan to work with the states to meet the matching requirements. The Administration had proposed $80 million to establish two new "Innovation Institutes" as public-private partnerships. Like last year, the enacted appropriation ignores this proposal. The President's request would have consolidated federal science, technology, engineering, and mathematics (STEM) education funding so that USDA would no longer provide Higher Education Challenge Grants, Graduate and Post-graduate Fellowship Grants, Higher Education Multicultural Scholars Program, Women and Minorities in STEM Program, Agriculture in the Classroom, and Secondary/Postsecondary Challenge Grants. The appropriation rejects that proposal and continues to fund the programs in USDA at FY2015 levels. National Agricultural Statistics Service The National Agricultural Statistics Service (NASS) conducts the Census of Agriculture and provides official statistics on agricultural production and indicators of the economic and environmental status of the farm sector. For FY2016, the enacted appropriation provides NASS $168 million, a decrease of $4 million (-2%) from FY2015. The President's request was $180 million, which would have been an increase of 5% over FY2015. Economic Research Service The Economic Research Service supports economic and social science information analysis on agriculture, rural development, food, commodity markets, and the environment. It collects and disseminates data concerning USDA programs and policies to various stakeholders. For FY2016, the enacted appropriation provides ERS $85 million, which is the same as FY2015. USDA had requested $86 million. Marketing and Regulatory Programs Three agencies carry out USDA's marketing and regulatory programs mission area: the Animal and Plant Health Inspection Service (APHIS), the Agricultural Marketing Service (AMS), and the Grain Inspection, Packers and Stockyards Administration (GIPSA). Animal and Plant Health Inspection Service34 APHIS is responsible for protecting U.S. agriculture from domestic and foreign pests and diseases, responding to domestic animal and plant health problems, and facilitating agricultural trade through science-based standards. Prominent concerns include avian influenza, bovine spongiform encephalopathy ("mad cow disease"), foot-and-mouth disease, invasive plant pests (e.g., emerald ash borer, glassy-winged sharpshooter, Asian long-horned beetle). APHIS also administers the Animal Welfare Act to protect animals in research and public exhibitions, and administers the Wildlife Services Program to protect against wildlife damage. For FY2016, the enacted appropriation provides $897.6 million for APHIS programs, comprised of $894.4 million for salaries and expenses and $3.2 million for building and facilities ( Table 6 ). This is $23.1 million more than FY2015 (+2.6%), and $38.6 million more than requested. The act provides a net increase of $22 million for high-priority initiatives to control outbreaks of insects, plant diseases, animal diseases, and for control of pest animals and birds. For larger outbreaks, the Office of Management and Budget (OMB) and congressional appropriators have sparred for years over whether APHIS should—as appropriators have preferred—reach as needed into USDA's Commodity Credit Corporation (CCC) account for mandatory funds to deal with emergency plant and animal health problems, or use primarily funds from the annual appropriation, as OMB has argued. In FY2015, USDA transferred an unusually large amount, about $1 billion, from CCC for highly pathogenic avian influenza (HPAI) response activities. The enacted appropriation provides an additional $3 million for APHIS avian health to help federal and state agencies, stakeholders, and growers implement surveillance and biosecurity to halt the spread of HPAI. The act directs USDA to report to Congress on the amount of emergency funds that were transferred from the Commodity Credit Corporation (CCC) to poultry owners and growers in FY2015. USDA is also required to inform Congress of HPAI developments and to give Congress a 15-day notification if further CCC funds are transferred for HPAI emergencies. In response to APHIS rule-making to allow imports of beef from Brazil and Argentina, Section 752 of the appropriation directs APHIS to establish a prioritization process for audits and reviews for countries that have been granted animal health status. APHIS is to provide the Appropriations and Agriculture committees a description of its prioritization process by April 2016. APHIS is required to conduct audits based on factors as defined in regulations for determinations of animal health status, and to promptly make audit reports publicly available. The section also requires that the audits be conducted in a manner consistent with U.S. international trade agreements. Within the animal welfare portion, the enacted bill includes a $400,000 increase to support a memorandum of understanding between APHIS and the Agricultural Research Service (ARS) to provide oversight of animal research at ARS facilities. In early 2015, a New York Times article about activities at the Meat Animal Research Center, an Agricultural Research Service (ARS) facility, led to a USDA investigation of all ARS facilities that used animals in their research. Agricultural Marketing Service and "Section 32" The Agricultural Marketing Service (AMS) administers numerous programs that facilitate the marketing of U.S. agricultural products in domestic and international markets. AMS each year receives appropriations in two different ways. A discretionary appropriation of about $80 million funds a variety of marketing activities. A larger mandatory spending amount of about $1.2 billion (funds for strengthening markets, income, and supply; or "Section 32") finances various types of ad hoc decisions that support agricultural commodities (such as meat, poultry, fruits, and vegetables) that are not supported through the direct subsidy programs for the primary field crops (corn, soybeans, wheat, rice, and peanuts) and dairy. User fees also support some AMS activities. Marketing Activities38 For FY2016, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) provides $81.22 million for AMS salaries, expenses, and $1.23 million for payments to states and possessions for marketing activities. This $82.5 million total is fractionally more than in FY2015, but is $1.9 million less than the Administration requested. The AMS discretionary appropriation funds four main marketing activities: market news service, shell egg surveillance and standardization, market protection and promotion, and transportation and marketing. The market news program collects, analyzes, and disseminates market information on a wide number of commodities. The shell egg program ensures egg quality and reviews and maintains egg standards. As part of market protection and promotion programs, AMS administers the pesticide data program, the National Organic Program (NOP), the seed program, the country-of-origin labeling (COOL) program, and 22 commodity research and promotion (checkoff) programs. AMS monitors the agriculture transportation system and conducts market analysis that supports the transport of agricultural products domestically and internationally. The AMS appropriation includes $1.23 million for payments to states and possessions through the Federal-State Marketing Improvement Program. This program provides matching grants to state marketing agencies to explore new market opportunities for U.S. food and agricultural products, and to encourage research and innovation to improve marketing efficiency and performance. AMS collects user fees and reimbursements to cover product quality and process verification programs, commodity grading, and Perishable Agricultural Commodities Act licensing. AMS expects to collect about $233 million in FY2016. The appropriation places a $61 million limit on the amount of user fees that AMS may collect for grading and classifying cotton and tobacco. AMS also administers several 2014 farm bill programs that have mandatory funding and are designed to support specialty crops, farmers markets, local foods, and organic certification. The appropriation carries a significant policy development; it repeals country-of-origin labeling (COOL) requirements for beef and pork and ground beef and pork (§759). U.S. COOL requirements have been in force since 2004 for fish and seafood, and for other commodities, such as beef, pork, chicken, fruits, vegetables, and some nuts since 2009. Canada and Mexico challenged COOL for beef and pork at the World Trade Organization (WTO). The WTO found that the U.S. violated trade obligations by discriminating against imports of cattle and hogs from Canada and Mexico. It authorized Canada and Mexico to impose almost $1 billion in retaliatory tariffs. The repeal of COOL for beef and pork by Congress ended the threat of trade retaliation. Section 32 (Funds for Strengthening Markets, Income, and Supply)42 AMS's mandatory appropriation reflects a transfer from the so-called Section 32, which is a program created in 1935 to assist agricultural producers of non-price-supported commodities. The Section 32 account is funded by a permanent appropriation of 30% of the previous calendar year's customs receipts ($10.3 billion in FY2016). This amount is reduced by various mandatory transfers to child nutrition and other programs ($9.0 billion in FY2016). Section 32 monies available for obligation by AMS have been used at the Secretary's discretion to purchase agricultural commodities like meat, poultry, fruits, vegetables, and fish, which are not typically covered by mandatory farm programs. These commodities are diverted to school lunch and other domestic food and nutrition programs. Section 32 has also been used to fund surplus removal and farm economic and disaster relief activities. The 2008 farm bill (§14222) capped the annual amount of Section 32 funds available for obligation by AMS in FY2016 at $1.303 billion. Also, to increase the amount of fruits and vegetables purchased under Section 32, Congress limited USDA's discretion in two ways: (1) §4304 of the 2008 farm bill established a fresh fruit and vegetable school snack program funded by carving out Section 32 funds (set at $40 million in 2008, rising to $150 million in 2011, and adjusted for inflation for each year thereafter), and (2) §4404 of the 2008 farm bill required additional purchases of fruits, vegetables, and nuts (set at $190 million in FY2008, rising to $206 million in FY2012, and remaining at that level each year thereafter). Section 4214 of the 2014 farm bill expanded the school snack program to include frozen, canned, and dried fruits and vegetables on a pilot basis for the 2014-15 school year. The enacted FY2016 appropriation provides $1.425 billion of Section 32 funds for AMS, which compares with $1.284 billion enacted in FY2015. The FY2016 amount is reduced by $216 million (rescission) and $77 million (sequestration), and is considered mandatory spending. The House- and Senate-reported bills both continue a provision (§715) that has appeared since FY2012 that effectively prohibits the use of Section 32 for emergency disaster payments: [N]one of the funds appropriated or otherwise made available by this or any other Act shall be used to pay the salaries or expenses of any employee of the Department of Agriculture or officer of the Commodity Credit Corporation to carry out clause 3 of Section 32 of the Agricultural Adjustment Act of 1935 (P.L. 74-320, 7 U.S.C. 612c, as amended), or for any surplus removal activities or price support activities under section 5 of the Commodity Credit Corporation Charter Act. Grain Inspection, Packers and Stockyards Administration45 The Grain Inspection, Packers and Stockyards Administration (GIPSA) oversees the marketing of U.S. grain, oilseeds, livestock, poultry, meat, and other commodities. The Federal Grain Inspection Service establishes standards for the inspection, weighing, and grading of grain, rice, and other commodities. The Packers and Stockyards Program monitors livestock and poultry markets to ensure fair competition and guard against deceptive and fraudulent trade practices. For FY2016, the enacted appropriation provides GIPSA $43.1 million for salaries and expenses, slightly higher than in FY2015. The Administration requested a FY2016 appropriation of $44.1 million. The act authorizes GIPSA to collect up to $55 million in user fees for inspection and weighing services. If grain export activity requires additional services, the user fee limit may be exceeded by up to 10% upon notification to the House and Senate appropriations committees. For the first time in four years, there is no rider prohibiting USDA from finalizing or implementing parts of GIPSA's proposed rule on livestock and poultry marketing practices (75 Federal Register 35338, June 22, 2010) that was required in the 2008 farm bill. Food Safety and Inspection Service (FSIS)47 The Food Safety and Inspection Service (FSIS) regulates most meat, poultry, and processed egg products. The Meat and Poultry Inspection Program of FSIS conducts continuous inspections at federal meat and poultry plants and ensures that state inspection programs have standards that are at least equivalent to federal standards. The Egg Products Inspection Program ensures that liquid, frozen, and dried egg products are also safe, wholesome, and correctly labeled. In addition, FSIS inspects U.S. imports of meat, poultry, and egg products, and ensures that they are produced under standards equivalent to U.S. inspection standards. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) provides FSIS $1.015 billion in FY2016. This is $1.6 million lower than enacted in FY2015, but $3.3 million more than the Administration requested. Appropriations are augmented by existing (currently authorized) user fees that FSIS estimates to be nearly $180 million per year. FSIS appropriations are divided between various sub-accounts, including federal ($898.8 million), state ($61.0 million), and international ($16.7 million) inspection; Codex Alimentarius ($3.8 million); and the Public Health Data Communications Infrastructure System ($34.6 million). The Administration again proposed a user fee of $4 million to cover additional inspection costs associated with performance issues at inspected facilities, but as in previous appropriations, it was not enacted. FSIS also administers the Humane Methods of Slaughter Act (HMSA). The FY2016 appropriations act requires that FSIS have no fewer than 148 full-time equivalents dedicated to the inspection and enforcement of the HMSA. The act also encourages FSIS to provide Congress a comprehensive plan addressing the recruitment of frontline food safety personnel. The appropriation directs FSIS to continue to implement the catfish inspection program as required under the 2014 farm bill ( P.L. 113-79 , §12106). It provides $2.5 million to implement the catfish rule. FSIS issued the final rule on catfish inspection on December 2, 2015, to go into effect on March 1, 2016, with a phase-in period continuing until September 1, 2017. The appropriation prohibits FSIS from using funds to inspect horse slaughter facilities (§767), as well as the use of voluntary inspection fees for horse slaughter inspection. Farm Service Agency54 USDA's Farm Service Agency (FSA) is probably best known for administering the farm commodity subsidy programs and the disaster assistance programs. It makes these payments to farmers through a network of county offices. In addition, FSA also administers USDA's direct and guaranteed farm loan programs and certain mandatory conservation programs (in cooperation with the Natural Resources Conservation Service), and supports certain international food assistance and export credit programs administered by the Foreign Agricultural Service and the U.S. Agency for International Development. FSA Salaries and Expenses For FY2016, the enacted appropriation provides $1.507 billion to FSA for salaries and expenses (including $1.200 billion for regular FSA salaries and expenses, plus the transfer within FSA of $307 million for farm loan program salaries and expenses), the same as for FY2015 ( Table 7 ). Regarding information technology, the enacted appropriation adopts both the House and Senate bills and report language that continues strong requirements that began in FY2015 about FSA's implementation of information technology (IT) plans. Specifically, it addresses the MIDAS plan (Modernize and Innovate the Delivery of Agricultural Systems) that was flagged for concern by the Federal IT Dashboard in December 2012. FSA has struggled with the scope and schedule of work on MIDAS and has yet to achieve the expected results. The Government Accountability Office (GAO) and the USDA OIG continue to observe management and schedule problems in recent reports. The statutory language continues a FY2015 requirement that FSA—before it can spend more than 50% of the $130 million for IT—submit to Congress and GAO a detailed information technology plan that meets several specific criteria, quarterly brief and consult with the appropriations subcommittees, and submit an assessment report by the end of FY2016. Regarding office closures and staff reductions, the FY2016 appropriations act prohibits FSA from closing any county offices. It also prohibits FSA from permanently relocating any county employees if it results in two or fewer employees, unless the Appropriations Committees approve. The FY2015 appropriation similarly prohibited county office closure and contained the relocation provision, but that was the first time that FSA office closure had been mentioned in appropriations since FY2006-FY2008. The 2008 farm bill enacted a permanent provision (7 U.S.C. 6932a; P.L. 110-246 , §14212) that accomplished the same thing—setting conditions and requiring congressional notification and local hearings before FSA can close or consolidate a county office. The FY2015 and FY2016 appropriations one-year moratoriums surpass the permanent provision. The enacted appropriation, via report language for the House- and Senate-reported bills, rejects the Administration's proposal for more funding for beginning farmer and rancher programs, citing insufficient coordination among USDA agencies, as was found in a report by the USDA Office of Inspector General (OIG). FSA Farm Loan Programs The USDA Farm Service Agency makes and guarantees loans to farmers, and is a lender of last resort for family farmers unable to obtain credit from a commercial lender. USDA provides direct farm loans (loans made directly from USDA to farmers), and it also guarantees the timely repayment of principal and interest on qualified loans to farmers from commercial lenders. FSA loans are used to finance farm real estate, operating expenses, and recovery from natural disasters. Some loans are made at a low interest rate. An appropriation is made to FSA each year to cover the federal cost of making direct and guaranteed loans, referred to as a loan subsidy. Loan subsidy is directly related to any interest rate subsidy provided by the government, as well as a projection of anticipated loan losses from farmer non-repayment of the loans. The amount of loans that can be made—the loan authority—is several times larger than the subsidy level. For FY2016, the enacted appropriation and the House- and Senate-reported bills are identical to each other and to the Administration's request in both loan subsidy and loan authority, with the exception of the Administration requesting a slightly higher amount for salaries and expenses and Congress not funding the Administration's request for Individual Development Accounts. The FSA farm loan program receives $70 million of loan subsidy to support $6.402 billion of direct and guaranteed loans in FY2016 ( Table 8 ). Though the loan subsidy is about 12% smaller than in FY2015, the loan authority is the same as FY2015. The reduction in loan subsidy is explained by the direct farm operating program. Following the global financial crisis that began in 2008, FSA farm loan authority generally has risen, reflecting the borrowing needs of many farmers. Broad financial system pressures dramatically increased the demand for FSA farm loans and guarantees when commercial bank lending standards became stricter and loans sometimes were less available. In FY2009 and FY2010, supplemental appropriations increased regular FSA loan authority by nearly $1 billion each year in order to meet demand, up from pre-crisis levels of about $3.5 billion in 2008 to post-supplemental levels of $6.0 billion in FY2010. From FY2011 to FY2013, loan authority decreased both due to federal budget pressures and somewhat lessened demand as the financial system stabilized. Nonetheless, in some years, continued high farm loan demand for certain programs has caused the loan authority to be exhausted. The FY2014 loan authority restored the total closer to the supplemental levels of FY2009 and FY2010, and the FY2015-FY2016 appropriations increase total loan authority to a new high level, particularly in the direct farm ownership loan program. Commodity Credit Corporation63 The Commodity Credit Corporation (CCC) is the funding mechanism for many of the agriculture-related mandatory spending programs in the 2014 farm bill ( P.L. 113-79 , the Agricultural Act of 2014). These include farm subsidy and disaster payments, as well as a host of other programs that receive mandatory funding, such as conservation, trade, food aid, research, rural development, and bioenergy. (Programs with different mandatory funding sources other than the CCC include crop insurance, SNAP, child nutrition, and Section 32.) Supplemental spending also has been paid from the CCC, particularly for ad hoc farm disaster payments, direct market loss payments because of low farm commodity prices, and disease eradication efforts. Separate discretionary appropriations to various agencies pay for salaries to administer the programs. The CCC is a wholly owned government corporation that has the legal authority to borrow up to $30 billion at any one time from the U.S. Treasury to finance program spending (15 U.S.C. 714, et seq .). The CCC may earn a small amount of money from activities such as buying and selling commodities and receiving interest payments on loans. But because the CCC never earns more than it spends, its borrowing authority is replenished through a congressional appropriation. Mandatory outlays for the commodity programs rise and fall based on economic or weather conditions (e.g., crop prices below program trigger levels generate farm payments). Funding needs are difficult to estimate, which is a primary reason that the programs are mandatory rather than discretionary, and that the program operates under a Treasury line of credit. The congressional appropriation may not always restore the line of credit to the previous year's level, or may repay more than was spent. For these reasons, the appropriation to the CCC may not reflect current year outlays. Moreover, the CCC appropriation is several billion dollars greater than the amount of farm commodity subsidies because other programs are paid from CCC. To replenish CCC's borrowing authority, the enacted FY2016 appropriation continues to provide an indefinite appropriation ("such sums as necessary"). The amount scored for FY2016 is $6.871 billion, down 49% from FY2015. The reduction does not indicate any action by Congress to reduce program support. Among policy changes, the FY2016 appropriation restores the use of "commodity certificates" for the marketing loan program, including not being subject to payment limits (§740). The change is made to the farm bill statutes and applies to the 2015 crop marketing year and the remainder of the 2014 farm bill. The provision is projected to cost $5 million in FY2016. These certificates are payments-in-kind that can be redeemed for cash in lieu of marketing loan gains or forfeiture (7 U.S.C. 7286). Besides providing flexibility in repaying marketing loans, commodity certificates have been used by some farmers to avoid payment limitations. Commodity certificates have not been available since the 2009 crop year, and some say would not have been advantageous during the 2008 farm bill when marketing loan gains and loan deficiency payments did not have any payment limitations. However, under the 2014 farm bill, payment limits apply to marketing loan gains and loan deficiency payments. Restoring the use of certificates provides a mechanism for farmers to benefit from the marketing loan program without being subject to payment limitations. This provision was in the House-reported bill, but was not in the Senate-reported version. Separately, regarding authority in the CCC Charter Act to provide ad hoc disaster assistance, the enacted appropriation continues a provision (§715) that has appeared since FY2012 that effectively prohibits the use of the CCC for emergency disaster payments to farmers: [N]one of the funds appropriated or otherwise made available by this or any other Act shall be used to pay the salaries or expenses of any employee of the Department of Agriculture or officer of the Commodity Credit Corporation to carry out clause 3 of Section 32 of the Agricultural Adjustment Act of 1935 (P.L. 74-320, 7 U.S.C. 612c, as amended), or for any surplus removal activities or price support activities under section 5 of the Commodity Credit Corporation Charter Act. Finally, the omnibus continues a provision that has been in each appropriation since FY2011 that limits the ability of USDA to provide marketing assistance loans for mohair (§722). Crop Insurance68 The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance to producers who grow an insurable crop. Producers who opt for this coverage have the opportunity to purchase additional insurance coverage at a subsidized rate (ranging between 38% and 80%). Policies are sold and serviced through approved private insurance companies that have their program losses reinsured by USDA and are reimbursed by the government for their administrative and operating expenses. Two separate appropriations support the federal crop insurance program. The first provides discretionary funding for the salaries and expenses of the RMA. The second provides mandatory funding for the Federal Crop Insurance Fund (FCIC), which finances other program expenses, including premium subsidies, indemnities, and reimbursements to the insurance companies. For the discretionary salaries and expenses of the RMA, the enacted FY2016 appropriation is unchanged from the FY2015 appropriation at $74.8 million. It does not accommodate the Administration's request for an increase of $2.1 million for 12 new staff to improve payment compliance efforts. Under Senate report language RMA is to research the feasibility of poultry industry-related insurance and the availability of policies that reflect organic price differentials. For the mandatory appropriation to the Federal Crop Insurance Fund, the omnibus appropriation provides an indefinite amount ("such sums as necessary"), estimated at $7.858 billion. This is nearly $1.1 billion less than FY2015 (-12%), but does not reflect any change by Congress to reduce program benefits. The actual amount required is subject to change and is based on actual crop losses and farmer participation rates in the program. The current year-over-year decline is driven by expectations of lower commodity prices that result in lower premium subsidies. The enacted appropriation does not contains a House-reported provision (§748) that would have prevented USDA from enforcing a conservation compliance requirement in the 2014 farm bill. Standard Reinsurance Agreement as Temporary Budget Offset One of the budgetary offsets that allowed the Bipartisan Budget Act of 2015 (P.L. 114-74, November 2, 2015) to raise the government-wide discretionary spending limit by $50 billion in FY2016 was a reduction to the crop insurance program. The provision (§201 of P.L. 114-74 ) set a cap on the rate of return for private crop insurance companies that would be negotiated in the next Standard Reinsurance Agreement (SRA). The SRA is the legal risk-sharing mechanism between the Federal Crop Insurance Corporation and the private insurance companies that deliver federal crop insurance. The CBO score of the provision was a $3.038 billion savings to the federal government over 10 years. The provision had not been proposed or approved by the authorizing committees of jurisdiction for the crop insurance program. Despite the provision remaining in the budget agreement for expeditious reasons, assurances were expressed among congressional leadership as the bill was still being debated that the crop insurance reduction would be reversed in future legislation. The Fixing America's Surface Transportation Act ( P.L. 114-94 , December 4, 2015) restored those reductions to the crop insurance program as if they never had been made (§32301). The CBO score of the reversal was a $3.038 billion cost to the federal government over 10 years. Disaster Assistance74 USDA offers several programs to help producers recover from natural disasters. Most of these programs are permanently authorized and do not require a federal disaster designation. Most receive mandatory funding ("such sums as necessary") and are not subject to annual appropriations. However, three agricultural land rehabilitation programs receive discretionary funding on an ad hoc basis. In recent years, funding has been incorporated into annual appropriations bills, even though it remains supplemental in nature and amounts vary over time. The FY2016 enacted appropriation provides funding for these three land rehabilitation programs: Emergency Conservation Program (ECP), Emergency Forest Restoration Program (EFRP), and Emergency Watershed Protection (EWP) program (§728; Table 9 ). Under these programs, a national or state emergency does not have to be declared in order to receive assistance. However, recent years' funding has included a requirement that funds be used "for necessary expenses resulting from a major disaster declared pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, 42 U.S.C. 5121, et seq . )." This language allows the funding to be designated as "disaster relief" and for the purpose of budget scoring is not counted against the discretionary spending cap. The addition of the Stafford Act requirement, however, limits the number and type of eligible disasters. The FY2016 appropriation provides both disaster relief funding (requiring a Stafford Act-related event) and discretionary funding (that does not require a Stafford Act-related event). The enacted appropriation also repurposes $2.4 million in unobligated balances under the EWP program (§745). The unobligated funds originally were provided in prior year supplemental appropriations that directed funds to specific states, counties, and disasters, including wildfire recovery in southern California (FY2004), Hurricane Katrina and other 2005 hurricanes (FY2006), and flooding in the Midwest (FY2007). The FY2016 appropriation allows the funding to be spent for disasters occurring in FY2016 or FY2017, and to remain available until expended. Conservation78 USDA administers a number of agricultural conservation programs that assist private landowners with natural resource concerns. These include working land programs, land retirement and easement programs, watershed programs, technical assistance, and other programs. The two lead agricultural conservation agencies within USDA are the Natural Resources Conservation Service (NRCS)—which provides technical assistance and administers most programs—and the Farm Service Agency (FSA)—which administers the Conservation Reserve Program (CRP). Most conservation program funding is mandatory, funded through the Commodity Credit Corporation (CCC) and authorized in omnibus farm bills (about $5.3 billion of CCC funds for conservation in FY2016). Other conservation programs—mostly technical assistance—are discretionary and funded through annual appropriations. The enacted FY2016 appropriation includes reductions to mandatory conservation programs and provides a slight increase from FY2015 levels for discretionary programs. Discretionary Conservation Programs All discretionary conservation programs are administered by NRCS. The largest program and the account that funds most NRCS activities is Conservation Operations (CO). The enacted appropriation provides $851 million for CO; more than the FY2015 amount ($846 million), the Administration's request ($831 million), and the House-reported bill ($833 million); but less than the Senate-reported bill ($855 million). The FY2016 appropriation directs CO funding for a number of conservation programs ( Table 10 ). The House and Senate committee reports that accompany their respective appropriations bills include a number of congressionally directed actions, including program administration, invasive species, wetland mitigation, herbicide resistance, conservation practices, species protection, and partner agreements. While these actions do not include specific funding, they ultimately can direct funding to congressionally identified projects similar to earmarks. Funding also is provided in the enacted appropriation (and in the 2014 farm bill) for the Watershed Rehabilitation program to repair aging dams previously built by USDA. The Administration had proposed no funding for this program, contending that the maintenance, repair, and operation of dams are local responsibilities. However, the enacted FY2016 appropriation provides $12 million for FY2016, more than both the House- ($6 million) and Senate-reported ($0) bills. The enacted FY2015 appropriation included $12 million for the program, and the 2014 farm bill ( P.L. 113-79 ) added an additional $250 million in mandatory funding for FY2014 to remain available until expended. Mandatory Conservation Programs Mandatory conservation programs generally are authorized in omnibus farm bills and receive funding from the CCC, thus not requiring an annual appropriation. But Congress has reduced mandatory conservation programs through changes in mandatory program spending (CHIMPS) in the annual agricultural appropriations law every year since FY2003. Because money is fungible, the savings from these reductions are not necessarily applied toward other conservation activities. The FY2016 enacted CHIMPS are more than in the Administration's proposal and the House- and Senate-reported bills. The proposal and bills would have continued CHIMPS to farm bill conservation programs totaling $255 million. The FY2016 enacted conservation CHIMPS subtotal is effectively $273 million. Sequestration further reduces available funding for these and other mandatory conservation programs in FY2016, resulting in an estimated total reduction of $562 million, or roughly 10% of all mandatory conservation funding. The number of conservation programs reduced through appropriations varies from year to year; however, some programs are continually reduced, while others rarely are reduced. Programs such as the Environmental Quality Incentives Program (EQIP) have been reduced annually since FY2003, while others, such as the Conservation Reserve Program (CRP), have not been reduced in over a decade. In FY2016, the mix of programs reduced is similar to previous years––EQIP and the Watershed Rehabilitation Program. Proposed reductions to the Conservation Stewardship Program were not included; however, additional reductions were made to EQIP above what was proposed in the Administration's request and House- and Senate-reported bills. The enacted appropriation did not include any of the proposed rescissions of mandatory budget authority. Unlike CHIMPS, which apply only to the current fiscal year and do not typically change or permanently cancel the statutory funding authority, a rescission is a permanent cancellation. The 2014 farm bill amended mandatory funding for several conservation programs, allowing unobligated funds from previous years to be carried forward until expended or expired. This new farm bill approach allows not only unobligated funding to be carried forward to the next fiscal year, but also prior year's CHIMPS as well. Therefore, not only are new-year mandatory funds subject to sequestration and CHIMPS, but so are carry-over (unobligated) funds and prior-year CHIMPS for which budget authority becomes available again in a new fiscal year. The Administration's request included over $320 million in conservation-related rescissions (funding that would be permanently cancelled and not carried forward), compared to $68 million rescinded in the Senate-reported bill and none in the House-reported bill. The enacted FY2016 appropriation did not include any rescissions, thereby allowing FY2016 CHIMPS to be carried forward into FY2017 if Congress chooses to do so next year. Rural Development88 Three agencies are responsible for USDA's rural development mission area: the Rural Housing Service (RHS), the Rural Business-Cooperative Service (RBS), and the Rural Utilities Service (RUS). An Office of Community Development provides community development support through field offices. This mission area also administers Rural Economic Area Partnerships and the National Rural Development Partnership. The enacted FY2016 appropriation ( P.L. 114-113 ) provides a total of $2.77 billion in discretionary budget authority for rural development programs. This is about $368 million more than enacted for FY2015 (+15%) and $167 million more than requested by the Administration ( Table 11 ). The enacted FY2016 appropriation will support $36.7 billion in loan authority, $816.6 million more than enacted last year. Salaries and expenses within Rural Development are funded from a direct appropriation plus transfers from each of the agencies. The FY2016 appropriation provides a combined salaries and expenses total of $683 million, $4.6 million more than in FY2015 (+0.7%). Rural Housing Service (RHS) For FY2016, P.L. 114-113 provides $2.03 billion in budget authority for RHS programs (before transfers). This is $320.8 million (+18.7%) more than FY2015. With this budget authority, the appropriation provides approximately $27.5 billion in loan authority, $75 million more than the FY2015 total loan authority (+0.3%). The single-family housing loan program (Section 502 of the Housing Act of 1949) is the largest economic activity, representing 90.5% of RHS's total loan authority. The enacted bill provides $900 million for direct loans and $24.9 billion for federal loan guarantees, the same as FY2015. For other housing loan programs, the enacted appropriation provides $3.4 million in budget authority to support $26.3 million in loans for the Section 504 Very Low-Income Housing Repair loan program, the same as FY2015 and as requested by the Administration. For the Multi-Family Housing loan guarantee program (Section 538), the appropriation provides $150 million of loan authority (the same as for FY2015). For the Section 515 Rental Housing Program, P.L. 114-113 provides loan authority of $28.4 million and $8.4 million in subsidies (the loan authority is the same as FY2015, but $13.8 million (-33%) less than the Administration had requested). The largest budget authority line item in RHS is the Rental Assistance Program grants (Section 521), accounting for about 68% of the total ( Table 11 ). The FY2016 appropriation provides $1.39 billion in budget authority, an increase of $301.2 million from FY2015 (+27.6%) and $217.8 million more than requested. The Multi-Family Revitalization program receives $37 million in FY2016, $13 million more than for FY2015 (+54%) and $3 million more than the request. The Rural Housing Service also administers the Rural Community Facilities program, which provides direct loans, loan guarantees, and grants for "essential community facilities" in rural areas with less than 20,000 people. The enacted appropriation provides $42.3 million, of which $3.5 million would support a direct and guaranteed loan authorization level of $2.2 billion and the balance ($38.7 million) for grants. The total budget authority for the Community Facilities program is $12 million more (39.6%) than for FY2015, and nearly $20 million less than requested. The Administration had requested a shift away from loans, but the appropriation continues the historical ratio between loans and grants. Besides $25 million of facilities grants, the program also supports economic development programs. The appropriation supports Rural Community Development Initiative grants ($4 million), Economic Impact Initiative grants ($5.8 million), and Tribal College grants ($4 million). These amounts are the same as for FY2015. Rural Business-Cooperative Service (RBS) The FY2016 appropriation provides $95 million to the RBS before the "cushion of credit" rescission and transfers. This is about $12.7 million less than FY2015 (-12%). This budget authority level will support $979 million in loan authority for the various RBS loan programs. For the Rural Business Program account, the appropriation provides $62.7 million in budget authority, $11.3 million less than FY2015. This account includes the Business and Industry (B&I) Loan Guarantee program ($35.7 million of loan subsidy to support $919.8 million of guaranteed loans), the Rural Business Development Grant program ($24 million), and the Delta Regional Authority ($3 million). Grant support for the latter two is the same as for FY2015. For Rural Cooperative Development Grants, P.L. 114-113 provides $22 million, the same as for FY2015. These include cooperative development grants ($5.8 million), Appropriate Technology Transfer for Rural Areas ($2.5 million), grants to assist minority producers ($3 million), and Value-Added Product Development grants ($10.7 million). These are the same levels of funding as in FY2015. For the Rural Energy for America Program (REAP), the appropriation provides $500,000 in loan subsidies to support $7.6 million in loans. This is $5.2 million less in loan authority than FY2015, and $850,000 less in loan subsidies. The FY2016 appropriation provides no grant funding, the same as FY2015; the Administration had requested $5 million. The Administration requested funding for two new business programs: the Rural Business Investment Program ($6 million) and the Healthy Food Financing Initiative (HFFI, $13 million). The Rural Business Investment Program was authorized in the 2002 farm bill ( P.L. 107-171 , §6029), and the HFFI was authorized in the 2014 farm bill ( P.L. 113-79 , §4206). The Administration also requested $4.6 million for the Rural Microenterprise Assistance Program. The appropriation provides no funding for any of these programs, the same as FY2015. Rural Utilities Service (RUS) The FY2016 appropriation provides $594 million in budget authority for the Rural Utilities Service before transferring salaries and expenses, $58 million more than FY2015 (+11%). This budget authority supports $8.2 billion in loans ( Table 11 ). The Rural Water and Waste Disposal Program account is 88% of the RUS appropriation. The enacted bill provides $522.4 million in budget authority, $57.5 million more than FY2015 (+12.4%) and $39 million more than the Administration requested. The FY2016 amount is divided among the following accounts: Water/Waste Water grants: $364.4 million ($347.1 million in FY2015); Grants for Colonias, and Alaska and Hawaii Natives: $64 million ($66.5 million in FY2015); Technical Assistance: $20 million ($19 million in FY2015); Circuit Rider program: $16.4 million ($15.9 million in FY2015); High Energy Cost grants: $10 million (same as FY2015); Solid Waste Management grants: $4 million (same as FY2015); Water and Waste Water revolving fund: $1 million (same as FY2015); Individual Well Water grants: $993,000 (same as FY2015). The FY2016 appropriation provides $5.5 billion in rural electric loan authority for Federal Financing Bank loans, and $690 million for Treasury rate telecommunication loans. These are the same amounts as enacted for FY2015. The appropriation also increased the guaranteed underwriting authorization for electric loans from $500 million to $750 million. For the combined distance learning, telemedicine, and broadband account, the FY2016 appropriation provides $36.8 million in budget authority, the same as for FY2015. For distance learning/telemedicine, the appropriation provides $22.0 million in grants. For rural broadband, the appropriation provides $10.4 million in grants, the same as FY2015. For loans, it provides an unchanged $4.5 million in budget authority to subsidize $20.6 million in direct loans (-15% from FY2015). Domestic Food Assistance95 Domestic food assistance represents over two-thirds of USDA's budget. Funding is largely for open-ended appropriated mandatory programs; that is, it varies with program participation and in some cases inflation under the terms of the underlying authorization law. The largest mandatory programs include the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamps Program) and the child nutrition programs (including the National School Lunch Program and School Breakfast Program). The three largest discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Commodity Supplemental Food Program (CSFP); and federal nutrition program administration. The enacted FY2016 appropriation ( P.L. 114-113 ) provides nearly $110 billion for domestic food assistance ( Table 12 ), approximately $394 million (or less than 1%) below FY2015. This FY2016 total is approximately $300 million below that proposed in House- and Senate-reported bills, due largely to the Administration's updated estimates for the SNAP and WIC accounts. The FY2016 law's general provisions and explanatory statement language provide further information for the domestic food assistance programs and in some cases instructions to USDA. The explanatory statement indicates that House or Senate committee's directives for an agency report still hold, and that all other report language is considered evidence of committee intent, unless otherwise changed by the explanatory statement. Office of the Under Secretary for Food, Nutrition, and Consumer Services For the Under Secretary's office, the FY2016 appropriation provides $811,000, a reduction of $5,000 from FY2015. The explanatory statement includes several directives for the Department. Citing two reports from the OIG (one on SNAP's quality control process, another on school meals error rate measurement), it directs USDA to provide a report on how the Food and Nutrition Service (FNS) will address these reports. The statement also directs FNS to inform the committees of proposed policy actions before actions are implemented and, separately, expects "FNS to ensure that all parties that enter into a contract fulfill all required obligations." SNAP and Other Programs Under the Food and Nutrition Act Appropriations under the Food and Nutrition Act (formerly the Food Stamp Act) support (1) SNAP (and related grants), (2) a Nutrition Assistance Block Grant for Puerto Rico and nutrition assistance block grants to American Samoa and the Commonwealth of the Northern Mariana Islands (all in lieu of the SNAP), (3) the cost of food commodities as well as administrative and distribution expenses under the Food Distribution Program on Indian Reservations (FDPIR), (4) the cost of commodities for the Emergency Food Assistance Program (TEFAP) (but not administrative/distribution expenses, which are covered under the Commodity Assistance Program budget account), and (5) Community Food Projects. The enacted appropriation provides approximately $80.8 billion for programs under the Food and Nutrition Act in FY2016. This is nearly $1 billion less than FY2015 (-1%) and approximately $200 million less than House- and Senate-reported bills. These differences are due largely to the Administration's forecast of lower participation in the SNAP program and inflation-related updates. The enacted appropriation provides $3 billion for the SNAP contingency reserve fund, equal to past appropriations but less than the $5 billion requested by the Administration. The explanatory statement notes that the appropriation provides, "a funding level for SNAP benefits as reflected in OMB's mid-session review of the budget." The explanatory statement notes that the Nutrition Education and Program Information line item of the SNAP account "does not provide funding for new or existing Centers of Excellence, which have not been authorized by Congress." The enacted SNAP appropriation continues to reflect the funding increases authorized by the 2014 farm bill, such as those for TEFAP commodities and Community Food Projects. Child Nutrition Programs103 Appropriations under the child nutrition account fund a number of programs and activities authorized by the Richard B. Russell National School Lunch Act and the Child Nutrition Act. These include the National School Lunch Program, School Breakfast Program, Child and Adult Care Food Program (CACFP), Summer Food Service Program, Special Milk Program, assistance for child-nutrition-related state administrative expenses (SAE), procurement of commodities for child nutrition programs (in addition to transfers from separate budget accounts within USDA), state-federal reviews of the integrity of school meal operations ("Coordinated Reviews"), "Team Nutrition" and food safety education initiatives to improve meal quality and safety in child nutrition programs, and support activities such as technical assistance to providers and studies/evaluations. (Child nutrition efforts are also supported by mandatory permanent appropriations and other funding sources discussed in " Other Nutrition Funding Support .") The FY2016 enacted appropriation provides approximately $22.1 billion for child nutrition programs. This proposed level is approximately $850 million greater (+4%) than the amount provided in FY2015, and includes transfers from the Section 32 account. This is also approximately $600 million greater than the House- and Senate-reported bills. Increases are largely due to updated estimates for participation and costs of the child nutrition programs. The enacted appropriation funds certain child nutrition discretionary grants, at levels higher than the House- or Senate- reported bills, but lower than the Administration's request. Also, Section 741 in the general provisions of the appropriations law included additional funding that is available until expended. These grants are: School Meals Equipment G rants. The enacted bill provides $30 million (including $5 million in Section 741(a)) for this purpose. This is a 20% increase from 2015, when $25 million was provided. The House-reported bill would have provided $20 million; the Senate-reported bill would have provided $25 million. The Administration requested $35 million for FY2016. Summer EBT (Electronic Benefit Transfer) Demonstration Projects. These projects provide electronic food benefits over summer months to households with children in order to make up for school meals that children miss when school is out of session and as an alternative to the Summer Food Service Program meals. These projects originally were authorized and funded in the FY2010 appropriations law ( P.L. 111-80 ). They received $23 million for FY2016 (including $7 million in §741(b)), a 44% increase from 2015 when $16 million was provided. The House-reported bill would have provided $12 million, while the Senate-reported bill would have provided $16 million. The Administration had requested approximately $67 million to continue these projects in FY2016, continuing to cite the positive results of these demonstrations. Child Nutrition Policies in General Provisions The enacted appropriation includes the school meals nutrition standards "policy riders" that were in the general provisions of the FY2015 appropriations law: Exemptions from whole grain rules (§733(a)). This language requires USDA to allow states to exempt school food authorities (typically school districts) from the 100% whole grain requirements, if they "demonstrate hardship, including financial hardship, in procuring specific whole grain products which are acceptable to the students and compliant with the whole grain-rich requirements." The provision, however, requires such exempted authorities to maintain a 50% whole grain minimum, the requirement in place prior to school year 2014-2015. The FY2015 appropriation required availability of these exemptions through school year 2015-2016; the enacted FY2016 appropriation continues exemptions through school year 2016-2017. This language had been included in the House- and Senate-reported bills. Scientific basis for sodium limits (Section 733(b)). This policy rider would prevent USDA from implementing regulations that require the reduction of sodium in "federally reimbursed meals, foods, and snacks sold in schools" below the "Target 1" limits until "the latest scientific research establishes the reduction is beneficial for children." (Note: According to the school meals regulations published in January 2012, a lower "Target 2" is to take effect during school year 2017-2018, and a still lower "Target 3" in school year 2022-2023.) This language had been included in House- and Senate-reported bills. In addition, the enacted bill includes a policy rider (§730) to prevent any processed poultry imported from China from being included in the National School Lunch Program, School Breakfast Program, Child and Adult Care Food Program (CACFP), and Summer Food Service Program. It was included in the House-reported bill, but not the Senate's. This provision also was in the FY2015 enacted appropriation. The full impact and scope of these child nutrition policy riders are subject to USDA's (and perhaps states') interpretation and implementation. The House and Senate reports each had additional child-nutrition-program related language. WIC Program111 Although WIC is a discretionary program, since the late 1990s, the appropriations committees' practice has been to provide enough funds for WIC to serve all eligible participants. The enacted appropriation law provides $6.35 billion for the WIC program. In addition, the bill provides $220 million through a general provision that rescinds FY2015 recovery and carryover funding (discussed below). The $6.35 billion for WIC is a decrease of $273 million (-4%) from FY2015 appropriations. The explanatory statement says, "[b]ased upon revised USDA estimates, the agreement fully funds all eligible WIC participants in fiscal year 2016." The enacted level includes set-asides for WIC breastfeeding peer counselors and related activities ("not less than $60 million") and infrastructure (approximately $14 million). These set asides are equal to FY2015 levels and are identical to those provided in the House- and Senate-reported bills. The FY2016 law provides an additional $220 million to fund management information systems, including WIC EBT and related activities. According to Section 751 and the explanatory statement, these funds were offset by rescinding FY2015 carryover and recovery funds. Unlike the rest of the WIC account, which is available for two years, this rescinded funding was originally made available until expended. The House- and Senate-reported bills proposed $55 million funding for this purpose, but the funding would only have been available for two years. The House and Senate reports each included additional WIC-related language. Commodity Assistance Program The Commodity Assistance Program budget account supports several discretionary programs and activities: (1) the Commodity Supplemental Food Program (CSFP), (2) funding for TEFAP administrative and distribution costs, (3) the WIC Farmers Market Nutrition Program (FMNP), and (4) special Pacific Island assistance for nuclear-test-affected zones in the Pacific (the Marshall Islands) and in the case of natural disasters. The FY2016 law provides approximately $296 million for this account, an increase of nearly $18 million (+6%) from the FY2015 appropriation. This account total is $8 million greater than the amounts proposed in House- and Senate-reported bills. FY2016 funding provided includes increases above the FY2015 level for CSFP (+$11 million), TEFAP administrative and distribution costs (+$5 million), and WIC FMNP (+$2 million). Nutrition Programs Administration This budget account funds federal administration of all the USDA domestic food assistance program areas noted previously; special projects for improving the integrity and quality of these programs; and the Center for Nutrition Policy and Promotion (CNPP), which provides nutrition education and information to consumers (including various dietary guides). The FY2016 enacted appropriation provides approximately $151 for this account, equal to the FY2015 funding level. This total is $10 million above the House-reported bill and $1 million below the Senate-reported bill. General Provisions on the Formulation of the Dietary Guidelines The Dietary Guidelines for Americans (DGA) are federally developed food-based recommendations for Americans ages two years and older, designed to promote health and prevent disease. The DGA form the basis of federal nutrition policy, education, outreach, and food assistance programs. They provide the scientific basis for government recommendations and are used in the development of educational materials, messages, tools, and programs to communicate healthy eating and physical activity information to the public. CNPP is funded through the Nutrition Program Administration account and is the USDA office that leads the policy development of the DGA. CNPP and the Office of Disease Prevention and Health Promotion (ODPHP), within HHS, jointly issue the DGA policy document every five years (since 1980), with the lead role alternating between the two departments. HHS had the administrative lead for development of the 2015-2020 DGA, which were issued on January 7, 2016. In response to congressional concern about the "quality of scientific evidence and extraneous factors" that were included in the 2015 Dietary Guideline Advisory Committee's (DGAC's) Scientific Report, Congress included several DGA-related policy riders in the FY2016 appropriation law. Section 734 prohibits the use of funds to issue or implement the 2015 DGA unless the information and scope of the recommendations are limited to matters of diet and nutrition only, and the information is based on significant scientific agreement. Section 735(a) requires the Secretary of USDA, within 30 days of the enactment of the law, to engage the National Academy of Medicine (NAM) to conduct a comprehensive study of the process used to establish the DGAC and the subsequent development of the DGA. Section 735(b) further requires that the NAM panel selected to conduct this study includes a "balanced representation of individuals with broad experiences and viewpoints regarding nutrition and dietary information," and that this comprehensive study include an analysis of: how the DGA can better prevent chronic disease, ensure nutritional adequacy for all Americans, and accommodate a range of individual factors, including age, gender, and metabolic health; how the DGAC selection process "can be improved to provide more transparency, eliminate bias, and include committee members with a range of viewpoints"; how the Nutrition Evidence Library (NEL) is compiled and used, including whether NEL and other systematic reviews, as well as data analyses are conducted following "rigorous and objective scientific standards"; and how systematic reviews are conducted on "longstanding" DGA recommendations, including "whether scientific studies are included from scientists with a range of viewpoints." Section 735(b) also requires the NAM study to include recommendations on how to improve the DGA development process and to ensure the DGA "reflect balanced and sound science." The explanatory statement directs NAM to provide quarterly reports informing Congress about the status of this study. The FY2016 law appropriated $1 million for NAM to conduct this study. Other Nutrition Funding Support Domestic food assistance programs also receive funds from sources other than appropriations: USDA provides commodity foods to the child nutrition programs using funds other than those in the Child Nutrition account. These purchases are financed through permanent appropriations under "Section 32." For example, about $480 million out of a total of $1.1 billion in commodity support in FY2008 came from outside the Child Nutrition account. Historically, about half the value of commodities distributed to child nutrition programs has come from Section 32. The Fresh Fruit and Vegetable Program for selected elementary schools nationwide is financed with permanent, mandatory funding. The underlying law (§4304 of the 2008 farm bill) provides funds at the beginning of every school year (July). However, Section 715 of the FY2016 appropriations law delays until October 2016 the availability of a portion of the funds ($125 million) that were scheduled for July 2016, similar to past years' appropriations. This delay allocates the total annual spending for the Fresh Fruit and Vegetable program by fiscal year rather than school year, with no reduction in overall support (though budgetary savings are scored in Table 15 ). House- and Senate-reported bills included the same language. The Food Service Management Institute (technical assistance to child nutrition providers) is funded through a permanent annual appropriation of $4 million. The Senior Farmers' Market Nutrition program receives $21 million of mandatory funding per year (FY2002-FY2018) outside the regular appropriations process (Section 4402 of the 2002 farm bill ( P.L. 107-171 ), as amended by Section 4203 the 2014 farm bill [ P.L. 113-79 ]). Agricultural Trade and Food Aid117 The Foreign Agricultural Service (FAS) administers overseas market promotion and export credit guarantee programs designed to improve the competitive position of U.S. agriculture in the world marketplace and to facilitate export sales. It shares responsibility with the U.S. Agency for International Development (USAID) to administer international food aid programs. Each year's agricultural appropriation provides nearly $2 billion of discretionary funding to FAS, which is more than three-quarters of the financial resources available to them. Other budget authority for agricultural export and food aid programs is with mandatory spending, and is not subject to annual appropriations. About $500 million of funding for these mandatory programs is provided directly by the Commodity Credit Corporation under other statutes. Foreign Agricultural Service The FAS appropriation addresses trade policy issues on behalf of U.S. agricultural exporters to support trade promotion activities and to engage in institutional capacity building and food security activities in developing countries with promising market potential. The appropriation for FY2016 provides $191.6 million for salaries and expenses of the Foreign Agricultural Service (FAS), an increase of $10.2 million, or 5.6%, above the appropriation for FY2015 and an amount equal to the Administration's request. The Administration's FY2016 budget request included an additional $6.7 million to cover salaries and expenses for the export credit guarantee programs, which is unchanged from the FY2015 appropriation. Credit guarantees are the largest FAS export assistance program, operating mainly to facilitate the direct export of U.S. agricultural commodities and products. There are no budgetary outlays associated with credit guarantees unless a default occurs. The 2014 farm bill authorized $5.5 billion of credit guarantees each year to guarantee the repayment of commercial loans extended by private banks in the event that a borrower defaults ($5.4 billion of credit guarantees under GSM-102 for U.S. agricultural product exports, and $100 million under the Facility Guarantee Program to build or expand agricultural facilities in emerging markets that enhance sales of U.S. products). The 2014 farm bill directed the Office of the Chief Economist (OCE) to report on reorganizing USDA's international trade functions in tandem with the creation of the position of Under Secretary of Agriculture for Trade and Foreign Affairs. The enacted appropriation for FY2016 provides $1 million for the completion of this task. The joint explanatory statement accompanying the appropriation directs that within 60 days of completing the required report on a proposed reorganization plan, OCE is to contract with an independent organization to assist with the implementation and establishment of the new Undersecretary position. It further underscores that OCE is to consult with the House and Senate Agriculture committees throughout this process. Because the explanatory statement for the omnibus supports congressional intent within the individual committee reports, Senate report language recommending that $1.5 million within FAS be allocated for the Borlaug Fellows Program (training for scientists and policymakers from developing countries) and $5.3 million be provided for the Cochran Fellowship Program (short-term technical training in the United States for international participants) likely is applicable. These amounts are identical to what the Senate report recommended for FY2015. The Senate report states that it expects FAS to fund the Foreign Market Development Cooperator Program and continue full mandatory funding for the Market Access Program (MAP) (see footnote 119 ), including administering MAP as authorized without changing the eligibility requirements of cooperatives, small businesses, trade associations, and other entities. Food for Peace Program (P.L. 480) The Food for Peace Program includes four program areas, each with its own Title: Title I—economic assistance and food security, Title II—emergency and private assistance programs, Title III—food for development, and Title V—the farmer-to-farmer program. No funding for new Title I (long-term concessional credits) or Title III (food for development) activities has been requested since 2002, while the last Title I concessional commodity shipment occurred in 2006. Title V (farmer-to-farmer or F2F program) funding is mandatory in nature and linked to the overall pool of funding under the Food for Peace act—not less than the greater of $15 million or 0.6% of the amounts made available to carry out the Food for Peace Act during any fiscal year (FY2014-FY2018) shall be used for the F2F program. In contrast, the Food for Peace Title II program relies on annual discretionary appropriations. Title II programs are both the largest and most active component of international agricultural food aid expenditures. They provide primarily in-kind donations of U.S. commodities to meet foreign humanitarian and development needs. Despite being funded in agricultural appropriations, Title II programs are administered by the U.S. Agency for International Development (USAID). Food for Peace Title II funding has been embroiled in a long-running debate between the current (and previous) Administration and Congress over how Title II funds may be used. The Administration wants to increase the share of Title II funds available as either cash transfers, food vouchers, or for local and regional procurement of commodities in the proximity of the food crises in order to provide a more immediate (and lower-cost) response to emergencies. In contrast, Congress has opted to use Title II funds to purchase U.S. commodities and ship them on U.S.-flag vessels to foreign countries with food deficiencies. Title II funding allocations also are affected by a provision in the 2014 farm bill ( P.L. 113-79 ; §3012) that states that the minimum funding requirement for nonemergency food aid shall not be less than $350 million. The FY2016 appropriation provides $1.466 billion for Title II program grants, down slightly from $1.469 billion in FY2015. In addition, a one-time supplement of $250 million brings the total Title II grant allocation to $1.716 billion; this is in response to ongoing food assistance requirements as a result of international conflicts (particularly in Syria, Yemen, Iraq, and South Sudan, where there have been large increases in internally displaced persons) and areas suffering from natural disasters. Of the $1.716 billion, $20 million is specifically to reimburse the Bill Emerson Humanitarian Trust (BEHT) for disbursements made in 2015. By law, Title II funding includes a carve-out of at least $350 million for nonemergency programs (7 U.S.C. 1736f(e)). Appropriators specifically request that USAID provide a report, no later than 60 days after enactment (or by February 16, 2016), on the use of authorities under 7 U.S.C. 1736f(e), including section 202(e), during FY2015 and planned uses during FY2016. The Administration had proposed $1.4 billion in Title II funding for both FY2015 and FY2016, of which 25% ($350 million) would be exempt from any U.S. purchase requirement and instead would be available as cash-based food assistance for emergencies. The Administration also had requested that $270 million of Title II funds be combined with an additional $80 million requested in the Development Assistance account under USAID's Community Development Fund and used to support development food assistance programs that address chronic food insecurity in areas of recurrent crises, thus achieving the mandatory $350 million for nonemergency programs. Local and Regional Procurement (LRP) Projects LRP projects are administered by USDA (in consultation with USAID). LRP was authorized as a permanent project under the 2014 farm bill ( P.L. 113-79 ); however, its funding became discretionary, rather than mandatory funds in the 2008 farm bill. No discretionary funding was enacted for LRP during FY2014 and FY2015. For FY2016, the Administration requested $20 million for LRP projects. However, the FY2016 appropriation provides $5 million for LRP within the McGovern-Dole program (see below). McGovern-Dole International Food for Education and Child Nutrition The McGovern-Dole International Food for Education and Child Nutrition Program provides donations of U.S. agricultural products and financial and technical assistance for school feeding and maternal and child nutrition projects in developing countries. It is administered by FAS. For FY2016, the Administration requested $191.6 million, the same as the FY2015 enacted level. The FY2016 appropriation provides $10 million more, $201.6 million, for the McGovern-Dole program, including an additional $5 million for the LRP program, as mentioned earlier. Appropriations Instructions About Industrial Hemp125 Industrial hemp is an agricultural commodity that is cultivated for a range of hemp-based goods, including foods and beverages, cosmetics and personal care products, nutritional supplements, fabrics and textiles, yarns and spun fibers, paper, construction/insulation materials, and other manufactured goods. It is, however, a variety of Cannabis sativa , the same plant species as marijuana, and is therefore subject to U.S. drug laws. The 2014 farm bill provided that certain research institutions and state departments of agriculture may grow industrial hemp as part of an agricultural pilot program, if allowed under state laws. For FY2016, the production of industrial hemp was addressed in both in the Senate-reported Agriculture appropriations bill and the House-reported and Senate-reported Commerce-Justice-Science (CJS) appropriations bills. The enacted FY2016 Agriculture appropriation states that "none of the funds made available" by the Agriculture or any other appropriation may be used "to prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with" the 2014 farm bill provision ( P.L. 114-113 , Division A, §763). The CJS appropriation states that none of the funds made available "may be used in contravention" of the 2014 farm bill's hemp provision by the Department of Justice (DOJ) or the Drug Enforcement Administration ( P.L. 114-113 , Division B, §543). The enacted CJS appropriations does not include a provision that was contained in the House-passed CJS appropriations bill, which would have further blocked DOJ from preventing a state from implementing its own state laws that "authorize the use, distribution, possession, or cultivation of industrial hemp" as defined in the farm bill ( H.R. 2578 , §557). The FY2015 CJS appropriation contained similar language to block federal law enforcement from interfering with state agencies, hemp growers, and agricultural research. Related Agencies In addition to the USDA agencies mentioned above, the Agriculture appropriations subcommittees have jurisdiction over appropriations for three related agencies: The Food and Drug Administration (FDA) of the Department of Health and Human Services (HHS), The Commodity Futures Trading Commission (CFTC)—in the House Agriculture Appropriations subcommittee only, and The Farm Credit Administration (FCA), which does not receive an appropriation but rather oversight via a limit on its spending from fees paid to the agency. Food and Drug Administration (FDA)128 The Food and Drug Administration (FDA) regulates the safety of foods, cosmetics, and radiation-emitting products; the safety and effectiveness of drugs, biologics (e.g., vaccines), and medical devices; and public health aspects of tobacco products. Although FDA has been a part of the Department of Health and Human Services (HHS) since 1940, the Committees on Appropriations do not consider FDA within the rest of HHS under the Subcommittee on Labor, Health and Human Services, and Education, and Related Agencies. Jurisdiction over FDA's budget remains with the Subcommittees on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies, reflecting FDA's beginnings as part of the Department of Agriculture. FDA's program level, the amount that FDA can spend, is composed of direct appropriations (also referred to as budget authority, BA) and user fees. The enacted FY2016 appropriation provides an FDA total program level of $4.738 billion, an increase of $238 million (+5.3%) from the FY2015 appropriation's program level of $4.500 billion. The President's FY2016 budget had requested a total program level of $4.731 billion, while the House-reported bill would have provided $4.606, and the Senate-reported bill would have provided $4.616 billion. For direct appropriations , the enacted FY2016 appropriation includes $2.729 billion, an increase of $132 million (+5%) from the FY2015 level of $2.597 billion. The President's budget had requested $2.744 billion in FY2016, while the House-reported bill would have provided $2.627 billion, and the Senate-reported bill would have provided $2.638 billion. User fees totaling $2.009 billion are allowed in the enacted FY2016 FDA appropriation. The President had requested $1.988 billion in fees to be collected through authorized programs to support specified agency activities regarding prescription drugs, medical devices, animal drugs, animal generic drugs, tobacco products, generic human drugs, biosimilars, mammography quality, color certification, export certification, food reinspection, food recall, the voluntary qualified importer program, outsourcing facilities, priority review vouchers, and third-party auditors. In addition to the $1.988 billion in user fees from currently authorized programs, the President had requested $199 million in as yet unauthorized fees to support international courier, food establishment registration, food imports, cosmetics, and food contact notification activities. With those proposed fees, the President's total user fee request was $2.187 billion, bringing the total program level request to $4.93 billion. The enacted appropriation did not include any of the proposed fees; however, it did include $1 million for fees authorized by this Congress related to the regulation of drug compounding. Neither appropriations committee's recommendations included any proposed fees. For authorized fees, the House-reported bill would provide $1.979 billion in fees, and the Senate-reported bill would provide $1.978 billion in fees. The enacted FY2016 appropriation requires that $1.5 million of the budget authority provided for other activities (e.g., Office of the Commissioner) be transferred to the HHS Office of Inspector General for FDA oversight; this provision had also appeared in the Senate-reported bill. Table 13 displays, by program area, the budget authority (direct appropriations), user fees, and total program levels for FDA in previous years: FY2013 (as calculated by the June 2014 operating plan), FY2014 (as calculated by the June 2014 operating plan), and FY2015 (as enacted). Regarding appropriations for FY2016, Table 13 displays the President's FY2016 request, the House Committee on Appropriations-reported H.R. 3049 , the Senate Committee on Appropriations-reported S. 1800 , and as enacted in P.L. 114-113 . Consistent with the Administration and congressional committee formats, each program area in Table 13 includes funding designated for the responsible FDA center (e.g., the Center for Drug Evaluation and Research or the Center for Food Safety and Applied Nutrition) and the portion of effort budgeted for the agency-wide Office of Regulatory Affairs to commit to that area. It also apportions user fee revenue across the program areas as indicated in the Administration's request (e.g., 90% of the animal drug user fee revenue is designated for the animal drugs and feeds program, with the rest going to the categories of headquarters and Office of the Commissioner, General Services Administration [GSA] rent, and other rent and rent-related activities). The explanatory statement accompanying the enacted appropriation notes that it increased budget authority for various activities and/or directs FDA to complete certain activities. Medical product safety initiatives : The explanatory statement notes the following increases in budget authority: $8.732 million for the Combatting Antibiotic Resistant Bacteria (CARB) initiative, $2.392 million for the precision medicine initiative, $716,000 for sunscreen activities, and $2.5 million for the Orphan Drug Development Grants Program. Foreign h igh-risk i nspections : The explanatory statement notes a $5 million increase provided for foreign high-risk inspections. In report language, the Senate Committee had expressed that as the importation of drugs, foods, and medical devices from China continues to increase, there is concern with FDA's ability to keep pace with the volume of exports. M aster P lan : The explanatory statement notes that the appropriation includes $5 million for FDA to complete a feasibility study to update and issue a revised Master Plan for the White Oak campus to accommodate its expanded workforce; FDA was directed to report on this effort by January 1, 2016. Food and Drug Safety and Innovation Act (FDASIA) i mplementation : The explanatory statement notes that the appropriation provides $5 million for FDASIA implementation. It further states that there continue to be shortages of critical drugs. The agreement directs the FDA Commissioner to continue to prioritize public reporting of manufacturing shortages and to work with industry to prevent conditions that may lead to drug shortages. The agreement also directs the Commissioner to report on the work of FDA's intra-agency Drug Shortage Task Force (including collaborations with other government agencies and stakeholders, and activities to prevent drug shortages affecting pediatric patients), as well as steps FDA can take to prevent shortages of drugs to test for and treat tuberculosis (TB). Center for Tobacco Products: The explanatory statement notes that the agreement provides $1 million for the Center for Tobacco Products to contract with the Institute of Medicine (IOM) to conduct an evaluation of the evidence on the health effects from using e-cigarettes and recommendations for future federally funded research. Partially h ydrogenated o ils : The explanatory statement notes that the enacted appropriation includes language related to the use of partially hydrogenated oils (PHOs) in food. On June 17, 2015, FDA issued a final determination that PHOs are no longer generally recognized as safe (GRAS) for any use in human foods, establishing a compliance date of three years (June 18, 2018). Food manufacturers may seek food additive approval for one or more specific uses of PHOs by submitting data demonstrating reasonable certainty of safe use. Section 754 of the appropriation provides that, during FDA's three-year compliance period, a food cannot be deemed unsafe or adulterated solely because it contains a PHO. The explanatory statement adds that FDA is encouraged to provide a timely review of the Food Additive Petition for minor use of PHOs in certain foods. Seafood c onsumption a dvice : The explanatory statement includes language about seafood consumption advice for pregnant women. In June 2014, FDA and EPA issued a draft of the agencies' advice on fish consumption for pregnant women, women likely to become pregnant, and young children. In accompanying Senate report language, the committee directed FDA to re-evaluate the draft limit on albacore tuna, publish final advice to pregnant women on seafood consumption, and "provide a progress report to the Committee 30 days after the enactment of this act and every 30 days thereafter until the final seafood advice is published." The explanatory statement for the enacted appropriation directs FDA to provide final guidance on nutrition advice regarding safe and healthy consumption of seafood, without the requirements of progress reports. Other activities : The explanatory statement directs FDA to provide the committees with an estimated timeline by which the agency will finalize all pending draft biosimilar guidance documents and regulations. In addition, the explanatory statement notes concern with safety issues raised at a September 2015 meeting of the Obstetrics and Gynecology Devices Panel of the Medical Devices Advisory Committee, and directs FDA to issue recommendations on how to address these concerns. The agreement notes concern about the agency's use of "draft guidance to make substantive policy decisions." The explanatory statement also requests from FDA a report "documenting the agency's review and solicitation of scientific data impacting bioequivalence standards and patients suffering from ophthalmologic conditions." FDA's Food Safety Activities135 FDA's Foods program covers the agency's food safety activities, as well as certain other food-related programs. The program plays a major food safety role, assuring that the nation's food supply, quality of foods, food ingredients, and dietary supplements (and also cosmetic products) are safe, sanitary, nutritious, wholesome, and properly labeled. In recent years, congressional appropriators have increased funding for FDA Food Programs, more than doubling funding over the past decade. Largely, this increase has been in response to comprehensive food safety legislation enacted in the 111 th Congress, as part of the FDA Food Safety Modernization Act (FSMA, P.L. 111-353 ). FSMA was the largest expansion of FDA's food safety authorities since the 1930s. FDA's Foods program also has had to adapt to the increasing variety and complexity of the U.S. food supply, including rising import demand for products produced outside the United States, as well as other market factors, including emerging microbial pathogens, natural toxins, and technological innovations in production and processing. FDA's Foods program budget accounts for roughly one-third of FDA's total appropriation. FDA's total budget for food safety programs and activities, however, extends beyond the agency's Foods program, encompassing other food and veterinary medicine programs at FDA. As reported by FDA, the agency's budget for food safety activities totaled $1.2 billion in FY2015. This amount includes most of FDA's Food program funding, along with aspects of other FDA program areas covering food additives, antimicrobial resistance, nutrition labeling and dietary supplements, cosmetics, and all related user fees, as well as administrative expenses associated with FDA headquarters and rent-related expenses. For FDA's food safety activities, including FSMA implementation, the enacted FY2016 Agriculture appropriation provides for a $104.5 million increase in budget authority. This is nearly the increase requested by the Administration ($109.5 million), and is more than double the increase that the House and Senate committee bills proposed ( H.R. 3049 would have increased FSMA funding by $41.5 million, and S. 1800 by $45.0 million). Both the House and Senate committees had noted that these increases and previous increases provided since FY2011 "should assist the FDA in preparation for the implementation of FSMA prior to the effective dates of the seven foundational proposed rules." The enacted appropriation also provides $5 million for competitive grants to state agencies for local educational agencies and schools to purchase equipment to serve healthier meals and improve food safety, and funding for FSMA implementation and interagency coordination between FDA and USDA-NIFA. Overall, for FDA's Foods program, the enacted FY2016 appropriation provides $987.3 million, identical to that requested by the Administration. These congressional appropriations are augmented by existing (currently authorized) user fees. These fees, as authorized under FSMA, include food and feed recall fees, food reinspection fees, and voluntary qualified importer program fees. In recent years these fees have generated less than $18 million per year. The appropriation, along with statements in the House and Senate committee reports, include a number of provisions requiring FDA to take additional food safety and food-related actions. These include provisions about FDA's regulatory process that reflect concerns by Members of Congress about FDA's development of FSMA regulations, and the extensive delays in rulemaking to implement FSMA. They also include a number of provisions about fish and seafood labeling and safety. Separately, the enacted law directs FDA to "develop labeling guidelines" and "implement a program" to inform consumers whether salmon for sale is genetically engineered. Other provisions require FDA to further addresses illnesses associated with imported pet food, perhaps related to consumption of jerky pet treats imported from China. The enacted FY2016 Agriculture appropriation contains other policy riders for FDA's Foods program, not necessarily for food safety activities but including other FDA food programs. The appropriation places restrictions on FDA regarding implementation of the 2015 "Dietary Guidelines for Americans" and its final regulations regarding restaurant menu labeling. It also allows states to exempt schools from certain whole grain requirements, and places certain restrictions regarding other FDA activities regarding partially hydrogenated oils (PHOs); nutrition labeling regarding added sugars; and the agency's policies regarding sodium in federally reimbursed meals, foods, and snacks sold in schools. Commodity Futures Trading Commission143 The Commodity Futures Trading Commission (CFTC) is the independent regulatory agency charged with oversight of derivatives markets. The CFTC's functions include oversight of trading on the futures exchanges, oversight of the swaps markets, registration and supervision of futures industry personnel, self-regulatory organizations and major participants in the swaps markets, prevention of fraud and price manipulation, and investor protection. The Dodd-Frank Act ( P.L. 111-203 ) brought the bulk of the previously unregulated over-the-counter swaps markets under CFTC jurisdiction as well as the previously regulated futures and options markets. Since the swaps market is much larger than the futures market, a lingering question is whether CFTC has sufficient resources to meet the agency's newly added responsibilities. The enacted FY2016 appropriation is $250 million, the same as the FY2015 amount. Of the $250 million, $50 million is for the purchase of information technology. The Senate Financial Services markup ( S. 1910 ) would have provided this same amount, which was $5 million more than the House Agriculture markup ( H.R. 3049 ). The President's budget request was $322 million, an increase of 29% above the FY2015 level, noting that past appropriations have "not enabled the Commission to keep pace with the increased technological complexity and globalization of the markets overseen by the Commission" since its jurisdiction was expanded to include swaps in 2010. Following enactment, the CFTC Chairman issued a statement criticizing the lack of any increase for the agency despite its expanded oversight over the swaps market. "The failure to provide the CFTC even a modest increase in the fiscal year 2016 budget agreement sends a clear message that meaningful oversight of the derivatives markets, and the very types of products that exacerbated the global financial crisis, is not a priority," stated CFTC Chairman Timothy Massad. He added that the flat appropriations amount failed to take into account the need for added resources to enforce oversight of the expanded, technologically complex swaps markets. Farm Credit Administration150 The Farm Credit Administration (FCA) is the federal regulator for the Farm Credit System (FCS), which is a borrower-owned cooperative lender operated as a government-sponsored enterprise. Neither the FCS nor the FCA receives a federal appropriation. The FCA is funded by assessments on the FCS entities that it regulates; FCS is funded by agency bonds sold on Wall Street and loans repaid by its borrowers. As part of its congressional oversight, however, the Agriculture appropriations bill sets a limitation (a maximum operating level) on FCA administrative expenses. This serves as a check on the size of the FCA and the amount that FCA can collect. For FY2016, the appropriation allows FCA a maximum operating level of $65.6 million, which is $5.1 million greater than allowed in FY2015 (+8.4%), but $3.8 million less than requested. FCA's request continues to note additional costs for a staffing replacement plan because of expected retirements and the desire to add new staff while experienced staff can train their replacements. The $65.6 million allowed in FY2016 happens to be the same as what FCA had planned to be its operating level at the beginning of FY2015, before the lower FY2015 amount was enacted. Nonetheless, the FY2016 amount represents a return to higher levels, especially since the FY2014-FY2015 amounts had been lower than FY2013. General Provisions, Scorekeeping Adjustments153 Agriculture appropriations acts in recent years have had over $1 billion in net offsets that effectively reduce the cost of appropriations in the rest of the bill. The enacted FY2016 appropriation continues that practice. These reductions occur in Title VII (General Provisions) through rescissions and CHIMPS (Changes in Mandatory Program Spending), and in separate CBO scorekeeping adjustments. Other appropriations are also made. For FY2016, reductions are made by placing limitations on mandatory programs (-$831 million, Table 15 ), recessions from other appropriated accounts (-$34 million, Table 16 ), and other scorekeeping adjustments that are usually not detailed in the bills (-$462 million, Table 18 ). Besides reductions, some additional spending is authorized in the General Provisions ($556 million, including $250 million for foreign food aid and $273 million for emergency conservation programs, Table 17 ). Limitations and rescissions are used to score budgetary savings that help meet the discretionary budget allocation. By offsetting spending elsewhere in the bill, they help provide relatively more to (or help avoid deeper cuts to) regular discretionary accounts than might otherwise occur. The General Provisions title also contains many important policy-related provisions that affect how the executive branch carries out the appropriation and authorizing laws, many of which have no budgetary effect. Some of these policy-related provisions are discussed earlier in this report under the relevant agency heading. Changes in Mandatory Program Spending (CHIMPS) Mandatory programs usually are not part of the appropriations process since formulas and eligibility rules are set in multi-year authorizing laws (such as the 2014 farm bill). Funding usually is assumed to be available based on the statute and without appropriations action. However, for more than a decade, appropriators have placed limits on mandatory spending authorized in statutes such as the farm bill ( Table 15 ). These limits are known as CHIMPS, "changes in mandatory program spending." CHIMPS usually are reductions to mandatory spending authority, but they also may be increases in spending authority. Although many CHIMPS have an effect for one year, rescissions may be made to mandatory spending programs to permanently cancel budget authority (also considered a CHIMP here and by CBO). When appropriators limit mandatory spending, they do not change the authorizing law. However, their action has a similar effect through CHIMPS, but usually only for the one year to which the appropriation applies. Appropriators put limits on mandatory program by using language such as: "None of the funds appropriated or otherwise made available by this or any other Act shall be used to pay the salaries and expenses of personnel to carry out section [ ... ] of Public Law [ ... ] in excess of $[ ... ]." Limits usually appear in Title VII, General Provisions, of the Agriculture appropriations bill. Historically, most allocations to spend budgetary resources originated from the appropriations committees. The division over who should fund certain agriculture programs—appropriators or authorizers—has roots dating to the 1930s. Variable outlays for the farm commodity programs were difficult to budget and resembled entitlements. Mandatory funding—the Commodity Credit Corporation (CCC)—was created to remove the unpredictable funding issue from the appropriations process, and those decisions generally rested with the authorizing committee. The dynamic further changed after the 1996 farm bill, when mandatory funds were used for programs that usually had been discretionary. Appropriators had not funded some programs as much as authorizers had desired, and authorizing committees wrote farm bills to more broadly use the mandatory funding at their discretion. Tension arose over who should fund certain activities. Some question whether the CCC should be used for outlays that are not uncertain. The programs affected by CHIMPS typically include conservation, rural development, bioenergy, and some smaller nutrition assistance programs. CHIMPS have not affected the farm commodity programs or the primary nutrition assistance programs (such as SNAP). The enacted FY2016 appropriation contains $831 million in savings attributable to CHIMPS, of which $436 million are from programs authorized in the 2014 farm bill. These totals are roughly similar to FY2015, though the subtotal from the farm bill is slightly smaller and the overall total is slightly greater. They are both smaller than the annual levels that were enacted between FY2011-FY2014 ( Table 15 ). A complicating factor in understanding the CHIMP amounts in the proposed bills for FY2016 is budget sequestration, and a methodological difference in how CBO scored the sequestration across various proposals. Budget sequestration of mandatory accounts has occurred every year since FY2013, reducing the amount available to most mandatory programs. For example, the CHIMP to accomplish the complete prohibition on spending for the Watershed Rehabilitation Program resulted in a smaller $153 million CHIMP in FY2014, after sequestration, than the $165 million CHIMP in FY2013, even though no spending was allowed either year ( Table 15 ). In FY2016, the scoring of the Administration's request and the Senate bill are before sequestration, while scoring of the CHIMP in the House bill is after sequestration. By not incorporating sequestration into the CHIMP estimates, CBO gave the Administration and the Senate more credit for some CHIMPS than the House bill. Rescissions of Discretionary Accounts Rescissions are a method of permanently cancelling the availability of funds that were provided by a previous appropriations law. When scoring a bill to determine its budget effect, a rescission results in budgetary savings. As a budgetary offset, rescissions can allow more spending in an appropriations bill. But unlike a CHIMP, a rescission can prevent an unobligated budget authority from being reallocated or repurposed by future appropriations since the cancellation is permanent. Often rescissions relate to the unobligated balances of funds that were appropriated a year or more ago that still remain available for a specific purpose (e.g., buildings and facilities funding that remains available until expended for specific projects, or disaster response funds for losses due to a specifically named hurricane). For FY2016, the enacted appropriation rescinds $34 million from three discretionary programs ( Table 16 ). Rescissions to mandatory programs are included in the CHIMPS section, according to CBO scoring tables. These levels of rescissions are typical for most years but are small by comparison to FY2011, when rescissions were unusually large ($372 million) and helped achieve that year's relatively large spending reduction. Other Appropriations (Including Emergency Disaster Programs) The General Provisions title may contain appropriations for activities that are not part of regular agency appropriations. These sometimes include supplemental or disaster appropriations, and may be offset in scorekeeping adjustments by emergency spending designations. Table 17 shows that the FY2016 appropriation contains $273 million for the emergency watershed, conservation and forestry programs, $130 million of which is not subject to the discretionary budget cap. It also contains $283 million of other spending provisions, including $250 million to supplement the Food for Peace program and several other programs. Other Scorekeeping Adjustments Scorekeeping adjustments are a final part of the accounting of the appropriations bill that is not necessarily shown in the tables published by the appropriations committees. These adjustments are critical, however, for the bill to reach the desired total amount that complies with the 302(b) spending limit for the subcommittee. Some of these amounts are not necessarily specified by provisions in the bill but are related to program operations, such as direct and guaranteed loan programs. CBO calculates and reports these scorekeeping adjustments in unpublished tables. For FY2016, the other scorekeeping adjustment in the enacted appropriation is -$462 million ( Table 18 ). The disaster designation for emergency programs that offset spending in the enacted bill ( Table 17 ) is slightly greater than last year. Also noteworthy, the "negative subsidy" from various USDA loan programs has increased in recent years. Negative subsidies effectively reflect "income" to the government when a loan program operates at less cost than it receives in appropriations via the collection of fees or better-than-expected loan repayment. These negative subsidies have become larger in recent years, and are helping to offset more of the regular appropriation. Prior to FY2013, these negative subsidies were cumulatively less than $100 million. Since FY2013 they have grown to $408 million in FY2015, and moderated slightly to $345 million in FY2016. Appendix A. Historical Trends This appendix offers historical perspective on trends in Agricultural appropriations from FY1995 to FY2015. Comparisons are made across (1) mandatory vs. discretionary spending, (2) nutrition spending compared to the rest of the bill, (3) inflation-adjusted amounts, and (4) agriculture appropriations relative to the entire federal budget, economy, and population. Discretionary spending for each title, over FY2007-FY2016, is shown in Figure 3 . See Figure A-1 for the mandatory and discretionary breakdown; Table A-1 contains the nominal data, and Table A-2 contains the inflation-adjusted data. Table A-3 shows the compounded annualized percentage changes over various time periods. Mandatory and Discretionary Spending Discretionary Agriculture appropriations peaked in FY2010, although mandatory nutrition spending continued to rise through FY2015. Over the past five years (since FY2011), total Agriculture appropriations grew at a compounded annual rate of +2.4% (+0.7% on an inflation-adjusted basis). The mandatory spending portion of this total shows a +2.5% annual increase over the past five years (+0.9% on an inflation-adjusted basis). The discretionary portion has an annual increase of +1.6% over five years (basically flat on an inflation-adjusted basis; -0.1% annually). In FY2016, 15% of the total agriculture appropriation is discretionary spending, down from 28% of the total appropriation in FY1998. Domestic Nutrition and the Rest of the Bill Another way to divide the total agriculture appropriation is domestic nutrition compared to everything else ( Figure A-2 ). Domestic nutrition appropriations include primarily the child nutrition programs (school lunch and related programs), the Special Supplemental Nutrition Assistance Program (SNAP)—which are mandatory—and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), which is discretionary. The "rest of the bill" includes other USDA programs (except the Forest Service), FDA, and CFTC. Total domestic nutrition program spending rose at a +4.1% compounded annual rate over five years (+2.5% annually on an inflation-adjusted basis). Spending on the rest of the bill (non-nutrition) decreased at -2.7% annually over five years (-4.3% per year on an inflation-adjusted basis). In FY2016, 78% of the total agriculture appropriation was for domestic nutrition, up from 59% in 2006 and 46% in FY2001. Most of domestic nutrition is mandatory spending, primarily in SNAP and the child nutrition programs. The mandatory nutrition spending portion rose at a +4.5% annual rate over five years (+2.8% annually inflation-adjusted basis). The discretionary portion decreased -0.8% annually over five years. The relationship is reversed for the rest of the bill. Mandatory spending within the rest of the rest of the bill decreased at a -6.5% annual rate over five years (-8.0% on an inflation-adjusted annual basis). Discretionary spending increased at a +2.5% annual rate. Discretionary Appropriations Appropriators arguably have the most control over discretionary appropriations. Within the discretionary subtotal of Figure A-1 , a similar domestic nutrition vs. rest of the bill comparison can be made as was done for the total appropriation (see Figure A-3 ). In FY2016, discretionary budget authority rose +4.4%. For the nutrition portion of the bill, it decreased -3.6%; for the rest of the bill, it rose +8.6%. Total discretionary Agriculture appropriations grew at +1.6% per year over the past five years (basically flat on an inflation-adjusted basis; -0.1% annually). Over a longer period, the annual change is +2.6% per year over the past 10 years, or +0.9% per year on an inflation-adjusted basis. The domestic nutrition portion of this discretionary subtotal (primarily WIC, commodity assistance programs, and nutrition programs administration) shows a -0.8% annual decrease over five years (-2.4% per year if adjusted for inflation). The discretionary portion for rest of the bill has risen at +2.8% per year for five years (+1.1% per year on an inflation-adjusted basis). Comparisons to the Federal Budget, GDP, and Population Relative to the entire federal budget , the Agriculture bill's share has declined from over 4% of the total federal budget in FY1995 and FY2000, to 2.7% in FY2008, before rising again to about 4% from FY2013-FY2015 ( Figure A-4 , Table A-4 ). Within that total, the share for nutrition programs had declined from 2.5% in FY1995 to 1.8% in FY2008, but the recent recession has caused that share to rise to about 3% through FY2014, before falling again. The share for the rest of the bill has declined from 2.2% in FY2000 to about 1.0% since FY2011 and 0.8% in FY2016. Those shares of the federal budget also can be subdivided into mandatory and discretionary spending ( Figure A-5 ). The mandatory share for nutrition is presently about 2.6% (decreasing since FY2014), while the discretionary share for nutrition is fairly steady at about 0.2%. The mandatory share for the rest of the bill (primarily crop insurance, commodity program subsidies, and conservation) fell from about 0.6% to 0.4% in FY2016, while the discretionary share for the rest of the bill remains steady at about 0.37%. The 0.4% share of the federal budget above for mandatory spending on crop insurance, farm commodity subsidies, and conservation is a good proxy for farm bill spending on agricultural (non-nutrition) programs ( Figure A-5 ). It has been variable and generally declining since 2000 (consistent with farm commodity spending until recently), and steadier since 2009 (consistent with the recent inverse relationship between the farm commodity programs and crop insurance). As a percentage of gross domestic product (GDP), Agriculture appropriations had been fairly steady at under 0.75% of GDP from FY1997 to FY2009, but have risen to over 0.8% of GDP from FY2010 to FY2015, before falling again to 0.76% in FY2016 ( Figure A-6 , Table A-4 ). Nutrition programs have risen as a percentage of GDP since FY2000 (0.32% in FY2001 to 0.66% in FY2012), though they have ameliorated to 0.59% in FY2016. The share relative to GDP for non-nutrition agricultural programs has declined (0.40% in FY2000 to 0.17% in FY2015). On a per capita basis, inflation-adjusted total Agriculture appropriations have risen slightly over the past 10 to 15 years from about $250 per capita in 1998 (FY2016 dollars) to about $435 per capita in FY2016 ( Figure A-7 ). Nutrition programs have risen more steadily on a per capita basis from about $160 per capita in FY2001 to nearly $340 per capita in FY2016. Non-nutrition "other" agricultural programs have been more steady or declining, falling from about $200 per capita in FY2000 to slightly under $100 per capita in FY2016. Appendix B. Budget Sequestration Sequestration is a process of automatic, largely across-the-board reductions that permanently cancel mandatory and/or discretionary budget authority when spending would exceed statutory budget goals. The current requirement for sequestration is in the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Table B-1 shows the rates of sequestration and the amounts of budget authority cancelled from accounts in the Agriculture appropriations bill. Although the Bipartisan Budget Act of 2013 ( P.L. 113-67 ) raised spending limits in the BCA to avoid sequestration of discretionary accounts in FY2014 and FY2015—and the Bipartisan Budget Act of 2015 ( P.L. 114-74 ) did it again for FY2016 and FY2017—they do not prevent or reduce sequestration on mandatory accounts. In fact, to pay for avoiding sequestration of discretionary spending in the near term, or as a general budgetary offset for other bills, Congress extended the original FY2021 duration of sequestration on mandatory programs three times. First, it extended the duration of mandatory sequestration by two years (until FY2023) as an offset in the 2013 budget act. Second, by another year (until FY2024) to maintain retirement benefits for certain military personnel ( P.L. 113-82 ). And third, another year (until FY205) as an offset in the 2015 budget act. The first farm commodity program payments from the 2014 farm bill were due in October 2015, and USDA indicated that they would be subject to the 6.8% reduction applicable to FY2016. Some farm bill mandatory programs are exempt from sequestration. The nutrition programs and the Conservation Reserve Program are statutorily exempt, and some prior legal obligations in crop insurance and the farm commodity programs may be exempt as determined by OMB. Generally speaking, the experience since FY2013 is that OMB has ruled most of crop insurance as exempt from sequestration, while the farm commodity programs have been subject to it. Since enactment of the BCA, the Office of Management and Budget (OMB) has ordered budget sequestration on non-exempt, non-defense discretionary accounts only once, in FY2013 ( Table B-1 ), and on mandatory accounts annually in FY2013-FY2016 ( Table B-2 ).

The Agriculture appropriations bill funds the U.S. Department of Agriculture (USDA), except for the Forest Service. It also funds the Food and Drug Administration (FDA) and—in even-numbered fiscal years—the Commodity Futures Trading Commission (CFTC). Agriculture appropriations include both mandatory and discretionary spending. Discretionary amounts, though, are the primary focus during the bill's development since mandatory amounts generally are set by authorizing laws such as the farm bill. The largest discretionary spending items are the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); agricultural research; FDA; rural development; foreign food aid and trade; farm assistance programs; food safety and inspection; conservation; and animal and plant health programs. The main mandatory spending items are the Supplemental Nutrition Assistance Program (SNAP), child nutrition, crop insurance, and the farm commodity and conservation programs funded through the Commodity Credit Corporation. The FY2016 Agriculture Appropriation was enacted as part of an omnibus bill on December 18, 2015 (P.L. 114-113). Separate Agriculture bills were reported in both chambers, but neither went to the floor (H.R. 3049, S. 1800). The fiscal year began under continuing resolutions. The enacted omnibus appropriation uses a budget allocation that was provided in the Bipartisan Budget Act of 2015 (P.L. 114-74), which is higher than what was available to develop the House- and Senate-reported bills. The final Agriculture appropriation provides $21.750 billion for discretionary amounts, which is an increase of $925 million over FY2015 (+4.4%), after adjusting for differences in CFTC jurisdiction. Compared to FY2015, the $925-million increase is largely allocated among a $318-million increase for the Rural Housing Service; $250 million extra for Food for Peace grants for international food aid; a $178-million increase for the Agricultural Research Service, mostly for buildings and facilities; a $132-million increase for the Food and Drug Administration, mostly for food safety; and $157 million more than last year for emergency conservation, watershed, and forestry programs, some of it offset by a disaster declaration. In addition to specifying budget authority, the appropriation prescribes various policies or conditions that affect how some agencies may use their appropriation. Among notable policy-related provisions in the appropriation are to permanently repeal some country-of-origin labeling (COOL) laws, continue to prohibit horse slaughter facility inspection, prevent the import of processed poultry from China for certain nutrition programs, continue to implement with flexibility the whole grain and sodium requirements in the child nutrition programs, set some terms for the formation of dietary guidelines, and restore the use of commodity certificates for the marketing loan program, including not being subject to payment limits.

Introduction On November 19, 2015, the Food and Drug Administration (FDA) approved AquaBounty Technologies' application to produce AquAdvantage Salmon, a genetically engineered (GE) Atlantic salmon, for human consumption. This is the first GE animal that has been approved for human consumption in the United States. FDA also has proposed voluntary guidelines for using labels that indicate whether food products are derived from GE salmon. By a broad definition, "genetic modification" refers to changes in an organism's genetic makeup that do not occur in nature. For millennia, farmers and scientists have modified the genetics of animals by selecting those individuals with desirable traits for further breeding. With the advent of modern biotechnology (e.g., genetic engineering or bioengineering), it is now possible to take a gene (or genes) for a specific trait from an organism and transfer it to another organism of a different species. For the purpose of FDA's guidance to industry, FDA defines genetically engineered (GE) animals as those animals modified by recombinant deoxyribonucleic acid (DNA), known as rDNA, techniques, including the entire lineage of animals that contain the modification. Recombinant DNA techniques expand the range of traits that may be transferred to another organism and increase the speed and efficiency by which desirable traits may be incorporated into organisms. Desirable traits may reduce production costs and sometimes make the organism or products made from it more desirable to consumers. Genetically engineered plant varieties, such as herbicide-resistant corn and soybeans, have already been widely adopted by U.S. farmers. These techniques are now being used to develop genetically engineered organisms for the aquaculture industry. Approximately 50 species of fish have been subject to genetic modification and more than 400 fish/trait combinations have been developed. Fish and other marine organisms are being modified to reduce production costs of human food, to produce pharmaceuticals, to test water contamination, and for other uses. Fish are particularly attractive candidates for genetic engineering because they produce eggs in large quantities and their eggs are more easily manipulated because they are fertilized and develop externally. Aquaculture also supplies a rapidly expanding market of different seafood products. Countries with active research programs for genetically engineered fish include China, Cuba, India, Korea, the Philippines, and Thailand. Some have claimed that FDA's approval of GE salmon has been long overdue and the delays have been caused by political interference. They conclude that delays have hindered investment and development of the U.S. biotechnology sector. They also question whether biotechnology industries in the United States will be able to compete with companies in other parts of the world. Moreover, they hypothesize that the availability of GE salmon at relatively low prices could benefit consumers who are seeking low-fat and affordable options. Development of GE fish has prompted some advocacy groups to raise a number of environmental concerns. For example, if fish are accidently released into the environment, they may spread and be difficult to contain. GE fish that escape to the wild could compete with wild fish and harm wild populations. Another concern is that GE fish may interbreed with wild fish and allow the modified genetic material to become assimilated into the wild fish population. Sterilization and bioconfinement have been proposed to isolate GE fish from wild fish populations. Food safety concerns also have been expressed by consumer groups who question whether genetically modified organisms could pose unique hazards to public health. These groups also support mandatory labeling of GE products because they believe consumers have a right to make informed choices. In addition, some in the fishing industry are concerned that greater efficiency in the aquaculture industry could harm salmon fisheries. Salmon farm production in the 1990s depressed salmon prices and affected fishing businesses and coastal communities that depend on wild fisheries. In response to these concerns, legislation has been introduced during the last several Congresses to restrict the use and require the labeling of GE organisms. In the 114 th Congress, two bills have been introduced ( H.R. 393 and S. 738 ), which would require labeling of GE salmon. In addition, two more general bills ( H.R. 913 and S. 511 ) would require labeling of GE food products, including GE salmon. H.R. 1599 would preempt any state authority over GE labeling in favor of a voluntary National Genetically Engineered Food Certification Program under the federal Agricultural Marketing Act of 1946. The certification program would establish national standards for labeling both GE and non-GE foods. Two FY2016 appropriations bills for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies ( S. 1800 and S. 2129 ) include provisions that would provide funds to implement labeling requirements for GE salmon. H.R. 394 would prohibit most uses of GE fish, with some exceptions or if certain conditions are met. Applications for uses that would be prohibited under H.R. 394 would require an environmental assessment (EA) with a finding of no significant impact in accordance with the National Environmental Policy Act of 1969 (NEPA; 42 U.S.C. 4321) or an environmental impact statement (EIS). The EIS also would be required to include analysis of the risk associated with the escape of GE fish. In addition to labeling requirements, S. 738 would require an EIS before approval of any application to produce GE salmon intended for human consumption. U.S. Biotechnology Regulation and Oversight Coordinated Framework for Regulation of Biotechnology Federal guidance for regulating biotechnology products is provided in the Coordinated Framework for Regulation of Biotechnology (51 Fed. Reg. 23302), published in 1986 by the White House Office of Science and Technology Policy (OSTP). A key regulatory principle of the U.S. biotechnology regulatory structure is that genetically engineered products should continue to be regulated according to their characteristics and unique features, not their production method—that is, whether or not they were created through biotechnology. The framework provides a regulatory approach intended to ensure the safety of biotechnology research and products, using existing statutory authority and previous agency experience with traditional breeding techniques. The three lead agencies are the U.S. Department of Agriculture's (USDA's) Animal and Plant Health Inspection Service (APHIS), the Food and Drug Administration (FDA) at the Department of Health and Human Services, and the Environmental Protection Agency (EPA). In 2002, the National Research Council (NRC) published its report on animal biotechnology. Some newer applications of biotechnology did not exist when the current regulatory framework was enunciated. The NRC animal biotechnology report concluded that this General Framework "might not be adequate to address unique problems and characteristics associated with animal biotechnologies" and that federal agency responsibilities are not clear. FDA Regulatory Framework FDA regulates food, animal feed additives, and human and animal drugs, including those from biotechnology, primarily to ensure that they pose no human health risks. Most of FDA's regulatory authority to regulate food safety is provided by the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §301 et seq . ) and the Public Health Service Act (42 U.S.C. §201 et seq . ). Under the FFDCA, all food and feed manufacturers must ensure that the domestic and imported products they market, except for most meats and poultry, are safe and properly labeled, including those developed through genetic engineering. FDA has stated that most—although probably not all—gene-based modifications of animals for production or therapeutic claims fall within the purview of the agency's Center for Veterinary Medicine (CVM), which regulates them under the FFDCA as new animal drugs (NADs) (21 U.S.C. §321). Under the FFDCA, drugs are defined in Section 201(g) as "articles intended for the use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and articles (other than food) intended to affect the structure or any function in the body of man or other animals." On January 15, 2009, CVM released its industry guidance for producers and developers of GE animals and their products. The guidance provides an approach to satisfy applicable statutes and regulations. The guidance states (on page 6): "The rDNA construct in a GE animal that is intended to affect the structure or function of the body of the GE animal, regardless of the intended use of products that may be produced by the GE animal, meets the FFDCA drug definition." An NAD is assumed to be "unsafe" unless FDA has approved a new animal drug application (NADA) for that particular use, or the NAD is for investigational use and subject to an exemption from the drug approval requirement (among a few other specified exemptions). FFDCA and federal regulations describe information that must be submitted to FDA as part of NADAs. The industry guidance lays out the pre-market approval process, including the information required of applicants which fulfills the regulatory requirements. Required information is broken out into six categories, which include product identification, molecular characterization of the construct, molecular characterization of the GE animal lineage, phenotypic characterization of GE animal, genotypic and phenotypic durability assessment, and the food/feed safety and environmental safety assessments. The food safety assessment includes examination of both the direct toxicity (including allergenicity) potential of food from a GE animal as well as any indirect toxicity. Food and feed will be considered safe if the composition of edible materials from the GE animal can be shown to be "substantially equivalent" to that from a non-GE animal. Therefore, if animals of the same or comparable type are commonly and safely consumed, there is a presumption that food from the GE animal is safe and the product will not have to be labeled. An FDA decision regarding an NADA is a federal action subject to the National Environmental Policy Act (NEPA; 42 U.S.C. 4321). NEPA requires federal agencies to consider the environmental consequences of an action before proceeding with it and to involve the public in its decision-making process. To demonstrate compliance with NEPA, federal agencies must prepare an environmental impact statement (EIS) for federal actions anticipated to have "significant" impacts on the environment. The EIS is a detailed evaluation of the proposed action and provides opportunity for the public, other federal agencies, and outside parties to provide input into the process. In this case, the FDA is ultimately responsible for determining whether or not an EIS is necessary. To assist the agency in making the determination of whether an EIS is necessary, an applicant for an NAD must submit documentation to support a claim for a categorical exclusion or for drafting a preliminary EA. Actions that, based on an agency's past experience with similar actions, have no significant impacts are categorically excluded from the requirement to prepare an EA or EIS. If an EA is developed and it is found that the NAD would have no significant environmental impacts, the agency would issue a finding of no significant impact (FONSI). If the EA determines that the environmental consequences of an NAD are anticipated to be significant, an EIS is prepared. In cases where significant impacts are anticipated, the federal agency may decide to prepare an EIS without first preparing an EA. Under the NAD regulatory protocols, FDA must keep all information about a pending drug application confidential, with the exception of information publicly disclosed by the manufacturer, to protect proprietary information. This approach can limit the opportunity for public comment before approval. Some critics called for more transparency during the pre-market approval process for Aquadvantage Salmon. The FDA guidance does not require evaluation of genetically engineered organisms such as GE salmon as a food additive. A food additive is "any substance, the intended use of which results directly or indirectly, in it becoming a component or otherwise affecting the characteristics of food." Food additives require pre-market approval from FDA, unless the additive has been evaluated by scientific experts and determined to be "generally regarded as safe" (GRAS). If made subject to a food additive review, products such as GE salmon would have to undergo comprehensive toxicological studies. Critics have questioned whether the NAD regulatory review is sufficient and petitioned for evaluation of GE salmon under FDA's food additive requirements. FDA did not evaluate AquAdvantage Salmon as a food additive before approval as an NAD. U.S. Department of Agriculture Several USDA agencies, operating under a number of statutory authorities, also have at least potential roles in the regulation of transgenic and cloned animals and their products. As several critical reviews have indicated, USDA has not clearly spelled out a policy in this area, including whether it intends to exercise these authorities to regulate GE animals. USDA's Animal and Plant Health Inspection Service (APHIS) earlier had expressed its intention to publish an advance notice of proposed rulemaking (ANPR) on GE animals, possibly in 2008. Instead, in concert with FDA's notice on its draft guidance, APHIS published, in the September 19, 2008, Federal Register , a request for information from the public and scientists on how GE animals might affect U.S. animal health. APHIS received more than 670 comments by November 18, 2008. Most of the comments did not focus on APHIS's authority under the Animal Health Protection Act (AHPA; 7 U.S.C. §8301 et seq . ). FDA issued its final guidance for developers of GE animals on January 15, 2009. APHIS has broad authority, under AHPA, to regulate animals and their movement to control the spread of diseases and pests to farm-raised animals. APHIS also administers the Viruses, Serums, Toxins, Antitoxins, and Analogous Products Act (21 U.S.C. §151-159), aimed at assuring the safety and effectiveness of animal vaccines and other biological products, including those of GM origin, and the Animal Welfare Act (7 U.S.C. §2131 et seq . ), portions of which govern the humane treatment of several kinds of warm-blooded animals used in research (but generally not agricultural animals or cold-blooded animals such as fish). Elsewhere at USDA, the Food Safety and Inspection Service (FSIS) is responsible for ensuring the safety and proper labeling of most food animals and meat and related products derived from them under the Federal Meat Inspection Act (21 U.S.C. §601 et seq . ) and Poultry Products Inspection Act (21 U.S.C. §451 et seq . ). Labeling of Food Containing GE Material Federal food labeling policy, including the labeling of foods containing bioengineered material, is regulated under the Federal Food, Drug, and Cosmetic Act of 1938 (21 U.S.C. §§301 et seq.) and the Fair Packaging and Labeling Act of 1966 (P.L. 89-755;15 U.S.C. §§1451 et seq.). Section 403 of the FFDCA governs food labeling. Under Section 403(a)(1), a food is considered misbranded if its labeling is false or misleading. Section 201(n) of the FFDCA provides additional guidance on how food labeling may be misleading. It states that a label is misleading if it fails to reveal facts that are material in light of representations made or suggested in the labeling, or material with respect to consequences that may result from the use of the food prescribed in the labeling, or under such conditions of use that are customary or usual. The United States does not require mandatory labeling that identifies foods containing genetically modified material. The notion of "substantial equivalence" guides food labeling requirements; if a food containing GE material is "substantially equivalent" to a food not containing GE material, federal regulations do not require that it be labeled as containing GE material. When there is no material difference between products, FDA does not have the authority to require labeling on the basis of consumer interest alone. If there is a material difference between GE and non-GE foods, FDA could require such differences to be identified in food labeling. Companies that might wish to label their foods as not containing bioengineered products may do so, if they can definitively show that the foods do not contain GE products. Genetically engineered crops became commercially available in the mid-1990s. Generally, FDA has not found that food from GE organisms warrants different or greater safety concerns than non-GE organisms or exhibits different characteristics such as nutritional value or functional characteristics than from non-GE organisms. Today, oil from bioengineered soy and canola, soy protein, and high fructose corn syrup can be found in many manufactured foods, perhaps as high as 60%-70% of processed foods. The FDA has found most GE crops to be "substantially equivalent" to non-GE crops and approved their safety for human consumption in processed foods. In 1992, FDA published a policy statement on foods derived from new plant varieties, including those developed through genetic engineering. This policy statement did not establish any special labeling requirements for bioengineered foods as a particular class of foods. FDA stated that the agency had no basis for concluding that bioengineered foods differed in any meaningful way from non-bioengineered foods, and therefore had no basis for requiring that such foods be labeled. Although the 1992 policy statement did not require special labeling for bioengineered foods, FDA did advise that any labeling requirements that apply to foods in general also apply to bioengineered foods. Under Section 201(n), the label of the food must reveal all "material facts" about the food. FDA currently requires special labeling of bioengineered foods if the food has a significantly different nutritional property. For example, if a new food contained an allergen that consumers would not expect to be present, or if a food contained a toxic ingredient above acceptable limits, FDA would require that the food be labeled as such. FDA subsequently issued a 2001 draft guidance document for the voluntary labeling of foods that have or have not been developed by bioengineering. These guidelines address how the agency interprets revealing "material facts" about a food on a label. In their guidelines, FDA suggests that terms such as "GMO free" or "not genetically modified" could be technically inaccurate and misleading. On the other hand, labeling statements that the food or its ingredients were not created by bioengineering processes would likely be appropriate. For example, currently, no bioengineered watermelons are on the market. A statement that a watermelon was not genetically engineered might be deemed misleading by FDA because it implies that other watermelons might be bioengineered. General Mandatory Labeling Issues Mandatory labeling of bioengineered products in the United States has been proposed at the national, state, and local levels. In 2014, Vermont became the first state to pass a mandatory labeling law that will go into effect in 2016. Connecticut and Maine also passed mandatory labeling laws in 2013 and 2014, respectively, but these laws will not go into effect until five contiguous states also pass mandatory labeling laws. Proponents of mandatory labeling for bioengineered foods argue that consumers should have the right to know what they are purchasing. Even if FDA states that a bioengineered product is, from a food-safety perspective, "substantially equivalent" to its traditional counterpart, labeling proponents assert that the consumer should be able to choose between those foods that may contain bioengineered products and those that do not. Some proponents of labeling also argue that for religious or ethnic reasons, many consumers may want to avoid eating animal products, including processed food products that contain genetically engineered products. With the widespread adoption of bioengineered plants and their now ubiquitous use in food processing, labeling opponents point to the logistical difficulties and costs of ensuring a food product does not contain bioengineered ingredients. As the global food system is currently constructed, segregating bioengineered products from non-bioengineered products would be technically complex and costly. Labeling opponents also argue that the increased food prices as a result of labeling would be borne by all consumers, not just those who wish to avoid bioengineered products. Opponents also point out that, under the regulatory basis of "substantial equivalence," to label a bioengineered food product as such would suggest to a consumer that something is unhealthy about the bioengineered food product, and would be prejudicial. GE Salmon Background Wild Salmon Production Salmon is a general name for anadromous species which belong to the taxonomic family known as salmonidae . Anadromous species live in fresh water during early stages of their life (egg, fry, and juvenile), migrate to the ocean to grow to adult size, and when sexually mature, return to freshwater to spawn. Most salmon production in the United States is from the wild and consists of five main species of Pacific salmon which include Chinook salmon Onchorhynchus tshawytscha ; sockeye salmon Onchorhynchus nerka ; coho salmon Onchorhynchus kisutch ; pink salmon Onchorhynchus gorbuscha ; and chum salmon Onchorhynchus keta . Over 95% of wild commercial salmon production is from Alaskan stocks. These stocks are abundant and productive, largely because there have been relatively few human disturbances on major salmon rivers in Alaska such as dams. Stocks in the Pacific Northwest vary widely in health, but most are in relatively poor condition because of historic overfishing and degradation of riverine habitat. These stocks are of limited commercial importance although they still support recreational fisheries and contribute to local economies. Production in both Alaska and the Pacific Northwest is enhanced by releases of salmon from hatcheries which are subsequently harvested after growing to adult size in the ocean. In 2014, total commercial landings of Pacific salmon were 327,000 metric tons (720.2 million pounds) with a value of $616.7 million. There are no commercial wild fisheries for Atlantic salmon in North America, and only limited numbers of Atlantic salmon Salmo salar spawn in New England rivers. Many Atlantic salmon runs are at historically low levels, especially in the southern parts of their range, such as New England. Population declines have been caused by overfishing, dams, and degraded environmental quality of rivers. The remaining Atlantic salmon runs in Maine are listed as endangered under the Endangered Species Act (16 U.S.C. §§1531-1543). A limited recreational fishery exists in Canada and small commercial fisheries remain in the North Atlantic. Salmon Aquaculture For the aquaculture industry, salmon is a desirable candidate for genetic engineering because of high consumer demand for salmon products. Salmon aquaculture technology is well developed and commercial salmon farming has been established in many temperate countries. Of the salmon species used for aquaculture, Atlantic salmon account for most production. Atlantic salmon grow well under culture conditions and adapt well to culture conditions outside its range. Most production is from net pens that are suspended in coastal waters, but salmon can be grown in freshwater raceways, tanks, or recirculating systems where adequate water supplies are available. Salmon farming has an advantage over the wild seasonal fishery because it can provide a consistent fresh product throughout the year. During the 1970s intensive commercial salmon farming in net pens was adopted in Norway and production expanded rapidly. Salmon production in other countries with suitable coastal areas such as Great Britain, Chile, and Canada followed and also increased rapidly. Production costs decreased with improvements in broodstock quality, feed, disease management, and other production factors. During the period of rapid expansion of salmon farming, prices for both cultured and wild salmon have generally trended downward. Environmental concerns also emerged because of potential harm to wild fish stocks used for salmon feed, possible transfer of disease from farmed to wild salmon stocks, environmental effects of fish wastes and lost feed from open water cages, transfer of therapeutic agents used for cultured fish to the environment, and the escape of cultured fish from cages. The aquaculture salmon industry has reportedly made progress in addressing some of these concerns and has begun adopting best management practices to decrease external effects on the environment. Production and Trade In 1996, worldwide salmon farm production exceeded commercial harvest of wild salmon. In 2013, aquaculture production of salmon, trouts, and smelts was 3.177 million metric tons (mmt), with a value of $17.628 billion. Production of Atlantic salmon, the main species of this group, was 2.087 mmt, with a value of $12.904 billion. Norway led production, followed by Chile and the United Kingdom ( Table 1 ). In 2013, farmed production of Atlantic salmon in the United States was 18,685 metric tons, with a value of $105.4 million. Global trade of salmon products has continued to increase with gains in farmed production. Although the United States is a major producer and consumer of wild Pacific salmon, in 2013, U.S. imports of fresh and frozen farmed Atlantic salmon totaled 234,000 metric tons, with a value $2.082 billion. In 2013, Atlantic salmon imports accounted for approximately one-third of the total U.S. fresh and frozen salmon supply of 701,000 metric tons. AquaBounty Case: The First Genetically Engineered Food Fish AquAdvantage Salmon Genetic engineering technology can be used to introduce a desirable trait(s) into an organism by transferring genetic material (DNA) from another organism. The process creates recombinant DNA (rDNA)—the result of combining two or more DNA sequences that would not normally occur together in nature. Unlike the natural process of genetic recombination, rDNA is engineered by isolating and combining DNA in a laboratory. The DNA that carries the code for a desirable protein such as a hormone is then introduced to an existing organism such as an Atlantic salmon. The introduced DNA becomes part of the organism's genetic makeup and may be passed on to the organism's offspring. Some sequences of DNA are promoters which tell the organism's cells when to make certain substances. Promoters can be spliced to the desired gene that has specific instructions to make a protein such as a growth hormone. When genes are moved from one organism to another a transgenic organism is created. GE salmon were developed by injecting rDNA composed of a promoter from another fish, an ocean pout, and a growth hormone gene from a Pacific Chinook salmon into fertilized eggs of Atlantic salmon. Subsequent selection and breeding led to the development of the AquAdvantage Salmon line, which produces growth hormone throughout the year. The year-round production of growth hormone allows for continuous feeding and growth of AquAdvantage Salmon. Growth hormone production of non-GE Atlantic salmon decreases during the winter months, and Atlantic salmon stop feeding and growing during this period. The AquAdvantage Salmon also increases the efficiency of salmon production because of faster growth and better feeding efficiency than non-GE Atlantic salmon. GE Atlantic salmon reach smolt size more quickly than non-GE Atlantic salmon and grow to a market size of 1 to 3 kilograms in 16 to 18 months instead of the typical three years. Although AquAdvantage Salmon grow more quickly, they do not reach an overall larger size than non-GE Atlantic salmon. According to AquaBounty, analysis of AquAdvantage Salmon has shown that they consume 25% less feed to achieve the same size as non-GE Atlantic salmon. Feed is the most significant cost for commercial salmon aquaculture operations. Characteristics exhibited by GE salmon include accelerated growth, elevated metabolism, greater feeding motivation and efficiency, increased aggression and foraging activity, and reduced anti-predator response. Similar traits have been observed for domesticated Atlantic salmon developed through selective breeding. Faster growth confers an advantage to using GE salmon relative to non-GE salmon and, according to some, could make land-based closed aquaculture systems competitive with cage culture currently used in coastal areas. Proponents of GE salmon maintain that this is a significant development because of environmental harm caused by salmon cage culture. AquaBounty Application Operations The AquAdvantage Salmon will be produced and imported into the United States under conditions specified by AquaBounty in its application. AquaBounty plans to produce eyed eggs at a specific facility on Prince Edward Island (PEI), Canada. Eggs will be shipped to Panama and reared to market size in land-based facilities. The grow-out facility is based in the Panamanian highlands to reduce the risk of salmon escapes and interactions with wild salmon populations. Salmon will be processed in Panama before being shipped to the United States for retail sale. No live fish will be imported into the United States. AquaBounty has stipulated that they will produce only sterile female GE Atlantic salmon by a process that manipulates salmonid reproductive biology. The production of monosex salmon is considered to be 100% effective. In addition, pressure treatment of the eggs induces triploidy (an extra set of chromosomes), which results in sterility. When done on a commercial scale, batches of eggs are on average 99.8% triploid and rates greater than 98% are expected for most inductions. All-female lines of triploid fish are considered to be one of the best current methods to insure nonbreeding populations of GE fish. Therefore, the risk of an independent breeding population of GE salmon is considered to be extremely low. Growing GE marine fish in isolated onshore tanks rather than in offshore or nearshore pens may substantially lower the risk of escape into the wild. Both facilities currently used by AquaBounty confine production to land-based freshwater areas. According to the application, production will continue in this manner. The egg production facility on PEI is currently licensed to conduct research on GE fish under Canadian regulations. The facility has incorporated redundant measures to provide for physical containment and ensure that neither brood stock nor eggs can escape. Security is also provided at the PEI facility to stop unauthorized or unintentional access. The grow-out facility in the highlands of Panama is located at the upper portion of a watershed at 5,000 feet above sea level. The river which supplies the facility runs into several other tributaries and discharges into the Pacific Ocean. Water is diverted from the river into a basin which supplies the facility's grow-out tanks. Screens are used wherever water flows out of the facility to prevent the escape of fish while security is provided to deter human or animal intrusion. The Panama site is geographically isolated from the range of salmon species, and environmental conditions in the river's estuary and the Pacific Ocean are unfavorable for salmon survival. According to FDA's environmental assessment, in the event that AquAdvantage Salmon escape, geographical and geophysical containment would preclude or significantly reduce the probability of survival, dispersal, and long-term establishment. Application History In 1993, AquaBounty first approached the FDA concerning the commercial use of GE salmon, and in 1995 they formally applied for approval. In 2009, AquaBounty provided FDA with the last required study of AquAdvantage Atlantic salmon for its new animal drug application (NADA). On September 19-20, 2010, FDA's Veterinary Medicine Advisory Committee (VMAC) met to consider issues regarding the safety and effectiveness of the NADA. The public was also given the opportunity to provide written submissions and oral testimony to the committee. On December 20, 2012, FDA announced the availability for public comment of (1) the draft environmental assessment (EA) of impacts associated with NADA submitted by AquaBounty and (2) FDA's preliminary finding of no significant impact (FONSI). A 60-day public comment period initially ran through February 25, 2013, but was extended through April 26, 2013. On November 23, 2013, Environment Canada granted AquaBounty permission to export up to 100,000 eggs a year from a hatchery in PEI to Panama. A land-based research facility is currently operating and raising GE salmon in Panama. On March 13, 2014, the FDA Commissioner, Dr. Margaret Hamburg, stated that the Aquabounty NADA is still under consideration and that FDA will be moving forward in a deliberate science-driven way. On November 19, 2015, FDA approved the Aquabounty application to produce GE Atlantic salmon and to sell this product in the United States. Food Safety The VMAC briefing pack included a section on food safety which concluded that there are no direct or indirect food consumption hazards related to AquAdvantage Salmon. Although the VMAC concluded that test results established similarities and equivalence between AquAdvantage Salmon and non-GE Atlantic salmon, the chairman's report added that it cannot be concluded from the data submitted that AquAdvantage Salmon would be more or less allergenic than Atlantic salmon. FDA has maintained that people who are allergic to Atlantic salmon will likely be allergic to AquAdvantage Salmon because it is a finfish, but not because it has been genetically engineered. In the preliminary finding of no significant impact released on December 20, 2012, FDA reiterated that food from AquAdvantage Salmon is as safe as food from non-GE salmon and determined that there are no significant food safety hazards or risks associated with AquAdvantage Salmon. Evaluation of Potential Environmental Impacts To assess potential environmental impacts, FDA developed an EA and consulted with the Fish and Wildlife Service and the National Marine Fisheries Service (NOAA Fisheries). In 2007, legislation was passed to require the FDA to consult with the National Marine Fisheries Service and to produce a report on any environmental risks associated with genetically engineered seafood products, including the impact on wild fish stocks. According to FDA, the two agencies have consulted on this matter, but this report has not been developed and no target date for its completion has been specified. FDA made a "no effect" determination under the Endangered Species Act (ESA; 16 U.S.C. 1531 et seq.) and concluded that approval of the AquAdvantage Salmon NADA will not jeopardize the continued existence of Atlantic salmon listed as threatened or endangered under the ESA or result in the destruction or adverse modification of their critical habitat. FDA and NMFS engaged in technical discussions during 2010 and 2011 and based on those discussions NMFS did not object to the proposed action. However, critics have questioned whether FDA has sufficient expertise to identify and protect against all potential ecological damage that might result from the widespread use of transgenic fish. The EA evaluated the potential environmental impacts associated with approving the NADA for AquAdvantage Salmon. According to FDA, it has verified that AquAdvantage Salmon will be produced and grown in secure facilities. The escape and survival of GE salmon from containment into the local environments of PEI and Panama is considered by FDA to be extremely remote. The environment around the egg producing facility and the grow-out facility are described by FDA as inhospitable. In the event that fish escape and survive, reproduction in the wild would be unlikely because the AquAdvantage Salmon will be all female triploid fish which are nearly all sterile. In the EA, FDA concluded that it "found no evidence that approval of an NADA for AquAdvantage Salmon would result in significant impacts on the environment in the United States." If significant new information or challenges arose in the public comments, FDA could have required a full EIS prior to the approval of AquaBounty's application. NEPA does not require an analysis of environmental effects in other countries and therefore, potential effects on the environment in Canada and Panama were not considered. These effects would be evaluated only if potential exposure pathways exist which could cause significant effects on the environment in the United States. Social and economic effects were not analyzed in the EA because the proposed action, if implemented as required, is not anticipated to significantly affect the physical environment of the United States. In an effort to broaden the evaluation of the AquaBounty application, a coalition of environmental groups called on FDA to prepare an EIS on this action and to consult more closely with federal agencies about possible threats to endangered wild Atlantic salmon. On May 25, 2011, these groups filed a formal citizen petition urging FDA to withhold approval until an EIS has been completed. FDA decided that the AquaBounty application did not require an EIS. However, some VMAC members stated that an EIS would be needed if the company were to propose additional production facilities. Food Safety Issues A National Research Council study maintains that there is a low to moderate food safety risk from GE seafood. Since genetic engineering can introduce new protein into a food product, there are concerns that this technique could introduce a previously unknown allergen into the food supply or could introduce a known allergen into a "new" food. On February 7, 2012, three nongovernmental organizations petitioned the FDA's Office of Food Additive Safety (OFAS) to review the AquaBounty application under the FFDCA food additive provisions. The petitioners argued that the gene expression product (GEP) of the genetic construct creating the AquAdvantage Salmon is a food additive under FFDCA (§201(s), 21 U.S.C. §321). AquAdvantage Salmon exhibit an elevated level of Insulin Growth Factor-1 (IGF-1), which they asserted is a novel food additive and constitutes a "material fact" about the GE-salmon compared to its non-GE counterpart. They requested that FDA make a finding that neither the AquAdvantage Salmon nor the GEP used to create it is "generally regarded as safe" (GRAS). In particular, the petition requested extensive pre-market testing, arguing that "[t]he Agency's general classification of rDNA constructs as new animal drugs (NADs) does not displace or override the Agency's regulations and guidelines, and nothing precludes the Agency from also regulating GE salmon and its components as food additives." Opponents of approval also questioned the validity of data supplied by AquaBounty for risk assessment. They contended that FDA should have made AquaBounty re-conduct its studies or that FDA should either conduct the studies itself or ask an independent laboratory to undertake the studies. If the AquAdvantage Salmon were shown to have materially different nutritional or health-related characteristics from a non-GE salmon, while still being deemed safe, FDA could have required labeling of the GE salmon. Environmental Issues The potential harm that might be caused by GE organisms which escape from aquaculture facilities is of great concern to some scientists and environmental groups. A National Research Council report stated that transgenic fish pose the "greatest science-based concerns associated with animal biotechnology, in large part due to the uncertainty inherent in identifying environmental problems early on and the difficulty of remediation once a problem has been identified." For AquAdvantage Salmon, concerns include interbreeding and competing with wild Atlantic salmon and competition with fish both within and outside the range of Atlantic salmon. Interbreeding with Wild Atlantic Salmon Experiences with farmed Atlantic salmon may provide some insights regarding potential interactions of GE Atlantic salmon and wild Atlantic salmon. Farmed Atlantic salmon frequently escape from fish farms in areas both within and outside their native ranges. Escaped farmed salmon have been found on spawning grounds during the period when wild Atlantic salmon spawning occurs. Farmed salmon also spawn in these areas, but with lower success than wild Atlantic salmon. Successful spawning appears to have most frequently occurred between farmed females and wild males. The offspring of farmed and farmed and wild salmon (hybrids) occupy areas also inhabited by wild salmon. It is not known whether the presence of farmed and hybrid juveniles limit food and resources for wild fish and competitively displace native juveniles. The outcomes of interactions between farmed and wild juveniles are likely to vary depending on specific circumstances such as the quality and availability of habitat and associated resources. Domestication of farmed salmon has changed their genetic composition and reduced genetic variation. These changes have occurred because limited numbers of brood fish are used for spawning farmed fish and farmers select for specific traits. Much of present-day farm production of Atlantic salmon is now based on five Norwegian strains. Farmed and wild hybrids and backcrossing of hybrids in subsequent generations may change genetic variability and the frequency and type of alleles present in wild populations. The extent and nature of these changes to genetic variability may affect survival (fitness) of these populations. Changes in the genetic profiles of wild populations have been shown to have occurred in several rivers in Norway and Ireland where inter-breeding of wild and farmed fish is common. Large-scale experiments in Norway and Ireland show highly reduced survival and lifetime success of farmed and hybrid salmon compared to wild salmon. Given previous experiences with farmed salmon, opponents hypothesize that farmed GE salmon eventually will escape from aquaculture systems and interbreed with wild Atlantic salmon. GE salmon may exhibit different fitness-related traits, such as higher feeding and growth rates. Researchers have questioned whether the flow of a gene or genes from transgenic fish such as GE salmon may confer specific advantages to hybrids relative to wild fish resulting in population-wide consequences. The "Trojan gene hypothesis" speculates that populations could become extinct when a gene that confers a reproductive advantage also renders offspring less able to survive in the natural environment. However, comments to the VMAC from one of the researchers who framed the hypothesis stated that the Trojan gene effect occurs only when there is a conflict between mating success (if GE salmon were to mate more successfully) and viability fitness (offspring were less likely to survive in the wild). He concluded that the risk of harm is low because data conclusively show that in this case there is no Trojan gene effect and because the data suggest that the transgene will be purged by natural selection. However, the potential consequences of the interbreeding of farm (including GE salmon) and wild Atlantic salmon remain a long-term concern of those attempting to conserve wild Atlantic salmon populations. Competition and Other Interactions Critics are also concerned that AquAdvantage Salmon could become established in the wild and compete with native fish, including both Atlantic salmon and other species, for food, habitat, mates, and other resources. This is a concern both within and outside the range of Atlantic salmon. Previous deliberate attempts to introduce Atlantic salmon have failed and no self-sustaining populations of anadromous Atlantic salmon have been established outside the natural range of the species. In British Columbia, Atlantic salmon that escaped from fish farms have spawned and produced wild-spawned juvenile Atlantic salmon, but it is uncertain whether they have established self-reproducing breeding populations. Experimental crosses between GE Atlantic salmon and wild brown trout ( Salmo trutta ) have been shown to be viable and to confer a growth advantage to the hybrid. Researchers concluded that transgenic hybrids could detrimentally affect wild salmon populations but that introgression of the gene into the brown trout genome through backcrossing is unlikely. If GE salmon were to escape and establish self-sustaining populations, competition for resources would be another potential concern. Because GE salmon grow more quickly and may be more aggressive than wild fish, it has been suggested that they may outcompete wild fish for habitat and food. Laboratory experiments on AquAdvantage relatives indicate that they are more likely to feed in the presence of a predator than non-GE controls. Another study which compared GE and non-GE salmon fry under food-limited conditions in simulated environments showed no difference in territorial dominance, growth, or survival of first feeding fry at high densities. Biotechnology proponents argue that GE fish, if they escape, would be less likely to survive in the wild, especially when they are reared in protected artificial habitats and have not learned to avoid predators. The consequences of potential competition would also depend on many factors, including the size and health of the wild population, the number and characteristics of the escaped fish, and local environmental conditions. Some argue that once transgenic fish become established, they could be difficult or impossible to eradicate, as in the case of many invasive species. This scenario would depend on reproduction of GE salmon in the wild. Critics also express concerns that U.S. wild Atlantic salmon populations are at extremely low levels and especially vulnerable to ecological changes. Future Concerns According to the FDA, the NADA is for a specific set of conditions and any modification to these conditions would require notification of the FDA. Major or moderate changes to these conditions would require a supplemental NADA which would trigger environmental analyses under NEPA. The FDA states that expansion or changes to facilities identified in the approved proposal would constitute major or moderate changes, which would require a supplemental NADA and analysis under NEPA. Although FDA has approved AquaBounty's application, FDA retains the authority to withdraw its approval should significant subsequent concerns arise. Approval of GE salmon for consumption in the United States is likely to encourage additional applications in other geographic areas and for a variety of different grow-out or culture techniques. AquaBounty has been approved to produce GE salmon in a limited grow-out facility in Panama. Some have speculated that subsequent proposals will be subject to less scrutiny, and they question whether future proposals are more likely to be considered as benign. If additional applications are approved, it is possible that future grow-out facilities would be located closer to the range of wild Atlantic salmon, thereby decreasing the effectiveness of geographic containment. The NADA does not include the culture of AquAdvantage Salmon in net pens, but if cage culture were used to produce GE salmon it would increase the probability of fish escaping to the wild. AquaBounty has denied that its company would approve the use of AquAdvantage Salmon in cage culture. States also have taken steps to regulate the transport and use of GE fish. For example, Maryland, Florida, Washington, Oregon, Michigan, Minnesota, Wisconsin, and California have passed laws on the use of GE fish in state waters. However, if GE fish were to escape from holding or production facilities, they could spread from regulated to unregulated states. If GE fish are approved for culture in the United States, it appears that consistent regulation across states will be needed. Labeling Issues On November 19, 2015, in addition to approving AquaBounty's application, FDA also released draft guidance to industry for voluntary labeling of whether food has been derived from GE salmon. The question of how to label the food derived from the AquAdvantage Salmon is separate from the decision about whether to approve an NADA. Although FDA is not required to address labeling issues prior to marketing of the food, FDA has considered these two issues simultaneously. FDA has determined that the AquaBounty salmon is as safe for human consumption as non-GE salmon—in other words, that the AquaBounty salmon is "substantially equivalent" to non-GE salmon. Opponents of the AquaBounty salmon, however, have argued that it should be labeled as a GE product on a presumed basis of consumers' right to know. Proponents of the AquaBounty salmon argue that labeling a "substantially equivalent" food would imply that the GE fish is different in ways that could be seen as negative. Although voluntary labeling is permissible—as long as the label is not false or misleading—proponents of the AquaBounty salmon believe such labeling could reduce retail demand for the fish. FDA has proposed guidance for voluntary labeling that indicates whether food has been derived from GE Atlantic salmon. The guidance will offer FDA's thinking on the topic and will not establish specific labeling requirements. Industry will be able to use alternative approaches as long as these approaches follow applicable statutes and regulations. For Atlantic salmon that has not been genetically engineered, FDA provides the following examples of voluntary statements that manufacturers may use: not genetically engineered; not genetically modified through the use of modern technology; or we do not use Atlantic salmon produced using modern biotechnology. FDA also provided examples of voluntary statements that food manufacturers might use for food products derived from GE Atlantic salmon: genetically engineered; this salmon patty was made from Atlantic salmon produced using modern biotechnology; or this Atlantic salmon was genetically engineered so it can reach market weight faster than its non-genetically engineered counterparts. In addition, Alaska requires GE fish to be labeled. No federal law specifically addresses labeling GE fish and seafood. Fishing Industry Interactions The success of farm-raised Atlantic salmon has made some who work in the commercial wild salmon fishing industry, particularly those in Alaska, especially sensitive to potential impacts of GE salmon. Fishermen have concerns related to further increases in salmon aquaculture production and environmental harm to wild stocks. The salmon fishing industry in Alaska does not produce intensively farmed fish salmon in net pens and would not benefit from the use of GE salmon. Over the last three decades, the rapid growth of farmed salmon and trout production has been one of the primary drivers of world salmon prices. In 2002, prices paid to Alaska fishermen were less than half of the average prices paid from 1980 to 2005. Changes to salmon markets were actually much more complex during this period because the industry was transformed by a variety of factors in addition to the growth in the total supply of salmon. Salmon markets were also affected by the availability of different types of salmon products, the timing of production, and development of market standards. Some believe that the wide use of GE salmon would depress salmon prices. Potential interactions between GE salmon aquaculture, ongoing salmon aquaculture, and wild fisheries are difficult to fully assess. Part of the difficulty is related to the complex nature of interrelated drivers of aquaculture and wild salmon production. For example, public acceptance can affect prices which in turn may affect salmon production. Major categories of drivers include the regulatory framework, production, markets, and the public ( Figure 1 ). Although some assume that approval of GE technology will be followed by a rapid increase in farmed salmon production, this outcome is unlikely. At least initially, annual production at the AquaBounty Panama facility is limited to a capacity of approximately 100 metric tons compared to the total U.S. fresh and frozen salmon supply of approximately 700,000 metric tons in 2014. Significant production increases would depend on approval of additional sites in salmon producing regions of the world. The regulatory framework will determine which production methods would be used and where they are allowed. If only land-based facilities are allowed, then greater aquaculture production would depend on whether the advantages of using GE salmon (higher growth rate and feed conversion efficiency) can outweigh the greater costs of land-based facilities. Currently, the economic viability of most land-based salmon grow-out facilities is questionable. Significant increases in land-based production also may be constrained by the number of available sites with sufficient water quality and volume. Therefore, the magnitude and timing of greater salmon production, if it were to occur, is very uncertain. Some in the commercial fishing industry have stated that it has successfully educated the public to discriminate among fish from different sources, such as wild and farmed salmon. On the other hand, some believe that a publicized escape of GE fish could lead to less public acceptance of their wild product. To differentiate wild and GE salmon, commercial Alaskan fishermen also have requested the labeling of GE salmon. Some industry groups are concerned that such labeling might lead consumers to believe that wild fishery products also are genetically engineered and to perceive these products as unsafe for consumption. Consumer Acceptance It is uncertain whether consumers will accept GE fish, but it appears that a broad segment of the U.S. population is opposed to or at least skeptical of consuming the product. GE salmon may taste the same and are expected, like other Atlantic salmon aquaculture products, to be less expensive than wild-caught fish. However, food safety perceptions, ethical concerns over the appropriate use of animals, and environmental concerns might affect public acceptance of GE fish as food. Ongoing campaigns by environmental and consumer groups have asked grocers, restaurants, and distributors to sign a pledge to not sell GE fish products. Reportedly, many major grocery retail chains have announced that they do not plan to sell the AquaBounty fish when it becomes commercially available. Demand for fish products, especially high-quality products such as Atlantic salmon, grew quickly during the past three decades and is expected to continue increasing. In the past, aquaculture productivity gains and reductions in cost have been passed on to the consumer in the form of lower prices. One study speculated that consumers would require a significant price discount to purchase the GE salmon product. The required discount likely would vary by country and depend on consumer characteristics, such as income and age. Production increases could contribute to consumer benefits associated with lower prices and health benefits from consumption of salmon rather than less healthy protein sources. If GE salmon can be sold for a relatively low price, it could stimulate salmon consumption in low-income households. Some researchers have questioned whether the potential benefits associated with the wide use of GE salmon also should be considered as part of the approval process. Congressional Actions Members of the Alaska congressional delegation have expressed their disappointment with FDA's approval of AquaBounty's application. The delegation is now supporting GE salmon labeling to ensure that consumers are aware of the product's identity. In the 114 th Congress, two bills have been introduced ( H.R. 393 and S. 738 ) that would require labeling of GE salmon. In addition, two bills ( H.R. 913 and S. 511 ) would require labeling of GE food products, including GE salmon. H.R. 1599 , which was passed by the House, would preempt any state authority over GE labeling in favor of a voluntary National Genetically Engineered Food Certification Program under the federal Agricultural Marketing Act of 1946. The certification program would establish national standards for labeling both GE and non-GE foods. Two FY2016 appropriations bills for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies ( S. 1800 and S. 2129 ) include provisions that would provide funds to implement labeling requirements for GE salmon. Another bill introduced in the 114 th Congress, H.R. 394 , would make it unlawful (1) to ship, transport, offer for sale, sell, or purchase a covered fish [GE fish], or a product containing a covered fish, in interstate or foreign commerce; (2) to have custody, control, or possession of, with the intent to ship, transport, offer for sale, sell, or purchase a covered fish, or a product containing covered fish, in interstate commerce; (3) to engage in net-pen aquaculture of covered fish; (4) to release a covered fish into a natural environment; or (5) to have custody, control, or possession of a covered fish with the intent to release it into a natural environment. The definition of a covered fish under H.R. 394 would include any finfish modified or produced through the application of recombinant DNA technologies. H.R. 394 would include exceptions to these prohibitions for scientific research or for fish collected for the purpose of supporting the act. Applications for uses that would be prohibited under H.R. 394 would require an EA with a finding of no significant impact in accordance with NEPA or an EIS. The EIS would require an environmental risk analysis that assesses impacts of covered fish on wild and cultured fish stocks, best- or worst-case probabilities of confinement failure, costs to eradicate escaped covered fish, and economic damage of escaped covered fish. H.R. 394 also would require completion of the report on environmental risks associated with GE seafood products, which was required under Section 1007 of the Food and Drug Administration Amendments Act of 2007 (21 U.S.C. §2106). In addition to labeling requirements, S. 738 would require an EIS for any application related to the use of GE salmon intended for human consumption. The EIS would include requirements similar to those stipulated for the EIS under H.R. 394 . During the 113 th Congress, concerns related to the approval process and implications of GE salmon approval were expressed by a number of Members of Congress. On April 24, 2013, 20 Members of the House and 12 Members of the Senate sent similar letters that requested FDA Commissioner Margaret Hamburg halt the approval process. In particular, the letters stated that the FDA process had not been adequate to ensure GE salmon is safe for the environment and consumers. They also expressed concern with the precedent that this ruling could set for future applications for other genetically engineered fish, such as tilapia and trout. In addition, Members urged FDA to develop labeling requirements to distinguish the product as genetically engineered. In the 113 th Congress, several bills related to the production and labeling of GE salmon were introduced. S. 246 and H.R. 1667 included provisions that were similar to those in H.R. 394 (114 th Congress). H.R. 584 and S. 248 would have required labeling of products which contain genetically engineered fish. H.R. 1699 and S. 809 would have required labeling of genetically engineered foods, including fish. On May 22, 2013, S.Amdt. 965 to S. 954 was proposed and would have permitted states to require a label indicating that the food contains a genetically engineered ingredient. On May 23, 2013, the amendment was defeated by a vote of 27-71. Future Considerations Some have asserted that the FDA's approach to GE salmon evaluation has failed to consider the full scope of potential impacts or to fully assess the risk of unintended consequences. They claim that neither the VMAC nor the EA have fully considered the broader potential risks of AquAdvantage Salmon approval. They argue that FDA is not suited to undertake biological and ecological studies of this nature, and they question whether the regulatory system has kept pace with advances in GE technology. They support development of a comprehensive EIS to more fully assess the broader context of social, economic, and environmental implications of GE salmon. FDA evaluated GE salmon as an NAD that is safe for human consumption. Regulation of transgenic animals as NADs, however, suggests to some observers (e.g., the Center for Food Safety, Union of Concerned Scientists) the inherent weakness of existing regulatory structures to respond adequately to the complexities that arise with animal biotechnology innovations. An immediate issue is whether AquAdvantage Salmon should have been subject to a more rigorous assessment as a food additive by FDA's Office of Food Additive Safety. Some might argue that the NAD assessment covered issues related to food safety and found that GE salmon are essentially the same as non-GE salmon. However, in addition to ensuring the safety of GE salmon, further assessment could have reassured consumers and retailers who are skeptical of genetic engineering technology. More rigorous assessment also would set a precedent for future products that may warrant greater scrutiny. Some have expressed concerns that such a lengthy process signals that the United States might cede its leadership position in agricultural biotechnology. The delays and uncertainties faced by the AquaBounty application send the message that science-based regulatory oversight is subject to political intervention. Other countries that are likely to commercialize this technology may be less concerned with potential environmental effects. AquaBounty has reported that it has spent $50 million developing the technology and applying for approval. Some would question whether technology industries in the United States will continue to attract investors and compete with companies in other parts of the world if the U.S. approval process remains so long and uncertain. AquAdvantage Salmon is likely to be the first of many transgenic candidates for commercial aquaculture production, and some question whether this case has established a proper or useful precedent for future assessment of this technology. Some scientists assert that the FDA decision involves broader social costs and benefits of using genetic engineering, and they support wide-ranging interdisciplinary evaluation of GE salmon approval. According to one group of researchers, assessment of long-term effects of GE salmon requires the interrelated study of production systems, markets, consumer acceptance, and regulatory framework. Generally, it appears that many would prefer a comprehensive analysis rather than a piecemeal approach as new culture methods and areas are proposed by successive applications. Questions remain as to whether the current process can afford adequate safeguards for the public and the environment while allowing for the timely approval and use of new genetic technologies.

On November 19, 2015, the Food and Drug Administration (FDA) approved AquaBounty Technologies' application to produce AquAdvantage Salmon, a genetically engineered (GE) Atlantic salmon, for human consumption. This is the first GE animal that has been approved for human consumption in the United States. FDA also has proposed voluntary guidelines for using labels that indicate whether food products are derived from GE salmon. Genetic engineering techniques are used by scientists to insert genetic material from one organism into the genome of another organism. Genetically engineered salmon have been modified to grow more quickly and to use feed more efficiently. However, some are concerned that, in this rapidly evolving field, current technological and regulatory safeguards are inadequate to protect the environment and ensure that these products are safe to eat. Nearly twenty years ago, AquaBounty Technologies Inc. began the application process to obtain FDA approval for a genetically engineered Atlantic salmon. In 2009, AquaBounty submitted the last required study for its new animal drug (NAD) application. The FDA is regulating GE Atlantic salmon as an NAD under the Federal Food, Drug, and Cosmetic Act (FFDCA; 21 U.S.C. §321). An NAD is approved by the agency only after the drug is shown to be safe and effective. FDA has concluded that AquAdvantage Salmon is as safe as food from non-GE salmon and determined that there are no significant food safety hazards or risks associated with the product. Environmental concerns related to the development of GE salmon include the potential for competition and interbreeding with wild fish. According to some, escaped GE salmon could spawn with wild Atlantic salmon and introduce the modified genetic material to the wild population. To address these concerns, AquaBounty will produce salmon eggs (all sterile females) in Canada, ship these eggs to Panama, grow and process fish in Panama, and ship table-ready, processed fish to the United States for retail sale. Aquabounty will limit production to land-based facilities to isolate GE salmon from the environment and minimize the likelihood of harm to wild fish populations. Production from these facilities is limited to approximately 100 metric tons, which is a small fraction of the current U.S. fresh and frozen salmon supply of 700,000 metric tons. Some have asserted that FDA approval of AquAdvantage Salmon was overdue and that delays have hindered investment and development of the U.S. biotechnology sector. Others have questioned the adequacy of FDA's review of GE salmon and whether the existing approval process is equipped to fully evaluate the risks of this technology, especially potential environmental harm. Additional concerns have been voiced concerning food safety, labeling of GE salmon, and economic effects on existing wild salmon fisheries. In response to concerns related to the production and use of GE salmon as food, legislation has been introduced during the last several Congresses to restrict the production and require the labeling of GE organisms. Legislation introduced in the 114th Congress related to labeling GE salmon specifically or to GE organisms generally includes H.R. 393, S. 738, H.R. 913, S. 511, and H.R. 1599. Two FY2016 appropriations bills for Agriculture, Rural Development, Food and Drug Administration and Related Agencies (S. 1800 and S. 2129) include provisions that would provide funds to implement labeling requirements for GE salmon. H.R. 394 would prohibit most uses of GE fish, with some exceptions or if certain conditions are met. In addition to labeling requirements, S. 738 would require an environmental impact statement for any application to produce GE salmon intended for human consumption. H.R. 1599 has been passed by the House, and H.R. 1800 has been reported by the Senate Committee on Appropriations. Since they were introduced, no further action has been taken on the other bills related to genetic engineering.

Background Radioactive waste is a byproduct of nuclear weapons production, commercial nuclear power generation, and the naval reactor program. Waste byproducts also result from radioisotopes used for scientific, medical, and industrial purposes. Waste classification policies have tended to link the processes that generate the waste to uniquely tailored disposal solutions. Consequently, the origin of the waste, rather than its radiologic characteristics, often determines its fate. Congress recently renewed its interest in radioactive waste classification when a Department of Energy (DOE) order regarding the disposition of high-level waste storage tank residue was legally challenged. As a result, Congress amended the statutory definition of high-level waste to exclude such residue. The classification of other radioactive wastes continues to remain an aspect of disposal policy. The Atomic Energy Act of 1946 (P.L. 79-585) defined fissionable materials to include plutonium, uranium-235, and other materials that the Atomic Energy Commission (AEC) determined to be capable of releasing substantial quantities of energy through nuclear fission. Source material included any uranium, thorium, or beryllium containing ore essential to producing fissionable material, and byproduct material remaining after the fissionable material's production. In the amended Atomic Energy Act of 1954 (P.L. 83-703), the term special nuclear material superseded fissionable material and included uranium enriched in isotope 233, material the AEC determined to be special nuclear material, or any artificially enriched material. As the exclusive producer, the AEC originally retained title to all fissionable material for national security reasons. In the 1954 amended Act, Congress authorized the AEC to license commercial reactors, and ease restrictions on private companies using special nuclear material. Section 183 (Terms of Licenses) of the Act, however, kept government title to all special nuclear material utilized or produced by the licensed facilities in the United States. In 1964, the AEC was authorized to issue commercial licenses to possess special nuclear material subject to specific licensing conditions (P.L. 88-489). Although the Atomic Energy Act referred to transuranic waste (material contaminated with elements in atomic number greater than uranium), radioactive waste was not defined by statute until the 1980s. High-level waste and spent nuclear fuel were defined by the Nuclear Waste Policy Act (NWPA) of 1982 (42 U.S.C. 10101). Spent nuclear fuel is the highly radioactive fuel rods withdrawn from nuclear reactors. High-level waste refers to the byproduct of reprocessing irradiated fuel to remove plutonium and uranium. Low-level radioactive waste was defined by the Low-Level Radioactive Waste Policy Act of 1980 ( P.L. 95-573 ) as radioactive material that is not high-level radioactive waste, spent nuclear fuel, or byproduct material, and radioactive material that the Nuclear Regulatory Commission (NRC) classifies as low-level radioactive waste consistent with existing law. Measurement of Radioactivity and Hazards of Radiation The measurement of radioactivity and the hazards of radiation are, in themselves, complex subjects. A discussion of radioactive waste would be incomplete without reference to some basic terms and concepts. Radioactive elements decay over time. The process of radioactive decay transforms an atom to more a stable element through the release of radiation— alpha particles (two protons and two neutrons), charged beta particles (positive or negative electrons), or gamma rays (electromagnetic radiation). Radioactivity is expressed in units of curies —the equivalent of 37 billion (37 x 10 9 ) atoms disintegrating per second. The rate of radioactive decay is expressed as half-life —the time it takes for half the atoms in a given amount of radioactive material to disintegrate. Radioactive elements with shorter half-lives therefore decay more quickly. The term for the absorption of radiation by living organisms is dose . The United States uses the Roentgen Equivalent Man (rem) as the unit of equivalent dose in humans. Rem relates the absorbed dose in human tissue to the effective biological damage of the radiation. Not all radiation has the same biological effect, even for the same amount of absorbed dose, as some forms of radiation are more efficient than others in transferring their energy to living cells. In 1977, the International Commission on Radiation Protection (ICRP) concluded that an individual's mortality risk factor from radiation-induced cancers was about 1 x10 -4 from an exposure of one rem dose (one lifetime chance out of 10,000 for developing fatal cancer per rem), and recommended that members of the public should not receive annual exposures exceeding 500 millirem. The exposure limit is made up of all sources of ionizing radiation that an individual might be exposed to annually, which includes natural background and artificial radiation. An individual in the United States receives an average annual effective dose equivalent to 360 millirem, as shown in Table 1 . The ICRP revised its conclusion on risk factors in 1990, and recommended that the annual limit for effective dose be reduced to 100 millirem. This limit is equivalent to natural background radiation exclusive of radon. ICRP qualified the recommendation with data showing that even at a continued exposure of 500 millirem, the change in age-specific mortality rate is very small—less than 4.5% for females, less than 2.5% for males older than 50 years, and even less for males under age 50. The radiation protection standards for NRC activities licensed under 10 C.F.R. Part 20 are based on a radiation dose limit of 100 millirem, excluding contributions from background radiation and medical procedures. Unlike the NRC's dose-based approach to acceptable hazard level, the Environmental Protection Agency (EPA) uses a risk-based approach that relies on the "linear, no-threshold" model of low-level radiation effects. In the EPA model, risk is extrapolated as a straight line from the high-dose exposure for Hiroshima and Nagasaki atomic bomb survivors down to zero radiation exposure. Thus, the EPA model attributes risk to natural background levels of radiation. For illustrative purposes, EPA considers a 1-in-10,000 risk that an individual will develop cancer to be excessive, and has set a goal of 1-in-a- million risk in cleanup of chemically contaminated sites. The Government Accountability Office (GAO) has concluded that the low-level radiation protection standards administered by EPA and NRC do not have a conclusive scientific basis, as evidence of the effects of low-level radiation is lacking. Comparative Range of Radioactivity The comparative range in radioactivity of various wastes and materials is presented in Figure 1 . Radioactivity is typically expressed in terms of "curies/ gram" for soil-like materials as well as radioactive materials that are homogeneous in nature. However, because the inventories of some radioactive wastes are tracked in terms of "curies/cubic-meter," that unit of measure has been used here. The lowest end of the scale (at the bottom of the figure) is represented by soils of the United States—the source of natural background radiation. Radioactivity ranging from 3 to 40 microcuries/cubic-meter may be attributed to potassium, thorium and uranium in soils. Phosphogypsum mining waste is the byproduct of ore processing that "technologically enhanced naturally occurring radioactive material" (uranium) at higher levels than natural background (thus the term—TENORM), and may range from 6.5 to 45 microcuries/cubic-meter. Uranium mill tailings (referred to as 11e.(2) byproduct material) range from 97 to 750 microcuries/cubic-meter at various sites (Appendix, Table A-1 ). On average, low-level waste ranges from 6.7 to 20 curies/cubic-meter based on the inventory of disposal facilities (Appendix , Table A-2 ); a lower limit is left undefined by regulation, but an upper limit is set at 7,000 curies/cubic-meter based on specific constituents. Transuranic waste ranges between from 47 to 147 curies/cubic-meter based on the Waste Isolation Pilot Plant inventory. The vitrified high-level waste processed by the Savannah River Site ranges from 6,700 to 250,000 curies/cubic-meter. Finally, spent fuel aged 10 to 100 years would range from 105,000 to 2.7 million curies/cubic-meter (Appendix , Table A-3 ). These comparisons are for illustrative purposes only, as the radioactive constituents among the examples are different. Definitions of various radioactive wastes are summarized in Table 2 along with applicable legislative provisions. More detailed descriptions of the wastes and the processes that generate the wastes are provided further below. Spent Nuclear Fuel Currently, 104 commercial nuclear power reactors are licensed by the NRC to operate in 31 states. These reactors are refueled on a frequency of 12 to 24 months. A generic Westinghouse-designed 1,000-megawatt pressurized-water reactor (PWR) operates with 100 metric tons of nuclear fuel. During refueling, approximately one-third of the fuel (spent nuclear fuel) is replaced. The spent fuel is moved to a storage pool adjacent to the reactor for thermal cooling and decay of short-lived radionuclides. Due to the limited storage pool capacity at some commercial reactors, some cooled spent fuel has been moved to dry storage casks. The NRC has licensed 30 independent spent fuel storage installations (ISFSI)for dry casks in 23 states. Fuel debris from the 1979 Three Mile Island reactor accident has been moved to interim storage at the Idaho National Laboratory (INL). General Electric Company (GE) operates an independent spent fuel storage installation (Morris Operation) in Morris Illinois. A group of eight electric utility companies has partnered as Private Fuel Storage, LLC with the Skull Valley Band of Goshute Indians, and applied for an NRC license to build and operate a temporary facility to store commercial spent nuclear fuel on the Indian reservation in Skull Valley, Utah. DOE spent fuel originated from nuclear weapons production, the naval reactor program, and both domestic and foreign research reactor programs. DOE spent fuel remains in interim storage at federal sites in Savannah River, South Carolina; Hanford, Washington; INL; and Fort St. Vrain, Colorado. In contrast to commercial reactors, naval reactors can operate without refueling for up to 20 years. As of 2003, 103 naval reactors were in operation, and nearly as many have been decommissioned from service. Approximately 65 metric tons heavy metal (MTHM) of spent-fuel have been removed from the naval reactors. Until 1992, naval spent fuel had been reprocessed for weapons production, and since then has been transferred to INL for interim storage. The planned Yucca Mountain repository is scheduled to receive 63,000 MTHM commercial spent nuclear fuel, and 2,333 MTHM of DOE spent-fuel. The NWPA prohibits disposing of more than the equivalent of 70,000 MTHM in the first repository until a second is constructed. The Energy Information Administration reported an aggregate total 47,023.4 MTHM discharged from commercial rectors over the period of 1968 to 2002. Of the total, 46,268 MTHM is stored at reactor sites, and the balance of 755.4 MTHM is in stored away from reactor sites. CRS obtained and compiled raw data from EIA on spent fuel discharged by commercial reactor operators to the end of 2002, and data on spent fuel stored at the DOE national laboratory and defense sites (as of 2003 year-end). A combined total of 49,333 MTHM had been discharged by commercial- and defense-related activities at the end of 2002. Commercial reactor storage pools accounted for 41,564 MTHM, and ISFSIs accounted for 5,294 MTHM. The balance was made up by 2,475 MTHM of federal spent fuel stored at national laboratories, defense sites, and university research reactors. CRS's figures differ from EIA's in several respects: EIA compiles only commercial spent fuel data, combines data on reactor storage pool and dry storage at the reactor facility site, and identifies non-reactor site spent fuel as "away from reactor site" storage. The data are geographically presented in Figure 2 and summarized in Table 3 . At the end of 1998, EIA reported 38,418 MTHM of spent fuel discharged. Based on 47,023 MTHM discharged at the end of 2002, CRS estimates that commercial reactor facilities discharge an average 2152 MTHM of spent fuel annually. On that basis, CRS estimates 53,637 MTHM of spent fuel had been discharged at the end of 2004. High-Level Radioactive Waste NWPA defines high-level waste as "liquid waste produced directly in reprocessing and any solid material derived from such liquid waste that contains fission products in sufficient concentrations," and "other highly radioactive material" that NRC determines requires permanent isolation. Most of the United States' high-level waste inventory was generated by DOE (and former AEC) nuclear weapons programs at the Hanford, INL, and Savannah River Sites. A limited quantity of high-level waste was generated by commercial spent fuel reprocessing at the West Valley Demonstration Project in New York. Over concern that reprocessing contributed to the proliferation of nuclear weapons, President Carter terminated federal support for commercial reprocessing in 1977. For further information on reprocessing policy, refer to CRS Report RS22542, Nuclear Fuel Reprocessing: U.S. Policy Development , by [author name scrubbed]. Weapons-production reactor fuel, and naval reactor spent fuel were processed to remove special nuclear material (plutonium and enriched uranium). Reprocessing generated highly radioactive, acidic liquid wastes that generated heat. Weapons-related spent fuel reprocessing stopped in 1992, ending high-level waste generation in the United States. The wastes that were previously generated continue to be stored at Hanford, INL, and Savannah River, where they will eventually be processed into a more stable form for disposal in a deep geologic repository. The Hanford Site generated approximately 53 million gallons of high-level radioactive and chemical waste now stored in 177 underground carbon-steel tanks. Some strontium and cesium had been separated out and encapsulated as radioactive source material, then commercially leased for various uses. The Savannah River Site generated about 36 million gallons of high-level waste that it stored in 53 underground carbon-steel tanks. Both the Hanford and Savannah River Sites had to neutralize the liquid's acidity with caustic soda or sodium nitrate to condition it for storage in the carbon-steel tanks. (The neutralization reaction formed a precipitate which collected as a sludge on the tank bottom; see the discussion of waste-incidental-to-reprocessing below.) Savannah River has constructed and begun operating a defense-waste processing facility that converts high-level waste to a vitrified (glass) waste-form. The vitrified waste is poured into canisters and stored on site until eventual disposal in a deep geologic repository. A salt-stone byproduct will be permanently disposed of on site. Hanford has plans for a similar processing facility. INL generated approximately 300,000 gallons of high-level waste through 1992 by reprocessing naval reactor spent fuel, and sodium-bearing waste from cleaning contaminated facilities and equipment. The liquid waste had originally been stored in 11 stainless steel underground tanks. All of the liquid high-level waste has been removed from five of the 11 tanks and thermally converted to granular (calcine) solids. Further treatment is planned, and INL is also planning a waste processing facility similar to Savannah River's vitrification plant. West Valley's high-level waste has been vitrified and removed from the site. The vitrification process thermally converts waste materials into a borosilicate glass-like substance that chemically bonds the radionuclides. The vitrification plant is being decommissioned. The Hanford Site and INL are planning similar vitrification plants. High-level waste is also considered a mixed waste because of the chemically hazardous substances it contains, which makes it subject to the environmental regulations under the Resource Conservation and Recovery Act (RCRA). Waste Incidental to Reprocessing DOE policy in Order 435.1 refers to waste incidental to reprocessing in reclassifying a waste stream that would otherwise be considered high-level due to its source or concentration. DOE's Implementation Guide to the Order states that "DOE Manual 435.1-1 is not intended to create, or support the creation of, a new waste type entitled incidental waste." The waste stream typically results from reprocessing spent fuel. DOE has determined that under its regulatory authority the incidental-to-processing waste stream can be managed according to DOE requirements for transuranic or low-level waste, if specific criteria are met. The DOE evaluation process for managing spent-fuel reprocessing wastes considers whether (1) the "wastes are the result of reprocessing plant operations such as contaminated job wastes including laboratory items such as clothing, tools and equipment," and (2) key radionuclides have been removed in order to permit downgrading the classification to either low-level waste or transuranic waste. Evaluation process wastes include large volumes of low-activity liquid wastes (separated from high-level waste streams), a grout or salt-stone solid form, and high-level waste residues remaining in storage tanks. DOE's evaluation process at the Savannah River Site resulted in capping the residue left in high-level waste storage tanks with cement grout. Public comments on the draft of Order 435.1 expressed the concern that potentially applicable laws do not define or recognize the principle of "incidental waste," or exempt high-level waste that is "incidental" to DOE waste management activities from potential NRC licensing authority. In 2003, the Natural Resources Defense Council (NRDC) challenged DOE's evaluation process for Savannah River as scientifically indefensible, since no mixing occurred to dilute the residue's activity when capping it with grout. DOE countered that through the waste-incidental-to-reprocessing requirements of Order 435.1, key radionuclides have been removed from the tanks, and the stabilized residual waste does not exceed Class C low-level radioactive waste restrictions for shallow land burial. Removing the residual waste would be costly and expose workers to radiologic risks, according to DOE. In NRDC v. Abraham , the Federal District Court in Idaho ruled in 2003 that DOE violated the NWPA by managing wastes through the evaluation process in Order 435.1. The Energy Secretary later asked the Congress for legislation clarifying DOE authority in determinations on waste-incidental-to-reprocessing at Hanford, Savannah River, and INL. On November 5, 2004, the U.S. Court of Appeals for the Ninth Circuit vacated the district court's judgment and remanded the case with a direction to dismiss the action. Section 3116 (Defense Site Acceleration Completion) in the Ronald W. Reagan Defense Authorization Act of FY2005 ( P.L. 108-375 ) specified that the definition of the term "high-level radioactive waste" excludes radioactive waste from reprocessed spent fuel if (1) the Energy Secretary in consultation with the NRC determines the waste has had highly radioactive radionuclides removed to the maximum extent practical, and (2) the waste does not exceed concentration limits for Class C low-level waste. As a result of the Act, NRC expects to review an increased number of waste determinations. As guidance to its staff, NRC developed a draft Standard Review Plan (NUREG-1854). Section 3117 of the Act (Treatment of Waste Material) authorizes $350 million for DOE's High Level Waste Proposal to accelerate the cleanup schedule for the Hanford, Savannah River, and INL. For further information on this subject, refer to CRS Report RS21988, Radioactive Tank Waste from the Past Production of Nuclear Weapons: Background and Issues for Congress , by [author name scrubbed] and [author name scrubbed]. Transuranic Waste The Atomic Energy Act (42 U.S.C. 2014) defines transuranic (TRU) waste as material contaminated with elements having atomic numbers greater than uranium (92 protons) in concentrations greater than 10 nanocuries/gram. The DOE (with other federal agencies) revised the minimum radioactivity defining transuranic waste from 10 nanocuries/gram to greater than 100 nanocuries/gram in 1984. Transuranic elements are artificially created in a reactor by irradiating uranium. These elements include neptunium, plutonium, americium, and curium. Many emit alpha particles and have long half-lives. Americium has commercial use in smoke detectors, and plutonium produces fission energy in commercial power reactors. Transuranic waste is generated almost entirely by DOE (and former AEC) defense-related weapons programs. The waste stream results from reprocessing irradiated fuel to remove plutonium-239 or other transuranic elements, and from fabricating nuclear weapons and plutonium-bearing reactor fuel. The waste may consist of plutonium-contaminated debris (such as worker clothing, tools, and equipment), sludge or liquid from reprocessing, or cuttings and scraps from machining plutonium. In 1970, the former AEC determined that the long half-life and alpha emissions associated with transuranic waste posed special disposal problems. This prompted the decision to stop the practice of burying TRU waste in shallow landfills as a low-level waste. DOE distinguishes "retrievably stored" transuranic waste from "newly generated" waste. Waste buried prior to 1970 is considered irretrievable and will remain buried in place. Since 1970, transuranic waste has been packaged (e.g., metal drums, wood or metal boxes) and retrievably stored in above-ground facilities such as earth-mounded berms, concrete culverts, buildings, and outdoor storage pads. Waste that has been retrieved or will be retrieved, and then repackaged for transportation and disposal, is classed as newly generated waste. The Department of Energy National Security and Military Applications of Nuclear Energy Authorization Act of 1980 ( P.L. 96-164 ) directed the Energy Secretary to consult and cooperate with New Mexico in demonstrating the safe disposal of defense radioactive wastes. The Waste Isolation Pilot Plant Land Withdrawal Act ( P.L. 102-579 as amended by P.L. 104-211 ) limited disposal acceptance to transuranic waste with a half-life greater than 20 years and radioactivity greater than 100 nanocuries/gram. The WIPP Act further defined transuranic waste in terms of "contact-handled transuranic waste" having a surface dose less than 200 millirem per hour, and "remote-handled transuranic waste" having a surface dose rate greater than 200 millirem/hour. The WIPP facility (near Carlsbad, New Mexico) began accepting transuranic waste in 1999 but was restricted by the New Mexico Environment Department to accepting contact-handled waste only. In October 2006, New Mexico revised WIPP's permit to allow remote-handled waste. The Resource Conservation and Recovery Act of 1976 (42 U.S.C. 6901) imposed additional disposal requirements on transuranic waste mixed with hazardous constituents. Mixed radioactive and hazardous waste is a separate classification discussed further below. The Energy and Water Development Appropriations Act for 2005 ( P.L. 108-447 ) and appropriation acts for some prior years precluded the WIPP facility from disposing of transuranic waste containing plutonium in excess of 20%, as determined by weight. Surplus Weapons-Usable Plutonium The Atomic Energy defined "special nuclear material" as plutonium, uranium enriched in isotopes 233 or 235, and any other material the NRC determined as special nuclear material. Special nuclear material is important in weapons programs and as such has strict licensing and handling controls. Under President Clinton's 1993 Nonproliferation and Export Control Policy, 55 tons of weapons-usable plutonium was declared surplus to national security needs. DOE plans to use surplus plutonium in mixed oxide fuel for commercial power reactors. Plutonium not suitable for mixed oxide fuel fabrication is destined for repository disposal. The special facility constructed to reprocess the surplus would generate transuranic waste and low-level radioactive waste streams. Spent mixed oxide fuel would be disposed of in the same manner as conventional commercial spent fuel in an NRC-licensed deep geologic repository. Low-Level Radioactive Waste The Low-Level Radioactive Waste Policy of 1980 ( P.L. 96-573 ) defined "low-level radioactive waste" as radioactive material that is not high-level radioactive waste, spent nuclear fuel, or byproduct material, and radioactive material that the Nuclear Regulatory Commission (NRC) classifies as low-level radioactive waste consistent with existing law. Low-level waste is classified as A, B, C, or Greater than Class C in 10 C.F.R. 61.55—Waste Classification. These classes are described further below. Commercial low-level waste is disposed of in facilities licensed under NRC regulation, or NRC-compatible regulations of "agreement states." Low-level radioactive waste is generated by nuclear power plants, manufacturing and other industries, medical institutions, universities, and government activities. Much of the nuclear power plant waste comes from processes that control radio-contaminants in reactor cooling water. These processes produce wet wastes such as filter sludge, ion-exchange resins, evaporator bottoms, and dry wastes. Institutions such as hospitals, medical schools, research facilities, and universities generate wastes of significantly differing characteristics. Industrial generators produce and distribute radionuclides, and use radioisotopes for instruments and manufacturing processes. The General Accounting Office (now Government Accountability Office) reported that of the 12 million cubic feet of low-level waste disposed of in 2003, 99% constituted Class A. The NRC classifies low-level waste using two tables: one for long-lived radionuclides, and one for short-lived. Long-lived and short-lived refer to the length of time for radioactive decay. For regulatory purposes, the dividing line between short-lived and long-lived is a half-life of 100 years. The radionuclides included as long-lived are: carbon-14, nickel-59, niobium-94, technetium-99, iodine-129, plutonium-241, and curium-242. The group "alpha emitting transuranic nuclides with half-lives greater than 5 years" is included in the long-lived table, as various isotopes of the group may have half-lives in the range of hundreds-of-thousand of years. The short-lived radionuclide table includes tritium (hydrogen-3), cobalt-60, nickel-63, strontium-90, and cesium-137. A group of unspecified "nuclides with half-lives less than 5 years" is included as short-lived. Low-level waste generated by nuclear power plants results from the fission of uranium fuel, or the activation of the reactor components from neutrons released during fission. Trace amounts of uranium left on fuel rod surfaces during manufacturing are partly responsible for the fission products in the reactor cooling water. Tritium (H-3) occasionally results from uranium fission, and from reactor cooling water using boron as a soluble control absorber. The radionuclides carbon-14, nickel-53, nickel-59, and niobium-94 are created when stainless steel reactor components absorb neutrons. The radionuclides strontium-90, technetium-99, and cesium-137 are fission products of irradiated uranium fuel. The transuranic radionuclides are neutron-activation products of irradiated uranium fuel. Iodine-129 is found in radioactive wastes from defense-related government facilities and nuclear fuel cycle facilities; if released into the environment, its water solubility allows its uptake by humans, where it concentrates in the thyroid gland. Some of the short-lived radionuclides have specific industrial or institutional applications. These include cobalt-60, strontium-90, and cesium-137. Cobalt-60 is used in sealed sources for cancer radiotherapy and sterilization of medical products; its intense emission of high-energy gamma radiation makes it an external hazard, as well as an internal hazard when ingested. Strontium-90 is used in sealed sources for cancer radiotherapy, in luminous signs, in nuclear batteries, and in industrial gauging. Due to strontium's chemical similarity to calcium, it can readily be taken up by plants and animals, and is introduced into the human food supply through milk. Cesium-137 also is used in sealed sources for cancer radiotherapy, and due to its similarity to potassium can be taken up by living organisms. Low-level waste classification ultimately determines whether waste is acceptable for shallow land burial in an NRC- or state-licensed facility. The four waste classes identified by 10 C.F.R. Section 61.55 on the basis of radionuclide concentration limits are: Class A: waste containing the lowest concentration of short-lived and long-lived radionuclides. Examples include personal protective clothing, instruments, tools, and some medical wastes. Also, waste containing any other radionuclides left unspecified by 10 C.F.R. 61.55 is classified as A. Class B: an intermediate waste classification that primarily applies to waste containing either short-lived radionuclides exclusively, or a mixture of short-lived and long-lived radionuclides in which the long-lived concentration is less than 10% of the Class C concentration limit for long-lived radionuclides. Class C: wastes containing long-lived or short-lived radionuclides (or mixtures of both) at the highest concentration limit suitable for shallow land burial. Examples include ion exchange resins and filter materials used to treat reactor cooling water, and activated metals (metal exposed to a neutron flux—irradiation—that creates a radioactive isotope from the original metal). Greater than Class C (GTCC): waste generally not acceptable for near-surface disposal. Greater than Class C wastes from nuclear power plants include irradiated metal components from reactors such as core shrouds, support plates, and core barrels, as well as filters and resins from reactor operations and decommissioning. The physical form, characteristics, and waste stability requirements are summarized in Table 4 . Class A, B, and C wastes are candidates for near-surface disposal. The concept for near-surface disposal is: a system composed of the waste form, a trenched excavation, engineered barriers, and natural site characteristics. Through complex computer models, the licensee must demonstrate that the site and engineered features comply with the performance objectives in 10 C.F.R. Part 61. Generally Class A and B wastes are buried no greater than 30 meters (~100 feet). Class C waste must be buried at a greater depth to prevent an intruder from disturbing the waste after institutional controls have lapsed. The operation of a disposal facility was originally foreseen to last 20 to 40 years, after which it would be closed for stabilization period of 1 to 2 years, observed and maintained for 5 to 15 years, then transferred to active institutional control for 100 years. At the time of licensing, funds had to be guaranteed by the state or licensee for the facility's long term care after closure. At present, no disposal facility exists for Greater than Class C Waste, though the DOE is in the initial phase of a process to identify disposal options. The Senate Committee on Energy and Natural Resources conducted a hearing in September 2004 to consider the potential shortage of low-level waste disposal sites. The GAO had concluded in a 2004 report that no shortfall in disposal capacity appeared imminent, although the national low-level waste database that would be used to estimate the adequacy of future capacity was inaccurate. The GAO recommended that the DOE stop reporting the database information, and added that Congress may wish to consider directing the Nuclear Regulatory Commission to report when the disposal capacity situation changes enough to warrant congressional evaluation. Provisions for State Disposal Compacts In enacting the Low-Level Radioactive Waste Policy Act of 1980, Congress also established the policy that each state take responsibility for disposing of low-level radioactive waste generated within its borders. To accomplish this, states may enter into compacts. Section 102 of the 1986 amendments to the Act provided that each state, either by itself or in cooperation with other states, be responsible for disposing of low-level radioactive wastes generated within the state. Low-Level Waste Classification Tables The NRC created two tables in 10 C.F.R 61.55 for classifying low-level waste on the basis of radionuclide concentration limits. Table 1 of the regulation applies to long-lived radionuclides, and Table 2 applies to short-lived (included as Figures A-1 and A-2 in the Appendix of this report). The concentration limits are expressed in units of "curies/cubic meter" or "nanocuries/gram" (the latter unit applying exclusively to the alpha-emitting transuranic radionuclides). Figures 3 through 6 represent an illustrative guide to interpreting Tables 1 and 2; they are not intended, however, for actual waste classification purposes. The figures break down Tables 1 and 2 by long-lived, transuranic, short-lived and mixed long- and short-lived radionuclides. In the case of mixed radionuclides, the "sum-of-the-fractions" rule must be applied. Sum-of-the-Fractions Rule. Waste containing a mixture of radionuclides must be classified by applying the sum-of-the fractions rule. In the case of short-lived radionuclides—for each radionuclide in the mixture, calculate the fraction: radionuclide-concentration lowest-concentration - limit then calculate the fractions' sum. If the sum-of-the-fractions is less than 1, the waste class is Class A. If the sum of the fractions is greater than 1, recompute each fraction using the upper concentration limits. If the fraction sum is less than 1, the waste is Class C; if greater than 1 then it is Greater than Class C. In the case of long-lived radionuclides, sum the fractions of each radionuclide concentration divided by the Column 1 concentration limits. If the resulting fraction sum is less than 1, the waste is Class A. If the fraction sum is greater than 1, recompute the fractions by applying the Column 2 concentration limits. If the sum is less than 1, the waste is Class B. If the sum is greater than 1, recompute again using the Column 3 limits. For example, consider a waste containing concentrations of long-lived radionuclides Sr-90 at 50 Ci/m 3 and Cs-137 at 22 Ci/m 3 . Since the concentrations each exceed the values in Column 1 (0.04 and 1.0 respectively) of Chart 3 (Table 2 of Section 61.55), they must be compared to the concentration limits of Column 2. For Sr-90, the fraction 50/150 equals 0.33, for Cs-137 the fraction 22/44 equals 0.5. The resulting sum of the fractions (0.33 + 0.5) equals 0.83. Since the sum is less than 1.0, the waste is Class B. Mixed Low-Level Radioactive and Hazardous Waste Mixed waste contains both concentrations of radioactive materials that satisfy the definition of low-level radioactive waste in the Low-Level Radioactive Waste Policy Act, and hazardous chemicals regulated under the Resource Conservation and Recovery Act (RCRA, 42 U.S.C. 6901). In general, facilities that manage mixed waste are subject to RCRA Subtitle C (Hazardous Waste) requirements for hazardous waste implemented by EPA (40 C.F.R. 124 and 260-270) or to comparable regulations implemented by states or territories that are authorized to implement RCRA mixed waste authority. The RCRA Subtitle C program was primarily developed for the states' implementation with oversight by EPA. Depleted Uranium Naturally occurring source material uranium contains uranium isotopes in the approximate proportions of: U-238 (99.3%), U-235 (0.7%), and U-234 (trace amount) by weight. Source material uranium is radioactive, U-235 contributing 2.2% of the activity, U-238 48.6%, and U-234 49.2% . Depleted uranium is defined in 10 CFR 40.4 (Domestic Licensing of Source Material) as "the source material uranium in which the isotope U-235 is less than 0.711 % of the total uranium present." It is a mixture of isotopes U-234, U-235, and U-238 having an activity less than that of natural uranium. Most of the DOE depleted uranium hexafluoride inventory has between 0.2% and 0.4% U-235 by weight. The former AEC began operating uranium enrichment plants in 1945 to produce U-235 enriched fuel for national defense and civilian nuclear reactors. Most commercial light-water reactors use uranium enriched 2%-5% with U-235. As part of that enrichment process, uranium ore was converted to uranium hexafluoride (UF6) gas to facilitate U-235's separation, depleting the source material uranium of its U-235 isotope. DOE's inventory of depleted uranium hexafluoride (DUF6) is approximately 700,000 metric tons. The DUF6 is stored in metal cylinders at the three enrichment plant sites: Paducah, KY; Portsmouth, OH; and Oak Ridge, TN. As part of DOE's DUF6 Management Program, Oak Ridge National Laboratory (ORNL) conducted an assessment of converting the DUF6 to one of four stable forms: metallic (DU), tetrafluoride (DUF4), dioxide (DUO2) and triuranium octaoxide (DU3O8). ORNL considers the characteristics of the four forms suitable for disposal as low-level radioactive waste. The DU metal form has commercial and military uses (aircraft counterweights, shielding, armor, and munitions). DOE has considered the environmental impacts, benefits, costs, and institutional and programmatic needs associated with managing its DUF6 inventory. In the 1999 Record of Decision for Long Term Management and Use of Depleted Uranium Hexafluoride, DOE decided to convert the DUF6 to depleted uranium oxide, depleted uranium metal, or a combination of both. The depleted uranium oxide would be stored for potential future uses or disposal as necessary. Conversion to depleted uranium metal would be performed only when uses for the converted material were identified. DOE stated that it did not believe that long-term storage as depleted uranium metal and disposal as depleted uranium metal were reasonable alternatives. DOE has selected Uranium Disposition Services to design, build and operate facilities in Paducah and Portsmouth to convert the DUF6. DOE has effectively declared DUF6 a resource in the record of decision, anticipating its conversion to non-reactive depleted uranium oxide. Making the material nonreactive is intended to eliminate the RCRA criteria that otherwise would place it in a Mixed Waste class. Technologically Enhanced Naturally Occurring Radioactive Material Technologically Enhanced Naturally Occurring Radioactive Material (TENORM) is a byproduct of processing mineral ores containing naturally occurring radionuclides. These include uranium, phosphate, aluminum, copper, gold, silver, titanium, zircon and rare earth ores. The ore beneficiation process concentrates the radionuclides above their naturally occurring concentrations. Some TENORM may be found in certain consumer products, as well as fly ash from coal-fired power plants. Activities such as treating drinking water also produce TENORM. Surface and groundwater reservoirs may contain small amounts of naturally occurring radionuclides (uranium, radium, thorium, and potassium; i.e., NORM). In areas where concentrations of radium are high in underlying bedrock, groundwater typically has relatively high radium content. Water treatment/filtration plants may remove and concentrate NORM in a plant's filters, tanks, and pipes. The result is technologically concentrated NORM (thus TENORM) in the form of filtrate and tank/pipe scale. Radium-226, a decay product of uranium and thorium soluble in water, is a particular concern because of the radiologic threat it poses. Public exposure to TENORM is subject to federal regulatory control. At Congress's request in 1997, the EPA arranged for the National Academy of Sciences (NAS) to study the basis for EPA's regulatory guidance on naturally occurring radioactive material. The NAS study defined technologically enhanced radioactive material (TENORM) as "any naturally occurring material not subject to regulation under the Atomic Energy Act whose radionuclide concentrations or potential for human exposure have been increased above levels encountered in the natural state by human activities." The NAS completed its study in 1999. The most important radionuclides identified by the study include the long-lived naturally occurring isotopes of radium, thorium, uranium, and their radiologically important decay products. Radium is of particular concern because it decays to form radioactive radon gas, a carcinogen contributing to lung cancer. NAS noted that federal regulation of TENORM is fragmentary. Neither the EPA nor any other federal agency with responsibility for regulating radiation exposure has developed standards applicable to all exposure situations that involve naturally occurring radioactive material. The EPA submitted its own report on implementing the NAS recommendations to Congress the following year, along with plans to revise its TENORM guidance documents. According to its website, the EPA has used its authority under a number of existing environmental laws to regulate some sources of TENORM, including the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Energy Policy Act Provisions for NORM The Energy Policy Act of 2005 contains a provision in Section 651 that amends the Atomic Energy Act's section 11(e) definition of "byproduct material" to exclude "any discrete source of naturally occurring radioactive material [NORM], other than source material" that the NRC, in consultation with the EPA, Department of Energy, and Department of Homeland Security, determines would pose a threat similar to the threat posed by a discrete source of radium-226. The Energy Policy Act also made clear that byproduct material as defined in paragraphs (3) and (4) of section 11(e) is not to be considered low-level radioactive waste for the purpose of disposal under the Low-Level Radioactive Waste Policy Act and "carrying out a compact" under the authorization of 42 U.S.C. sections 2021(b) et seq. (permitting NRC agreements with states to discontinue its regulatory authority over byproduct, source, and special nuclear materials.) The Nuclear Regulatory Commission (NRC) proposes to amend its regulations to include jurisdiction over certain radium sources, accelerator-produced radioactive materials (referred to as NARM). The proposed rule does not suggest any discrete source of NARM nor criteria for making such a determination. It does note that EPAct gives the NRC authority over discrete sources of radium-226 but not over diffuse sources of radium-226 as it occurs in nature or over other processes where radium-226 may be unintentionally concentrated. The specific example of "residuals from treatment of water to meet drinking water standards" is given as a diffuse source. Recently, the Rocky Mountain Low-Level Radioactive Waste Compact's authority to dispose of NORM and TENORM has been called into question over the assertion that its jurisdiction violates the Commerce Clause of the U.S. Constitution. Congress gave its consent to the Rocky Mountain Low-Level Radioactive Waste Compact, consisting originally of the states of Arizona, Colorado, Nevada, New Mexico, Utah, and Wyoming. Arizona, Utah, and Wyoming later withdrew from the Compact, leaving Colorado, Nevada, and New Mexico as remaining Compact members. The Rocky Mountain Compact defines low-level waste as specifically excluding radioactive waste generated by defense activities, high-level waste (from spent nuclear fuel reprocessing), transuranic waste (produced from nuclear weapons fabrication), 11e(2) byproduct material, and mining process-related wastes. However, under Article VII(d) of the Compact, both the Compact's board and the host state may authorize management of any radioactive waste other than low-level wastes upon consideration of various factors, such as the existence of transuranic elements. A review of the legislative history of the Rocky Mountain Compact did not appear to reveal the intent of Congress with respect to the specific responsibility of the states concerning NRC-defined A, B, and C class wastes. A statement in the legislative history of the Southeast Interstate Compact, however, may provide an indication of Congress's intent: The definition of low-level waste in the compact may vary, but the compact provides for adjustments and flexibility under its own procedures adequate to allow the compact to handle waste for which the states are responsible. On the basis of the Compact's Article VII and the language of H.Rept. 99-317, quoted above, that accompanied H.R. 1267, it might be argued that the Compact's jurisdiction extends to TENORM when for disposal purposes TENORM meets the criteria of Class A, B, or C low-level radioactive waste. Thus, the Compact's authority to dispose of low-level radioactive waste would appear restricted by the Energy Policy Act of 2005. TENORM that poses a threat similar to the threat posed by a discrete source of radium-226 would arguably be outside the jurisdiction of the Compact. A diffuse source of radium-226 (i.e., TENORM ) that does not pose a similar threat, however, would appear to remain within the jurisdiction of the Compact's Article VII(d) provision. Uranium Mill Tailings Uranium and thorium mill tailings are the waste byproducts of ore processed primarily for its source material (i.e., uranium or thorium) content (10 C.F.R. 40.4). The tailings contain radioactive uranium decay products and heavy metals. Mined ores are defined as source material when containing 0.05 % or more by weight of uranium or thorium (10 C.F.R. 20.1003). Byproduct material does not include underground ore bodies depleted by solution extraction. Tailings or waste produced by the extraction or concentration of uranium or thorium is defined under Section 11e.(2) of the Atomic Energy Act as amended by Title II of the Uranium Mill Tailings Radiation Control Act of 1978 (UMTRCA , 42 U.S.C. 7901), and is simply referred to as 11e.(2) byproduct material. UMTRCA provided for stabilization and disposal of tailings to mitigate the hazard of radon diffusion into the environment, and other hazards. Radon is a daughter-product of uranium/thorium radioactive decay. The NRC regulates the siting and design of tailings impoundments, disposal of tailings or wastes, decommissioning of land and structures, groundwater protection standards, testing of the radon emission rate from the impoundment cover, monitoring programs, airborne effluent and offsite exposure limits, inspection of retention systems, financial surety requirements for decommissioning and long-term surveillance and control of the tailings impoundment, and eventual government ownership of pre-1978 tailings sites under an NRC general license. Waste Disposal Policy Issues The AEC first acknowledged the problem of waste disposal in 1955. Concerned over the hazard of radioactive waste, the AEC awarded a contract to the National Academy of Sciences to conduct research on methods to dispose of radioactive waste in geologic media and recommend disposal options within the continental limits of the United States. The Academy's suggestion, at that time, was that disposal in cavities mined out in salt beds or salt domes offered the most practical and immediate solution. In the mid-1960s, the AEC conducted engineering tests on disposing spent fuel in a salt mine near Lyons, Kansas. After developing conceptual repository designs for the mine, AEC abandoned the Lyons project in 1972 due to technical difficulties. The AEC went on to identify another site in a salt deposit and announced plans for a retrievable surface storage program as an interim measure until a repository could be developed, but the plan was later abandoned. In the 1970s, the Energy Research and Development Administration (ERDA), and later the Department of Energy (DOE), began a program of screening various geologic media for a repository (including salt deposits), and the federal sites of the Hanford Reservation and Nevada Test Site. The national problem created by accumulating spent nuclear fuel and radioactive waste prompted Congress to pass the Nuclear Waste Policy Act of 1982 (NWPA). The potential risks to public health and safety required environmentally acceptable waste disposal solutions, and the Act provided for developing repositories to dispose of high-level radioactive waste and spent nuclear fuel. Under the Act, the Department of Energy will assume title to any high-level radioactive waste or spent nuclear fuel accepted for a disposal in a repository constructed under the Act (42 U.S.C. 10131). In 2002, the President recommended approval of the Yucca Mountain repository site in Nevada. In a recent district court ruling, however, EPA's 10,000-year safety standard on radiation containment at the site was found to be inconsistent with the congressionally mandated recommendations of the National Academy of Sciences. Depending upon successful resolution of the matter and the NRC's granting a license, the repository could begin to accept high-level waste and spent nuclear fuel in the next decade. The Energy Department intends to submit a license application for Yucca Mountain in mid-2008. The controversy over DOE waste incidental to reprocessing appears to have been resolved by redefining high-level radioactive wastes as excluding the residue in high-level waste storage-tanks. However, Congress has requested the National Research Council to study DOE's plans to manage the residual tank waste and report on the adequacy of the plans ( P.L. 108-375 ). The DOE also operates the Waste Isolation Pilot Plant in New Mexico to dispose of the transuranic waste generated by the weapons program. New Mexico's Governor, concerned that waste incidental to reprocessing could end up at WIPP, ordered the state's Department of Environmental Management to amend WIPP's hazardous waste permit so that only waste listed on DOE's Transuranic Waste Baseline Report is explicitly permitted for disposal at WIPP. When Congress passed the Low-Level Radioactive Waste Policy Act in 1980, three states—Nevada, South Carolina, and Washington—hosted disposal sites for commercially generated low-level waste. The Act encouraged the formation of multi-state compacts in which one state would host a disposal facility for the member states. The new facilities were to begin operation in by the end of 1985. When it became clear that the deadline would not be met, Congress extended the deadline to the end of 1992 in the amended Act of 1986 ( P.L. 99-240 ). Since then, a new commercial site has been licensed in Utah, and the Nevada site has closed. Much of the low-level waste disposed of as Class A consists of debris, rubble, and contaminated soil from decommissioning DOE and commercial nuclear facilities that contain relatively little radioactivity. These decommissioning wastes make up much larger volumes than low-level waste generated by operating nuclear facilities. The term "low-activity" has been used in describing the waste, although it lacks regulatory or statutory meaning. The National Research Council, in its interim report Improving the Regulation and Management of Low-Level Radioactive Wastes found that the current system of regulating low-activity waste lacked overall consistency. As a consequence, waste streams having similar physical, chemical, and radiological characteristics may be regulated by different authorities and managed in disparate ways. In an Advance Notice of Proposed Rulemaking (ANPR), the EPA proposed analyzing the feasibility of disposing of certain low-activity radioactive wastes in the RCRA Subtitle C (hazardous waste) landfills, provided that legal and regulatory issues can be resolved. The NRC, in collaboration with the state of Michigan, recently permitted certain very low-activity wastes from decommissioning of the Big Rock Point nuclear power plant to be sent to a RCRA Subtitle D (solid waste) landfill, and other states have also determined that solid waste landfills offer sufficient protection for low-activity waste. In a recent decision, however, the NRC rejected a staff proposal to permanently allow disposal of low-activity waste in solid waste landfills. If found to be acceptable, disposing of low-activity waste at RCRA C and D landfills could alleviate the future capacity constraints at the three operating low-level waste facilities. Radioactive waste classification continues to raises issues for policymakers. Radioactive waste generation, storage, transportation, and disposal leave little of the national geography unaffected. The weapons facilities that processed and stored radioactive waste have left a lasting and expensive environmental legacy that the DOE is attempting to remedy by accelerating the cleanup of those contaminated sites. The standards for public exposure to low-level radiation from the repository or cleanup of the weapons facilities have not been reconciled by EPA and NRC. The lower limit on what may be classified as radioactive waste is undefined, and both EPA and NRC jurisdiction overlap on disposal of this waste stream. Glossary Appendix.

Radioactive waste is a byproduct of nuclear weapons production, commercial nuclear power generation, and the naval reactor program. Waste byproducts also result from radioisotopes used for scientific, medical, and industrial purposes. The legislative definitions adopted for radioactive wastes, for the most part, refer to the processes that generated the wastes. Thus, waste disposal policies have tended to link the processes to uniquely tailored disposal solutions. Consequently, the origin of the waste, rather than its radiologic characteristics, often determines its fate. Plutonium and enriched uranium-235 were first produced by the Manhattan Project during World War II. These materials were later defined by the Atomic Energy Act of 1954 as special nuclear materials, along with other materials that the former Atomic Energy Commission (AEC) determined were capable of releasing energy through nuclear fission. Reprocessing of irradiated nuclear fuel to extract special nuclear material generated highly radioactive liquid and solid byproducts. The Nuclear Waste Policy Act of 1982 (NWPA) defined irradiated fuel as spent nuclear fuel, and the byproducts as high-level waste. Uranium ore processing technologically enhanced naturally occurring radioactive material and left behind uranium mill tailings. The fabrication of nuclear weapons generated transuranic waste. Both commercial and naval reactors continue to generate spent fuel. High-level waste generation has ceased in the United States, as irradiated fuel is no longer reprocessed. The routine operation and maintenance of nuclear reactors, however, continues to generate low-level radioactive waste, as do medical procedures using radioactive isotopes. The NWPA provides for the permanent disposal of spent nuclear fuel and high-level radioactive waste in a deep geologic repository. The repository is to be constructed and operated by the Department of Energy (DOE) under the Nuclear Regulatory Commission's (NRC) licensing authority. Yucca Mountain, in Nevada, is the candidate site for the nation's first repository. The NRC and the Environmental Protection Agency (EPA) share regulatory authority for radioactive waste disposal. However, these regulatory agencies have yet to adopt uniform radiation protection standards for disposal sites. The NRC's jurisdiction, however, does not extend to DOE's management of defense-related waste at DOE facilities other than Yucca Mountain. Radioactive waste classification continues to raise issues for policymakers. Most recently, DOE policy on managing the residue in high-level waste storage tanks proved controversial enough that Congress amended the definition of high-level waste. The disposition of waste with characteristics left undefined by statute can be decided by an NRC administrative ruling. The case for low-activity waste promises to provoke similar controversy. This report will be updated as new radioactive waste classification issues arise.

Types of Pension Plans Defined Benefit and Defined Contribution Plans There are two categories of pension plans under federal law: defined benefit plans and defined contribution plans. In a defined benefit plan, an employee is promised a specified future benefit, traditionally an annuity beginning at retirement. The amount of the annuity is generally determined by a formula that factors in the employee's years of employment and the average salary of the employee's highest salaried years. Other factors, such as age, may be included. To fund the plan, the employer makes contributions to the common pension fund that are actuarially expected to grow through investment to cover the promised benefits. The employer bears the risk that the investments will not provide adequate funds and is responsible for any shortfalls. If the plan is terminated, the benefits are insured (up to a certain limit) by the Pension Benefit Guaranty Corporation. An employee who terminates employment before retirement will generally receive any vested benefits as an annuity at normal retirement age. In a defined contribution plan, the employee is promised that the employer will currently make a specified contribution to the employee's pension account. The contribution is commonly a percentage of the employee's salary. Due to the risk of investment, the value of the account at the time of retirement is unknown. The employee bears the investment risk, and the benefits are not insured by the Pension Benefit Guaranty Corporation. An employee who terminates employment before retirement may generally receive any vested benefits as a lump-sum payment at the time of termination. In the past several decades, plans have been developed that modify the traditional defined benefit plan. These plans are referred to as hybrid plans because they are defined benefit plans that conceptualize the benefits in a manner similar to defined contribution plans. One type of hybrid plan is the cash balance plan. Cash Balance Plans Cash balance plans are defined benefit plans that look like defined contribution plans because the employee's promised future benefits are stated as the individual's account balance. The account is hypothetical ( i.e., each employee does not actually have an account) and is used to conceptualize the amount of benefits the employee has accrued. The account reflects employer contributions that are a percentage of annual compensation (called pay credits ) and interest earned on those contributions (called interest credits ). These interest credits typically continue even if the plan participant ceases employment. The interest rate may be fixed or tied to an index rate and is specified in the plan. The plan may use other factors in its benefit formula, such as age and length of service. In a cash balance plan, the employer currently contributes to the general pension fund. The employer bears the risk that the fund's investments will provide the promised benefits. In the event of plan termination, the benefits are insured by the Pension Benefit Guaranty Corporation, up to a statutory limit. An employee who terminates employment before retirement may generally receive the current value of any vested benefits as a lump-sum payment at the time of termination. Plan Conversions During the past two decades, numerous employers have either converted or considered converting their traditional defined benefit plans to cash balance plans. A conversion to a cash balance plan involves amending the original plan and is not treated as a plan termination. Anti-cutback Rule A conversion is subject to the rules that apply to any plan amendment. An important rule is that once a benefit is accrued, it may only be decreased in limited circumstances and with prior approval by the Treasury Secretary. An amendment may not eliminate or reduce an early retirement subsidy with regard to service that has already been performed. Although a plan amendment may not decrease benefits that are already accrued, it may reduce future benefit accruals because these benefits have not yet been earned. Any amendment that significantly reduces the rate of future benefit accrual requires clearly written notice to affected participants. Claims of Age Discrimination There have been claims that cash balance plans and/or the conversion to such plans violate the laws prohibiting age discrimination. The age discrimination provisions are found in ERISA, the IRC, and the ADEA, although plan participants are able to bring legal actions only under ERISA and the ADEA. All three provisions were added by the Omnibus Budget Reconciliation Act of 1986 (OBRA). Although the language differs slightly, they are intended to be interpreted in the same manner. They are: ERISA § 204(b)(1)(H) [29 U.S.C. § 1054(b)(1)(H)] and IRC § 411(b)(1)(H): [A] defined benefit plan shall be treated as not satisfying the requirements of this paragraph [relating to benefit accrual] if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age. ADEA § 4(j)(1) [29 U.S.C. § 623(i)(1)]: [I]t shall be unlawful for an employer, an employment agency, a labor organization, or any combination thereof to establish or maintain an employee pension benefit plan which requires or permits- (A) in the case of a defined benefit plan, the cessation of an employee's benefit accrual or the reduction of the rate of an employee's benefit accrual, because of age. Two primary claims have been made that cash balance plans or the conversions to such plans violate the law. The first claim is that the plans violate the age discrimination provisions because the rate of an employee's benefit accrual is reduced on account of age. The second claim is that the conversions to the plans violate the ADEA because older workers are treated unfavorably compared with younger workers. The Pension Protection Act of 2006 (discussed below) has significantly affected these claims by adding new requirements that plans must meet to comply with the above statutes. The Act applies only to periods beginning on or after June 29, 2005. Because the majority of cash balance plans existed during periods prior to June 29, 2005, the pre-Act law continues to be relevant to the extent that the legal status of plans during these periods is uncertain. The vast majority of courts, including all of the appellate courts to examine this issue, have found that cash balance plans do not violate the pre-Act age discrimination provisions. However, courts continue to hear these cases. The next sections discuss the basic age discrimination claims and how various courts have dealt with these claims. The final section of this report discusses the Pension Protection Act. Violation of the Age Discrimination Provisions The age discrimination provisions in ERISA, the IRC, and the ADEA prohibit an employee's rate of benefit accrual from being decreased on account of age. Prior to the Pension Protection Act, two basic issues were raised with respect to these provisions: (1) whether the provisions applied to employees challenging the plans who were generally younger than normal retirement age and (2) how to interpret the phrase "rate of benefit accrual." Application of the Age Discrimination Provisions In general, the employees claiming age discrimination with respect to cash balance plans have been younger than normal retirement age. Some employers have argued that the age discrimination provisions do not apply to these employees because the legislative history shows that Congress only intended for the age discrimination provisions to require benefit accrual for employees who continued working past normal retirement age. In response, employees have emphasized that the statutes' plain language is not limited to employees older than normal retirement age, the ADEA applies to everyone who is at least 40, and ERISA gives standing to any plan participant without reference to age. Courts considering these claims have come to various conclusions. The Pension Protection Act does not address this issue. Rate of Benefit Accrual The second issue with respect to the age discrimination provisions has been how to determine an employee's "rate of benefit accrual" under a cash balance plan. Those claiming discrimination have argued that the phrase is defined with reference to an annuity that begins at normal retirement age ("age 65 annuity"). The argument has been based on three ideas: cash balance plans are a type of defined benefit plan, the "accrued benefit" of a defined benefit plan is defined as being "in the form of an annual benefit commencing at normal retirement age," and an accrued benefit that is defined in a different form must be converted into such an annuity. The claim has been that this framework requires the benefits in a cash balance plan, conceptualized as an account balance, be converted into an age 65 annuity in order to test for age discrimination. When the benefits are expressed as an age 65 annuity, the cash balance formula appears to violate the pre-Act age discrimination provisions because the rate of benefit accrual decreases as the employee's age increases. This is because of the interest credit and the effect of compounding interest—as an employee's age increases, the rate of benefit accrual decreases because the contributions made in each subsequent year have less time to earn interest, resulting in a decreasing impact on the amount of the age 65 annuity. Those claiming the plans are not discriminatory have responded that there is nothing that requires an age 65 annuity be used to test for age discrimination because the phrase "rate of benefit accrual" is not defined in the statutes and the term "accrued benefit" has various usages in ERISA and the IRC. They have argued that instead of using an age 65 annuity, the rate should be tested using the amount that is in the employee's hypothetical account because that is how benefits are expressed in cash balance plans. Under this argument, the "rate of benefit accrual" refers to the rate at which the contributions are made to that account. When the rate of benefit accrual is expressed in this manner, cash balance plans do not inherently violate the age discrimination provisions because the rate at which contributions are made to the account over the employee's years of service is generally constant or increases if the plan is weighted for age. One case to examine this issue, Cooper v. IBM Pers. Pension Plan , has received significant attention. In 2003, a U.S. district court held that IBM's cash balance plan violated ERISA § 204(b)(1)(H). The court began by noting that although ERISA did not explicitly address whether an age 65 annuity should be used to test cash balance plans for age discrimination, the term "accrued benefit" was expressed for defined benefit plans as an age 65 annuity under ERISA § 3(23). The court concluded that because a cash balance plan was a type of defined benefit plan, an age 65 annuity must similarly be used to express its benefits. The court noted that the terms "accrued benefit" in ERISA § 3(23) and "benefit accrual" in ERISA § 204(b)(1)(H) were not identical, but discounted its significance by finding the different terms merely reflected correct grammatical usage and pointing out that the term "accrued benefit" was used in the subsection immediately prior to ERISA § 204(b)(1)(H), which also dealt with age discrimination. The court found that when the age 65 annuity was used to determine whether the rate of benefit accrual decreased on account of age, the plan violated ERISA because of the interest credit component. This was because the continued crediting of interest made the expected benefit greater for younger employees than for older employees, because younger employees had more years in which to earn interest. Although the case dealt only with the IBM plan, the court's reasoning indicated that cash balance plans were inherently discriminatory. In August 2006, the Seventh Circuit reversed and remanded the case. The court found that the fact that younger employees had more time to accrue interest on their account balances than older employees did not translate into age discrimination. In determining that IBM's cash balance plan was age-neutral, the court found that the terms "benefit accrual" and "accrued benefit" were not synonymous and that "rate of benefit accrual" did not have to be determined based on an age 65 annuity. The rate of "benefit accrual," according to the court, refers to what the employer contributes to an employee's account, whereas "accrued benefit" refers to the monetary gain between contribution and retirement. The court also defended IBM's plan by comparing the age discrimination provisions for defined benefit and defined contribution plans. Under the age discrimination provision for defined contribution plans, a continued crediting of interest would be acceptable. The court reasoned that because the IBM plan would have unquestionably met the requirements of the age discrimination provision for defined contribution plans, and because the structure and function of both age discrimination provisions were similar, the continued receipt of interest aspect of IBM's cash balance plan should not be considered discriminatory. The court also rejected the plaintiff's proposition that IBM's plan was age discriminatory because employees received more favorable benefits under the prior plan. The court explained that IBM was free to make this decision, provided it did not reduce an employee's vested interests. In November 2006, the plaintiffs filed a petition for review with the Supreme Court, but the Court denied the petition on January 16, 2007. A majority of courts, including every federal appellate court to have considered this issue, reached a similar conclusion to the Seventh Circuit's decision in Cooper . These courts have generally found that "rate of benefit accrual" is determined based on an employer's contributions to a plan (or "inputs"), not a difference in an older employee's retirement benefit ( i.e. , an age 65 annuity, or "outputs"). In other words, courts have found that plans are not inherently age discriminatory just because a younger employee receives more interest credits than an older employee. This issue was perhaps most contentious in the Second Circuit, where multiple district courts held that cash balance plans violated the age discrimination prohibitions. However, in Hirt v. Equitable Ret. Plan for Employees, Managers and Agents , the Second Circuit Court of Appeals joined the other circuits and found that cash balance defined benefit plans do not, by definition, violate ERISA's prohibition against age-based reductions in the rate of benefit accrual. Based on the Hirt decision, commentators have suggested that this case may be the "nail in the coffin" for these types of age discrimination claims. Claims that Conversions Violate the ADEA Courts have also examined whether conversions to cash balance plans violate the ADEA under two additional discrimination theories: disparate treatment and disparate impact. A disparate treatment claim requires an employee to show that the employer intentionally discriminated against the employee on the basis of age. With a disparate impact claim, an employee must show that the employer's actions, while neutral on their face, actually had a disproportionate adverse impact on older workers. Here, the argument is that, compared with younger workers, older workers fare poorly when plans convert to cash balance plans. Disparate impact claims arise more often because of the difficulty of proving intentional discrimination by the employer in the adoption of or conversion to a cash balance plan. Although the Pension Protection Act of 2006 may preclude some future disparate treatment or disparate impact claims, some have argued that some claims may still be available. However, multiple courts interpreting the age discrimination provisions have concluded that plaintiffs cannot recover under ADEA § 4(i) if their claims under ERISA § 204(b)(1)(H)(i) do not succeed. Disparate Treatment Claims Proponents of the discrimination claims argue that a conversion to a cash balance plan that the employer knows will treat older workers less favorably than younger workers is evidence of intentional discrimination. Opponents respond that the fact employers may know that older employees will be treated less favorably under the cash balance plan is not evidence of individualized discrimination. Further, opponents note that employers may refute the claim by showing there was a reasonable basis for the conversion other than age and that there are numerous reasons for an employer to convert to a cash balance plan, including attractiveness to employees and decreased costs of administering the plan. Disparate Impact Claims Proponents of the discrimination claims under a disparate impact theory argue that although the conversion to a cash balance plan may be a facially neutral decision, it has a disproportionate adverse impact on older workers. There are two primary claims that may be made. The first is that older employees lose the expected benefits of the traditional plan without gaining the benefits from the new cash balance plan. The formula under a traditional defined benefit plan is weighted towards longer-serving employees so that employees accrue significant benefits in their later years of employment. Thus, older employees may have worked for years under the traditional plan with the expectation that they would accrue significant benefits in their final years. However, because benefits under a cash balance plan are accrued at a more constant rate over the employee's years of service, these employees lose the opportunity for the increased accrual. At the same time, because the older workers are near retirement, they are unable to take advantage of the compounding interest feature of the cash balance plan. The second argument concerns the issue of "wear-away," which proponents of the discrimination claims argue disproportionately affects older workers. Wear-away occurs when the value of the employee's accrued benefits under the traditional plan exceeds the starting balance of the hypothetical account, which is provided in the terms of the plan conversion. The employee is guaranteed the benefits that he or she accrued under the old plan. The employee will not accrue any additional benefits until he or she earns enough benefits under the cash balance plan so that the value of the hypothetical account exceeds the value of the benefits earned under the traditional plan. Thus, the level of the employee's benefits is basically frozen until that point is reached. Proponents argue that this wear-away hits older employees the hardest because they are more likely to have high starting balances. The Pension Protection Act of 2006 contains a provision to eliminate wear-away. However, the provision applies only to plan conversions occurring after June 29, 2005. Plans converted prior to this date may still be subject to wear-away claims. Two main arguments have been made against disparate impact claims under the ADEA, both in general and in the context of cash balance plans. First, opponents have argued that in individual cases, plaintiffs had failed to exhaust the administrative remedies, specifically, by failing to file a timely complaint with the Equal Employment Opportunity Commission (EEOC). However, it is possible that these cases may now go forward in light of the recently enacted Lilly Ledbetter Fair Pay Act, signed by President Obama on January 29, 2009. This Act, enacted to overturn the Supreme Court's decision in Ledbetter v. Goodyear Tire and Rubber Company , addresses the time limits that workers alleging pay discrimination in the workplace have to file a charge. The Act provides that the filing periods (300 days in most states and 180 days in the few states that do not have a state fair employment agency) are triggered each time compensation is paid pursuant to a discriminatory compensation decision or practice. In one cash balance plan case, Tomlinson v. El Paso , the court had relied on the Ledbetter decision in finding the plaintiff's ADEA claim time-barred. The plaintiff recently filed a motion to reconsider, in light of the recent Ledbetter legislation. Second, opponents have argued that the claims should be dismissed because under the ADEA it is not illegal for an employer "to take any action otherwise prohibited ... where the differentiation is based on reasonable factors other than age...." In other words, the argument is that disparate impact claims cannot be brought under the ADEA. This argument was supported by the fact that, in cases not dealing with cash balance plans, the majority of the federal circuits that considered the issue had not recognized disparate impact claims under the ADEA. Prior to 2005, the argument that disparate impact claims against cash balance plans should be dismissed (because such claims are not recognized under the ADEA) was successful; however, in 2005, the Supreme Court held that disparate impact claims are allowed under the ADEA. In Smith v. City of Jackson , the Court found that a salary plan that provided proportionately higher raises for employees with less work experience (who were typically younger in age) than for more experienced employees did not violate the ADEA. Although the Court found that the ADEA claim failed in this instance, the Court made clear that plaintiffs are not barred under the ADEA from bringing claims under a disparate impact theory of liability. Pension Protection Act of 2006 P.L. 109-280 On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 ( P.L. 109-280 ). The Act clarifies, among other things, the legality of cash balance plans if a plan meets certain requirements. In regard to the age discrimination provisions, the Act amends ERISA, the IRC, and the ADEA and provides standards under which a cash balance plan will be inherently non-discriminatory. These standards concern (1) the rate of benefit accrual, (2) the amount of interest credits, and (3) conversions to cash balance plans. The IRS has recently issued proposed regulations that provide guidance as to how these standards are to be implemented. The Act amends the benefit accrual requirements of ERISA, the IRC, and the ADEA. Under the Act, a plan is not considered age discriminatory if a participant's entire accrued benefit, as determined under the plan's formula, is at least equal to that of any similarly situated, younger individual. "Similarly situated" is defined as an individual who is identical to the participant in every respect (except age), including length of service, compensation, position, and work history. The Act provides that benefits may be expressed in the form of an annuity payable at normal retirement age, a hypothetical account balance, or the current value of the accumulated percentage of the employee's final average compensation. Also, in determining a plan participant's accrued benefit, any subsidized portion of an early retirement benefit or retirement type subsidy is disregarded. The Act also creates new rules for "applicable defined benefit plans," which include cash balance plans. Under the new rules, a cash balance plan will violate the age discrimination provisions of ERISA, the IRC, and the ADEA unless it meets an interest credit requirement. A plan satisfies the interest requirement if the terms of the plan provide that any interest credit (or equivalent amount) for a plan year is at a rate that is not more than the market rate of return, and not less than zero. The Secretary of the Treasury is expected to provide guidance as to the calculation of the market rate, as well as permissible methods for crediting interest to a participant's account ( e.g. , fixed or variable interest rates). The Act includes new requirements for plan conversions. If a defined benefit plan is converted into a cash balance plan after June 29, 2005, the plan will not satisfy the age discrimination provisions unless each participant receives the sum of (1) the pre-conversion accrued benefit determined under the prior plan formula plus (2) the post-conversion accrued benefit determined under the cash balance plan formula. A newly converted plan must also credit a participant with the amount of any early retirement benefits or retirement-type subsidies if the participant has met the requirements for the benefit or subsidy under the prior plan. The Act also makes clear that certain circumstances do not violate the age discrimination provisions. Under the Act, a plan will be considered non-discriminatory if the plan allows for certain offsets of benefits to the extent the offsets comply with ERISA, the IRC, and the ADEA. A plan will also be treated as non-discriminatory if a disparity in plan contributions or benefits exists, so long as the disparity is in accordance with the IRC. Finally, the Act states a plan would still comply with the age discrimination standard even if it allowed for pre-retirement indexing of accrued benefits (pre-retirement indexing provides for adjustments in accrued benefit based on a recognized investment index or methodology). If a plan provides for indexing of accrued benefits, an employee's benefit amount may be protected from being devalued due to inflation. In general, the new provisions regarding cash balance plans are effective for periods beginning on or after June 29, 2005. For plans in existence on this date, the new interest credit requirements apply to years beginning after December 31, 2007. The provision relating to plan conversions applies to conversions adopted on or after June 29, 2005. The Act expressly provides that nothing in it should imply that cash balance plans were age discriminatory prior to the Act's effective dates. Thus, for periods not covered by the Act, the issue of whether cash balance plans are age discriminatory still remains and continues to be evaluated by the courts.

Both federal courts and Congress have recently addressed the issue of whether cash balance pension plans violate federal laws that prohibit age discrimination. The relevant age discrimination provisions are found in the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC), and the Age Discrimination in Employment Act (ADEA). Two primary claims have been made: (1) that cash balance plans inherently violate the age discrimination provisions because the rate of benefit accrual is decreased on account of age and (2) that the conversion of traditional defined benefit plans to cash balance plans violates the ADEA because of the negative impact on older workers. While certain district court decisions have held that cash balance plans violate the age discrimination provisions, all appellate courts to evaluate this issue have found that the plans are not age discriminatory. In a case that has received significant attention, Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006), the Seventh Circuit reversed one of the district courts and found that IBM's cash balance plan did not violate ERISA's age discrimination provision. The Pension Protection Act of 2006 (P.L. 109-280) sets out new standards that a cash balance plan must meet in order to comply with the age discrimination provisions. These new standards apply only to periods beginning on or after June 29, 2005, and leave the age discrimination issue unsettled under prior law. This report describes cash balance plans, discusses the claims that cash balance plans do and do not violate the pre-Act age discrimination provisions, and provides an overview of the Pension Protection Act, as it applies to this issue.

Federal Government Resources The following information includes general sources on federal student aid (FSA) programs, and on federal departments and agencies' scholarships, grants, fellowships, internships, and cooperative education programs. Federal resources related to health professions and veterans are in the " Selected Specialized Aid Examples " section of this report. In addition, federal departments and agencies may have loan repayment or forgiveness programs available for employees, interns, or fellows. CareerOneStop. Sponsored by the U.S. Department of Labor https://www.careeronestop.org/ This website provides information on more than 7,500 scholarships, fellowships, loans, and other financial aid opportunities. Users can search by keyword or by category (e.g., Award Type, Residence Preferences, Study Level, and Affiliation Restrictions). http://www.careerinfonet.org/scholarshipsearch/ScholarshipCategory.asp?searchtype=category&nodeid=22 CareerOneStop also provides several ways to access information about occupations, such as job duties, potential earnings, and required education or training. The information on careers is based on the U.S. Department of Labor's Bureau of Labor Statistics' long-standing compilation, Occupational Outlook Handbook , available at https://www.bls.gov/ooh/home.htm . Toolkit at a Glance at https://www.careeronestop.org/Toolkit/toolkit.aspx provides an overview of the website components in the categories: careers, training, and jobs. GetMyFuture at https://www.careeronestop.org/GetMyFuture/default.aspx provides career, training, and job search resources to young adults aged 16 to 24. Resources For at https://www.careeronestop.org/ResourcesFor/resources-for.aspx provides access to types of careers, training requirements, and job availability by the type of individual (e.g., young adult (GetMyFuture section), entry-level worker, older worker, laid-off worker, and career changer, among other categories). U.S. Department of Education. Federal Student Aid http://studentaid.ed.gov/ This site gives general information on the major federal student aid programs, including grants, loans, work-study assistance, and tax credits. It describes loan deferment, cancellation, and consolidation, and dealing with loans that are in default. An individual who seeks to obtain FSA is to complete the free application for federal student aid (FAFSA). The site includes a link to fill out the FAFSA electronically. The site also provides students an overview on grants and scholarships. U.S. Office of Personnel Management. Pathways http://www.usajobs.gov/StudentsAndGrads This website provides information on educational opportunities offered by federal departments and agencies, including, fellowships, internships, and cooperative education programs. Financial Planning for College The following information includes general sources on financial planning for college. The sources include explanations on both federal and institutional approaches to determining eligibility for financial aid, calculating college costs, types of financial aid (e.g., scholarships, grants, loans, internships, fellowships), the processes for applying for financial aid, and other financial aid resources (e.g., organizations, foundations). Several of the resources listed below under Financial Aid Searchable Databases also include information on planning for college. Center for Student Opportunity (CSO). I'm First! http://www.imfirst.org/ An online community founded by the Center for Student Opportunity to provide first-generation college students with support, advice, and encouragement on the road to and through college. Dashboard. MyCollegeMoneyPlan.org http://www.mycollegemoneyplan.org/ A free online course to help students and their families learn how to plan for the costs of higher education and gain money. Free registration is required. Get Schooled https://getschooled.com/dashboard An online hub offering prospective students, especially low-income students, personalized college information, including navigating the college-selection process and finding money for college. Free registration is required. Go College.com http://www.gocollege.com/ A website providing information on college admissions, types of colleges, financial aid, and college "survival" tips. Mapping Your Future http://www.mappingyourfuture.org/ Sponsored by a group of student loan guaranty agencies, this site covers selecting a school and planning a career and includes a step-by-step guide on paying for school. Princeton Review http://www.princetonreview.com/ This internet resource guide for students provides information on schools and careers, postsecondary standardized exams and improving test scores, and scholarships and financial aid. Free registration is required. Articles on scholarships and financial aid are at http://www.princetonreview.com/college-advice#s2 . Reference Service Press. Financial Aid Info Center http://www.rspfunding.com/finaidinfo.html An internet resource guide for students on schools and careers, including a financial aid timeline, a glossary, a state financial aid directory, and a news center (includes articles on college costs, student aid, student loans, filling out the FAFSA, prepaid tuition and college savings plans, education tax breaks, and scholarship scams). Sallie Mae Fund. College Planning https://www.salliemae.com/college-planning/ This website covers all stages of preparing for and financing a college education (for undergraduate and graduate students) and includes a database of more than 5 million undergraduate scholarships and 850,000 graduate school scholarships. Free registration is required for scholarship searches. Savingforcollege http://www.savingforcollege.com/ A guide to affording the college of one's choice; comparing college savings alternatives, such as 529 plans, Coverdell education savings accounts, UGMA (Uniform Gift to Minor's Act) and UTMA (Uniform Transfer to Minor's Act) accounts, and taxable investment accounts; transferring assets between accounts; financial aid considerations; and putting a college savings plan together. It includes state-by-state comparisons of all 529 programs. U.S. News and World Report . Paying for College—Undergraduate http://www.usnews.com/education/best-colleges/paying-for-college?s_cid=content-center:college-hp This website provides tips, tools, and articles on paying for college for undergraduate students. U.S. News and World Report . Paying for College—Graduate http://www.usnews.com/education/best-graduate-schools/top-graduate-schools/paying?s_cid=content-center:grad-hp This website provides tips, tools, and articles on paying for college for graduate students. QuestBridge http://www.questbridge.org/ This site provides "a single, internet-based meeting point linking talented low-income students with colleges, scholarship providers, enrichment programs, employers, and organizations seeking students who have excelled despite obstacles." Financial Aid Searchable Databases The following websites allow students (usually after completing a free registration process) to conduct and save scholarship, grant, and loan searches. Many of the websites can be searched by general eligibility criteria, such as by academic discipline, GPA, gender, residency, race and ethnicity, disability, religion, college type (community, public, or private), location of college, area of study, enrollment level, and by keywords. Some descriptions include information on how scholarships are searched in the particular site. Note that terms may be defined differently across the sites. In addition, included is information on whether the site requires free registration or has a stated site policy on sharing student's information with third parties. Individuals should assess the site policies for themselves before using the resource. Adventures in Education (AIE) http://www.aie.org/ An internet resource guide for students, parents, and families on planning and paying for college, and managing money. AIE Scholarship database of more than 15,000 scholarships at https://www.aie.org/resources/scholarship-search/ can be searched by exact phrase or any words in the name or description. Cappex. Scholarship Search http://www.cappex.com/page/account/createStudent.jsp?brand=lrnSch Database of scholarships and merit aid offered by colleges. Free registration is required. CheapScholar.org. Scholarships Database http://cheapscholar.org/about/scholarship-database/ Database of more than 3 million scholarships. No login required, but user must begin search by providing information on: gender, state, career goals, interests, religious affiliation and more. College Board. BigFuture https://bigfuture.collegeboard.org/ This is a guide to the college application process, including finding the right colleges and financial aid, preparing for the SAT and other tests, and exploring career options. It includes a search function for undergraduate scholarships, loans, internships, and other financial aid programs from non-college sources. Scholarship Search at https://bigfuture.collegeboard.org/scholarship-search is a d atabase of more than 2,200 funding sources, including scholarships, internships, grants, and loans. Collegedata.com. Pay Your Way and Scholarship Finder http://www.collegedata.com This website provides an overview on paying for a college education. The Pay Your Way section includes a free searchable scholarship database that does not require registration to conduct searches. Registration is required for saving search results. Scholarships can be searched by eligibility criteria, such as by GPA, gender, residency, ethnicity/heritage (category includes race), religion, location of college, area of study, and by keywords. College Grants.org http://www.collegegrants.org/ This site provides an overview of the types of college grants and how to apply for them. Search can be limited by 'study subject,' 'type of student,' 'minorities,' and 'type of grant.' College Greenlight https://www.collegegreenlight.com/ College Greenlight, a service provided by Cappex.com, is a free online resource that addresses the needs of first-generation and underrepresented students. The website provides support to high schools, community-based organizations, parents, and students throughout the college search and admissions process. The website provides college profiles and enables a student to build and organize a college list, rank colleges based on fit, keep track of important application deadlines, and celebrate acceptance letters. Students can generate a list of scholarships for which they are eligible. Registration is required. CollegeNET. Mach25 Scholarship Search https://www.collegenet.com/mach25/app This website provides a single personal profile interface to search for scholarships. Free registration is required to permanently save the contents of one's personal profile and scholarship list. College Scholarships.org http://www.collegescholarships.org/ This is a database of scholarships, grants, and loans. It includes a financial aid blog. Education Corner. Higher Education—College Scholarships, Grants and Fellowships http://www.educationcorner.com/financial-aid-scholarships.html This site provides information on scholarships, grants, and fellowships organized by category (e.g., athletic, disabled, extracurricular activities, GPA, gender, race/ethnicity/heritage, merit and need-based, military personnel, veterans) and alphabetically. Edvisor (formerly CollegeToolKit.com) https://www.edvisors.com/ A website providing information on student financial aid, the FAFSA (Free Application for Federal Student Aid), scholarships, student loans and education tax benefits. The website also offers the free downloadable guide, Filing the FAFSA . Edvisors publishes several free websites to help students and parents plan and pay for college. A summary of these websites is at https://www.edvisors.com/about/web-sites/ . The following are selected Edvisors websites. StudentScholarshipSearch.com is a free online database of scholarships; a scholarship matching tool that asks five things: grade, GPA, state, gender, and ethnic background; and an online scholarship tracker that highlights requirements and deadlines. PrivateStudentLoans.com provides information about private student loans and a list of leading lenders. FastAid Scholarship Search http://www.fastaid.com/ A free searchable scholarship database. Registration is required. FastWeb, Inc. FastWeb http://fastweb.monster.com/ A free searchable database of college profiles, scholarship descriptions, and general financial aid resources, including budgeting calculators (e.g., College Cost Projector, Education Loan Payments Calculator, and College Savings Plan Calculator). Registration is required for scholarship search. The individual scholarship search matches students with eligibility requirements for 1.5 million scholarships from around the country based on profile data entered by the student. FindTuition.com http://www.findtuition.com/ A free database of more than 1.7 million scholarships and information on financial aid programs. Registration is required. It includes a financial aid blog. This website has a stated site policy that students may opt out of receiving information from colleges and other marketing partners of the site. FinAid! The SmartStudent Guide to Financial Aid http://www.finaid.org This website lists federal, state, and private loans, scholarships, military aid, student profile-based aid, and aid for graduate and professional school. The site includes financial aid forms and calculators, FAQs about financial aid, and an email link for personalized help. As an example, students can search the website using descriptive terms (e.g., adult or female ) to locate relevant information on sources of financial aid (e.g., topic overviews, lists of books on aid for specific types of students). Foundation Center http://www.foundationcenter.org/ The Foundation Center provides information on the grant seeking process, private funding sources (including national, state, community, and corporate foundations), guidelines on writing a grant proposal, addresses of libraries in every state with grant reference collections, and links to other useful websites. The center maintains a comprehensive database on foundation grantsmanship, publishes directories and guides, conducts research and publishes studies in the field, and offers a variety of training and educational seminars. Information is available in a variety ways, including by subscription, by individual fee, and for free. The center collaborates with libraries and other organizations around the country—called Funding Information Network (FIN) locations—to provide access to its electronic and print resources. Specific FIN locations can be identified using this interactive map . Although most foundation funding is awarded to nonprofit organizations, the following resources are some examples of the information available for the individual grantseeker pursing financial support for their postsecondary educational studies and research: Welcome Individual Grantseekers at https://grantspace.org/search/topic/support-for-individual-grantseekers/ . KnowledgeBase Resources for Individual Grantseekers: Undergraduate Student at https://grantspace.org/resources/knowledge-base/funding-for-undergraduate-students/ includes recorded webinars on scholarships and loans . KnowledgeBase Resources for Individual Grantseekers: Graduate Student at https://grantspace.org/resources/knowledge-base/funding-for-graduate-students/ includes recorded webinars on scholarships and loans. Finding Foundation Support for Your Education (free online training course) at http://grantspace.org/tools/multimedia/webinars/finding-foundation-support-for-your-education . Foundation Grants to Individuals Online subscription database contains "over 10,000 foundation and public charity programs that fund students, artists, researchers, and other individual grantseekers" at https://gtionline.foundationcenter.org/ . Michigan State University. Grants for Individuals http://staff.lib.msu.edu/harris23/grants/3subject.htm Sponsored by the Michigan State University Libraries, this site indexes financial aid by academic level, population group, and academic subject. Peterson's http://www.petersons.com/ Internet resource guide for parents and students (including international students) regarding preparing for, selecting, and paying for undergraduate, graduate, and online and continuing education, state-sponsored scholarships and college-based awards programs. Free registration is required for scholarship search. Sallie Mae Fund. Undergraduate School Scholarships https://www.salliemae.com/college-planning/college-scholarships/?lnkid=SM-PlanHP-getstarted-scholarships A free searchable database of more than 5 million undergraduate scholarships. Registration is required. Sallie Mae Fund. Graduate School Scholarships https://www.salliemae.com/student-loans/graduate-school-information/graduate-school-scholarships/ A free searchable database for current and prospective graduate school and professional students and is home to more than 850,000 graduate school scholarships worth more than $1 billion. Registration is required. Scholarship America http://scholarshipamerica.org/index.php Scholarship America is a provider of private scholarships, having distributed over $3.7 billion to more than 2.3 million students. Free registration is required. The website provides information on local affiliates that support student access to higher education and scholarships managed by the organization. Scholarship America has three major programs listed at https://scholarshipamerica.org/what-we-do/students-parents/ . ScholarshipHunter.com http://www.scholarshiphunter.com/home.html Scholarship Hunter provides a list of scholarships classified by criteria such as academic major or state. The lists include captions about each scholarship and links to a detailed page of information on the scholarship including how to apply. Scholarships.com. Scholarship Search http://www.scholarships.com/scholarship-search.aspx Database of more than 3.7 million college scholarships and grants. Free registration is required. Student establishes a profile of their specific skills, talents, interests, and abilities. Site matches college scholarship and grant awards to individual student. Site asks initially whether student's information may be shared with third parties when registering and when site displays a potential scholarship or grant match. Site also offers information on loans and grants. Scholarship Sharing http://www.scholarshipsharing.org/ Scholarship Sharing is dedicated primarily to helping connect Virginia and Washington, DC, students to resources for paying for college and avoiding loan debt, the scholarships and educational resources listed are for students nationally. The Scholarship Database section at https://www.scholarshipsharing.org/scholarships includes lists of scholarships in many different categories: K-12 scholarships; undergraduates; graduates; community colleges; Historically Black Colleges and Universities (HBCUs); homeschool students; vocational, technical and trades; adults; women; minorities; veterans, spouses, and dependents; documented and undocumented immigrants; individuals impacted by cancer; foster care and adopted youth; LGBTQ; physical and learning disabilities; disciplines (criminal justice, forensic science, homeland security, and intelligence; business, accounting, finance, insurance majors; education majors; arts; law; health care; nursing; occupational and physical therapy majors; mass communication; STEM [Science, Technology, Engineering and Mathematics]; social sciences); religious; Scouts; student athletes; first responders; and students affected by trauma. All the compilations are available in Word document or PDF format. A tracking sheet document is also available in Word document or PDF format. Supercollege.com. Find Free Cash For College http://www.supercollege.com Database of more than 2.2 million scholarship programs for high school, college, graduate and adult students. Free registration is required. Unigo https://www.unigo.com/scholarships Website provides searchable databases of colleges and scholarships, and information on student loans. Scholarship database of more than 3.6 million scholarship programs. Free registration is required. Selected Specialized Aid Examples The following resources include examples of funding for specialized educational disciplines (e.g., international studies, health, law, and sports) or students (e.g., adults, athletes, individuals with disabilities, women and minorities, veterans, military personnel and dependents). Identifying organizations related to a student's interest or background is another approach to researching sources of financial assistance. Listed below are several examples of scholarships sponsored by organizations or associations. A list of associations (by interest or characteristic) may be obtained from online searches of Gale 's Regional, State and Local Organizations of the U.S. and the Foundation Directory . Many public and institutions of higher education's (IHEs') libraries provide access to Gale's publications. Adult Students Back to College. Resources for Reentry Students http://back2college.com/ A variety of tools are provided for adults returning to college, such as information on finding a degree program, the application process, financial aid resources, a free email newsletter, and a moderated forum. Practical Psychology Press. Adult Student.com http://adultstudent.com This site provides information for adult students and educators of adult college students on obtaining financial aid and balancing the demands of work and school. Adult Student Connect!, a moderated forum, for returning students and educators, is also available. Athletes Athnet: Get Recruited to Play College Sports https://www.athleticscholarships.net/ This website is for parents and student athletes for building a student athlete's online recruiting profile, identifying a student's top schools, and finding athletic scholarships. Registration is required by identifying an email address and user as a parent or a student. College Sports Scholarships (CSS) https://www.collegesportsscholarships.com This website is for student athletes, their parents, and their coaches. It provides information on college sports scholarships, the sports recruiting process, NCAA and NAIA eligibility, student marketing tips, and how to evaluate college coaches and athletic programs. The website is maintained by former college coaches, college athletes and sports writers. National Collegiate Scouting Association (NCSA), Athletic Recruiting http://www.ncsasports.org/ This website allows students to create a free student athlete recruiting profile that is then shared in a network college coach network. The student must provide a parent's name, email, and phone number to build the profile. Disabled Students DO-IT (Disabilities, Opportunities, Internetworking, and Technology). College Funding for Students with Disabilities http://www.washington.edu/doit/Brochures/Academics/financial-aid.html This website provides a listing of scholarships for college students with disabilities, including learning disabilities. DO-IT serves to increase the successful participation of individuals with disabilities in challenging academic programs, such as those in science, engineering, mathematics, and technology (STEM). Primary funding for DO-IT is provided by the National Science Foundation (NSF), the state of Washington, and the U.S. Department of Education (ED). HSC Foundation. National Youth Transitions Center heath.gwu.edu/ The website provides summary guides to the financial aid process and particular issues of disabled students. See, especially, Financial Aid, Scholarships, and Internships at http://heath.gwu.edu/financial-aid-scholarships-and-internships , Graduate School, Disability, and Financial Aid at http://heath.gwu.edu/graduate-school-disability-and-financial-aid , Internships, Training, and Volunteer Programs at http://heath.gwu.edu/internships-training-and-volunteer-programs , andCollege/University Information and Disability Support Services at http://heath.gwu.edu/collegeuniversity-information-and-disability-support-services . Health Disciplines Students Association of American Medical Colleges (AAMC). Financing Your Medical Education https://www.aamc.org/students/ AAMC provides information on scholarships and government and private loans for pre-medical and medical students and residents. International Study Council on International Educational Exchange (CIEE). Financial Aid http://www.ciee.org/study-abroad/financial-aid/ CIEE provides information on scholarships offered directly by CIEE and links to financial aid offered through other sources, including the International Student Loan Program, Rotary International, and the National Security Education Program. Diversityabroad. International Scholarships & Fellowship Directory http://www.diversityabroad.com/international-scholarships This website provides information on financial resources to travel and study abroad. Scholarships and fellowships can be searched by keywords, country, and subject. Institute for International Education (IIE) http://www.iie.org IIE provides international exchange and training programs around the world administered by the Institute for International Education, including the Fulbright Program. Kantrowitz, Mark. eduPASS! The SmartStudent Guide to Studying in the USA http://www.edupass.org/ Resources for foreign students who wish to study in the United States, including a scholarship search service and information on financing college, passports and visas, English as a second language, and the college admission process. Law Students Law School Admission Council (LSAC). Financial Aid: An Overview http://www.lsac.org/jd/financing-law-school/financial-aid-overview LSAC covers federal and private loans, scholarships, grants from individual law schools and private sources, and loan repayment options. Women and Minority Students American Association of University Women (AAUW) http://www.aauw.org/ The AAUW Local Scholarships and Awards website is available at http://www.aauw.org/what-we-do/educational-funding-and-awards/local-scholarships/ . The site includes the AAUW Branch and State Local Scholarship Clearinghouse Program, a centralized, standardized, online undergraduate scholarship application posting and processing initiative, and information on AAUW Awards. The AAUW Fellowships and Grants website is available at http://www.aauw.org/what-we-do/educational-funding-and-awards/ . The site provides information on Career Development Grants for women with bachelor's degrees who are trying to advance or change careers and for mature women re-entering the work force. American Indian Graduate Center (AIGC) https://www.aigcs.org/aigc-scholarship-fellowship-opportunities The American Indian Graduate Center awards scholarships, fellowships, and loans for service to American Indian and Alaska Native undergraduate and graduate students. Asian American & Pacific Islander Scholarship Fund (APIASF) http://www.apiasf.org/scholarships.html APIASF Includes APIASF scholarships and non-APIASF targeted scholarships for Asian Americans and Pacific Islanders in downloadable PDF compilations, General Opportunities for Asian American and Pacific Islander Students and Opportunities for Native Hawaiians and Pacific Islander Students at http://www.apiasf.org/scholarship_other.html . BlackStudents.com: Scholarships and More for African American Students http://blackstudents.blacknews.com/ BlackStudents.com provides information on scholarships, grants, fellowships, and internships for African American students and other minorities. The website includes college search capabilities and general financial aid resources, including a loan calculator. Hispanic Scholarship Fund (HSF) https://www.hsf.net/scholarship HSF offers scholarships to U.S. citizens or legal permanent residents of Hispanic heritage. Free registration is required. HSF's HSFinder Beta at https://finder.hsf.net/# provides information about scholarships, financial aid, careers, and internships. Jeannette Rankin Foundation Scholarships https://rankinfoundation.org/for-students/jeannette-rankin-eligibility The Jeannette Rankin Foundation awards scholarships to low-income women who are U.S. citizens, aged 35 and older, enrolled in or accepted to a regionally accredited school or a school accredited by the Accrediting Council for Independent Colleges and Schools (ACICS), and pursuing a technical or vocational education, an associate's degree, or a first bachelor's degree. United Negro College Fund (UNCF). For Students https://www.uncf.org/scholarships UNCF covers scholarships awarded by the UNCF and includes an additional scholarship database searchable by major, classification, achievement, and state. Veterans, Military Personnel, and Dependents U.S. Department of Veterans Affairs (VA). Post-9/11 GI Bill and Other Programs—Education Benefits http://www.benefits.va.gov/gibill/ This website provides information on education benefits available to honorably discharged veterans, members of reserve elements of the Army, Navy, Air Force, Marine Corps, and Coast Guard, and members of the Army and the Air National Guard. It also covers educational assistance for survivors and dependents. See also the Resources section. Each year the VA publishes a booklet that provides a basic explanation of education benefits for veterans and their dependents. The 2017 edition of VA's Federal Benefits for Veterans, D ependents and Survivors is available at http://www.va.gov/opa/publications/benefits_book.asp . American Legion Riders. Legacy Scholarship Fund and Samsung American Legion Scholarship http://www.legion.org/scholarships Legacy scholarships, http://www.legion.org/scholarships/legacy , are for dependents of a deceased parent, killed on or after September 11, 2001, while on active duty with the U.S. military or National Guard, or as a federalized reservist; or dependents of post-9/11 veterans having been assigned a combined disability rating of 50% or greater by the Department of Veterans Affairs also qualify. Samsung American Legion Scholarships, http://www.legion.org/scholarships/samsung , are for undergraduate study only and may be used for tuition, books, fees, and room and board. Eligibility is restricted to high school juniors who attend the current session of either the American Legion Boys State or Auxiliary Girls State program and are a direct descendant (i.e., child, grandchild, great grandchild, or a legally adopted child) of a wartime veteran who served on active duty during at least one of the periods of war officially designated as eligibility dates for American Legion membership. Military.com. Education http://www.military.com/education This website is a general guide to the GI Bill, planning for college, and scholarships for veterans and their dependents. It includes information on state educational benefits for veterans and their dependents at http://www.military.com/education/money-for-school/state-veteran-benefits.html . Military Officers' Association of American (MOAA). Educational Assistance http://www.moaa.org/Content/Benefits-and-Discounts/Education-Assistance/Education-Assistance.aspx The MOAA Scholarship Fund offers interest free loans, grants and scholarships for veterans, active-military personnel, and their dependents seeking undergraduate degrees. Pat Tillman Foundation. Tillman Military Scholarship Program http://pattillmanfoundation.org/apply-to-be-a-scholar/ The foundation provides scholarships to active-duty servicemembers, veterans, and military spouses to pursue their postsecondary education at a public or private, U.S.-based accredited institution. The scholarship covers educational expenses, including tuition and fees, books, and living stipend.

Congressional offices are frequently contacted by constituents who are researching how to pay for postsecondary education. This report identifies various online sources targeted to students and parents that provide information on planning and acquiring funds for postsecondary education. Some resources also contain information on repaying, forgiving, or discharging educational debt. Students are often in the best position to determine which aid programs they may qualify for and which best meet their needs. Many of the websites listed in this report enable a student to conduct and save scholarship, grant, and loan searches. This list includes both general sources and those targeted toward specific types of aid and circumstances (e.g., non-need-based scholarships; women and minority students; students studying abroad; or veterans, military personnel, and their dependents). This report is not a comprehensive catalog of resources related to financial aid for students. The selection of a resource for inclusion in this report is based on several criteria, including long-standing history in publishing print guides on financial aid and other college information guides (e.g., College Board, Peterson's, Princeton Review, Reference Service Press), key features or capabilities of the website, or focus on specific topics (e.g., educational disciplines or student characteristics). The resources in this report are provided as examples and the inclusion of resources in this report does not imply endorsement by CRS. Similar guides are available in a variety of formats through libraries, high school guidance offices, college financial aid offices, and on the web.

Introduction Congress uses data from the Uniform Crime Reports (UCR), the National Incident-Based Reporting System (NIBRS), and the National Crime Victimization Survey (NCVS) to inform policy decisions and develop appropriate responses to crime. Such crime data have been used to shape policy in a variety of ways. For example, in the 103 rd Congress, the Community Oriented Policing Services (COPS) program was created to provide state and local law enforcement agencies with grants to help them hire, rehire, and redeploy law enforcement officers to engage in community policing. Congress cited both UCR and NCVS crime statistics when articulating the need for more community policing officers. In addition to shaping policy, Congress has used crime data to develop formula allocations for certain grant programs. For example, the Edward Byrne Memorial Justice Assistance Grant (JAG) program formula uses UCR data to allocate federal funds to state and local governments for criminal justice programs. In the 110 th Congress, two bills have been introduced ( S. 368 and H.R. 1700 ) that would increase authorized funding for and expand the scope of the COPS program. The impetus for the legislation was a recent increase in the violent crime rate as reported by the UCR. Moreover, both the House and Senate Appropriations Committees recommended increased funding for state and local law enforcement to support efforts to fight and prevent crime. The House report that accompanied the House Commerce, Justice, and Science appropriations bill stated that the committee was concerned about the recent increase in the violent crime rate. In addition, the House and the Senate Appropriations Committees increased funding for the Federal Bureau of Investigation (FBI) to hire additional agents to investigate violent crime. The committees felt it was important for the FBI to help state and local law enforcement investigate violent crime in light of the recent increase in the violent crime rate. The aforementioned legislation and congressional action were based on crime data collected by the UCR and the NCVS. Because of the importance of crime data in both shaping policy and allocating federal funding, it is important to understand how each program collects data and the limitations of the data. This report reviews (1) the history of the UCR, the NIBRS, and the NCVS; (2) the methods each program uses to collect crime data; and (3) the limitations of the data collected by each program. The report then compares the similarities and differences of UCR and NCVS data. It concludes by reviewing issues related to the NIBRS and the NCVS. Uniform Crime Reports When the UCR was established in the late 1920s, it represented the first national, standardized measure of the incidence of crime. It was originally conceived as a way to measure the effectiveness of local law enforcement to provide law enforcement with data that could be used to help fight crime. UCR data are now used extensively by academics and government officials for research, policy, and planning purposes, and the data are widely cited in the media. The UCR also provides some of the most commonly cited crime statistics in the United States. An effort is currently underway to replace the UCR with the NIBRS, a more detailed version of the UCR. However, the transition from the UCR to the NIBRS has been slow. UCR's History In 1927, the International Association of Chiefs of Police (IACP) formed the Committee on Uniform Crime Records (the Committee) to develop a system for collecting uniform crime statistics. The IACP felt that a national system of crime reporting would put inevitable (and unpredictable) swings in the number of reported crimes in a single jurisdiction into a proper context. The IACP felt that putting changes in local crime incidence in the proper context would help reduce media pressure on local jurisdictions and police chiefs from sensational or sporadic increases in crime, which had resulted in some police departments "cooking the books" to reduce the amount of recorded crime (though there was no reduction in the amount of crime reported to the police). The Committee decided that offenses known to police would be the most appropriate measure of the incidence of crime in the United States. The Committee—after evaluating various crimes on the basis of their seriousness, frequency of occurrence, pervasiveness in all areas of the country, and likelihood of being reported to the police—identified seven crimes for which local law enforcement would report data to the national program: felonious murder, rape, robbery, aggravated assault, burglary, larceny/theft, and auto theft. The IACP focused on these seven crimes because they were prevalent, generally serious in their nature, widely identified by victims and witnesses as criminal incidents, and most likely to be reported to police. Differences in the way that state criminal codes defined different crimes prevented the IACP from simply aggregating state statistics to count the number of offenses known to police. Thus, the IACP developed standardized offense definitions for the seven offense categories. In 1929, IACP published Uniform Crime Reporting , a manual for police records and statistics, which included uniform definitions for law enforcement agencies to use when submitting data to IACP. In that same year, 400 cities in 43 states and the territories of Puerto Rico, Hawaii, and Alaska submitted statistics to IACP, which published the data in Uniform Crime Reports for the United States and Its Possessions . In 1930, Congress, at the urging of IACP, authorized the Attorney General to collect crime data. The Attorney General designated the FBI as the clearinghouse for crime data collected through the UCR. The scope of the UCR program has continued to expand since it was created. Some of the changes to the UCR program include the following: Starting in 1952, law enforcement agencies began to submit data on the age, sex, and race of people arrested for crimes. Beginning in 1958, the FBI began to estimate annual crime rates for the nation as a whole. Prior to 1958, the FBI did not aggregate the data to the national level because there were not enough law enforcement agencies submitting data to the FBI to allow it to report national crime rates. Instead, the FBI published data in tables only according to the size of the reporting jurisdiction. In 1958, the FBI created a national crime index to serve as a general indicator of criminality in the United States. The national crime index was the total number of reported murder, rape, robbery, aggravated assault, burglary, larceny/theft (over $50), and auto theft offenses. In 1960, the UCR started to collect national statistics on law enforcement officers killed. In 1972, the UCR started to collect specific information on incidents in which law enforcement officers were killed or assaulted. In 1962, the UCR, through the Supplementary Homicide Report (SHR), started to collect data, where available, on the age, sex, and race of murder victims, the weapon used, and the circumstances surrounding the offense. In the late 1960s and throughout the 1970s, there was continued growth of state UCR programs, which served as an intermediary between local law enforcement and the FBI (see below). In 1978, Congress mandated the collection of arson data. In 1982, Congress required the FBI to permanently count arson as a Part I offense (a definition of "Part I offense" is below). The FBI started to publish a "modified crime index," which included the total number of reported index crimes plus the total number of reported arsons. In 1990, following the passage of the Hate Crime Statistics Act ( P.L. 101-275 ), the FBI started to collect data on bias motivation in criminal incidents in which the offense resulted in whole or in part because of the offender's prejudice against a race, religion, sexual orientation, or ethnicity/nationality. In 1994, Congress amended the Act to require the FBI to collect data on incidents in which the offense resulted from the offender's bias against a physical or mental disability. In 2004, the FBI discontinued publishing both the crime index and the modified crime index. Since 2004, the FBI has published only a violent crime total and a property crime total. How UCR Data Are Collected UCR Participation in the United States According to the FBI, 17,456 law enforcement agencies in the United States submitted UCR data in 2005, meaning that 98% of all agencies in the nation participated in the UCR in 2005. Currently, 46 states and the District of Columbia submit UCR data through a state UCR program (see Appendix A ). In the remaining four states, local law enforcement agencies submit UCR data directly to the FBI. In 25 of the states with a state UCR program, law enforcement agencies are required by the state to submit UCR data to the state program (see Appendix A ). State UCR Programs In order for UCR data to be collected from law enforcement agencies and submitted to the FBI, the state UCR programs must meet certain requirements. The FBI established these requirements to ensure consistency and comparability in the data it receives from state UCR programs. The FBI has stated that should circumstances develop whereby a state UCR program does not comply with the requirements, the FBI might bypass the state program and collect UCR data directly from law enforcement agencies in the state. The FBI's requirements for state UCR programs are as follows: UCR program must conform to national UCR program standards, definitions, and information required. The agency responsible for collecting UCR data must have a proven, effective, statewide program, and it must have instituted acceptable quality control procedures. The state crime reporting must cover a percentage of the state's population at least equal to that covered by the national UCR program. The state UCR program must have adequate field staff assigned to conduct audits and assist contributing agencies in record-keeping practices and crime-reporting procedures. The state UCR program must regularly provide the FBI with all of the detailed data collected from individual law enforcement agencies that report to the state UCR program in the form of duplicate returns, computer printouts, and/or appropriate electronic media. The state UCR program must have the proven capability (tested over a period of time) to supply all the statistical data required in time to meet the publication deadlines of the national UCR program. The FBI helps state UCR programs meet these requirements by (1) reviewing and editing data submitted by individual agencies; (2) contacting individual agencies within a state when necessary in connection with crime reporting matters; (3) coordinating with the state UCR program to conduct training on law enforcement record-keeping and crime-reporting procedures; (4) sending reporting forms to state UCR programs so they can be distributed to law enforcement agencies within the state; and (5) coordinating individual law enforcement agency contacts with the state UCR program. The FBI also makes Quality Assurance Reviews (QARs) available to state UCR programs. QARs are voluntary and part of the FBI's triennial audit of states' criminal justice information systems. QARs help ensure that each state UCR program adheres to summary and incident-based (see discussion of the NIBRS below) reporting methods that are consistent with UCR standards, thereby increasing uniformity in the data reported. UCR Data The FBI collects data on the number of offenses known to police, the number and characteristics of persons arrested, and the number of "clearances" for eight different offenses (see Appendix B ), collectively referred to as Part I offenses. Part I offenses include murder and nonnegligent manslaughter, forcible rape, robbery, aggravated assault, burglary, larceny-theft, motor vehicle theft, and arson. The FBI collects data on the number of arrests made for 21 other offenses (see Appendix B ), known as Part II offenses. The UCR is a summary system, meaning that offense data submitted to the FBI by local law enforcement agencies show the total number of known Part I offenses. Likewise, UCR arrest data show the total number of persons arrested by reporting law enforcement agencies. Arrest data submitted to the UCR program by local law enforcement agencies also provide data on the basic characteristics—age, sex, and race—of persons arrested. Because the UCR is a summary system, there is no way to determine whether a particular offense was cleared by an arrest, or whether an arrest was made pursuant to a certain offense. In addition to offense and arrest data, the FBI collects supplemental data on the type and value of property stolen and recovered pursuant to reported crimes. The FBI asks law enforcement agencies across the country to submit data to the UCR program on the number of sworn officers and civilian law enforcement personnel. The FBI, through the UCR's Supplementary Homicide Report (SHR), collects data on the age, sex, and race of murder victims and offenders; the type of weapon(s) used in the murders; relationships between victims and offenders; and the circumstances surrounding each incident. The FBI collects data on incidents in which law enforcement officers are killed, either feloniously or accidently, or assaulted while performing their duties. The FBI also collects data on incidents of hate crime in the United States. For each hate crime incident, law enforcement agencies collect data on the offense type, location, bias motivation, victim type, number of offenders, and the apparent race of the offenders. Law enforcement agencies submit offense, arrest, clearance, and SHR data monthly. Law enforcement agencies submit data on law enforcement officers killed or assaulted only when an officer has been killed or assaulted. The FBI requires law enforcement agencies to submit hate crime data on a quarterly basis. The FBI collects data on the number of sworn officers and law enforcement personnel annually. The FBI publishes offense, arrest, clearance, SHR, and sworn law enforcement officer data in its annual publication Crime in the United States . Data on law enforcement officers killed or assaulted and on hate crimes are published by the FBI in two separate publications: Law Enforcement Officers Killed or Assaulted and Hate Crime Statistics . Scoring and Classifying UCR Data All law enforcement agencies participating in the UCR system must classify and score reported crimes. Classifying criminal offenses refers to the process of translating offense titles used in local and state criminal codes into the standard UCR definitions for Part I and Part II offenses. Scoring criminal offenses refers to counting the number of offenses after they have been classified. The FBI reminds state and local law enforcement agencies that they must classify and score criminal offenses based on records for calls for service, complaints, and/or investigations. According to the FBI, UCR data must reflect offense counts, not the decision of a prosecutor or the findings of a court, coroner, or jury. Uniformity in the classification and scoring of criminal offenses across jurisdictions is essential for maintaining the integrity of UCR data. In general, reporting law enforcement agencies classify and score attempted crimes as though they were completed. For example, an attempt to steal a motor vehicle would be classified and scored as a motor vehicle theft. The only exception to this rule applies to attempted murder, which is classified and scored as aggravated assault. The FBI has instituted three rules—the hierarchy, hotel, and separation of time and place rules—that local law enforcement agencies must apply when they are classifying and scoring criminal offenses. The hierarchy rule states that when multiple Part I offenses occur in a single criminal incident, only the most serious offense is scored and reported to the FBI. The hierarchy of Part I offenses is provided in Appendix C . For example, if an offender raped and then murdered a victim, the reporting law enforcement agency would score only the murder. However, there are exceptions to the hierarchy rule. The hierarchy rule does not apply to cases of arson, which are always scored and reported to the FBI, even if other Part I offenses are committed during the incident. Another exception involves motor vehicle theft. If a motor vehicle is stolen and, by extension, the contents of the vehicle constitute a larceny-theft, only the motor vehicle theft is scored and reported to the FBI, even though larceny-theft ranks higher on the hierarchy of Part I offenses. The final exception to the hierarchy rule involves justifiable homicide. In cases of justifiable homicide, two offenses are scored and reported: one for the felonious offense connected with the offender and one for the justifiable homicide, which is reported as an unfounded murder/nonnegilgent manslaughter. The hotel rule applies only to burglary offenses. In cases where multiple dwelling units under a single manager are burglarized and the offenses are more likely to be reported to the police by the manager rather than the individual occupants, the burglaries are scored as one offense. The hotel rule usually applies to burglaries of hotels, motels, lodging houses, or other places where the lodging of transients is the main purpose. The hotel rule would not apply in instances where multiple units that were leased or rented to tennants were burglarized, such as apartments or offices in a business building. For example, if five hotel rooms were burglarized, it would be scored as one burglary, but if five apartments were burglarized, it would be scored as five burglaries. The separation of time and place rule applies in instances where the same offender commits multiple offenses over a short period of time in different locations. In such cases, the reporting agency treats the offenses as separate events and classifies and scores them accordingly (i.e., applies the hierarchy and/or hotel rule). According to the FBI, the "same time and place" means that the time interval between the offenses and the distance between the locations where they occurred are insignificant. Normally, the offenses must have occurred during an unbroken period of time and at the same or adjoining location(s). However, the time and place rule does not apply in instances where offenses, even if they are committed at different times and places, are a part of continuing criminal activity committed by the same offender(s), and an investigation deems the activity to constitute a single criminal transaction. When scoring offenses, the UCR program distinguishes between crimes against persons (i.e., homicide/nonnegligent manslaughter, rape, and aggravated assault) and crimes against property (i.e., robbery, burglary, larceny-theft, motor vehicle theft, and arson). For crimes against persons, one offense is counted for each victim in the criminal incident. For example, if a gunman shot and killed three people, the reporting agency would report three homicides. For crimes against property, one offense is counted for each distinct operation or attempt in a criminal incident, with the exception of motor vehicle theft, in which case one offense is counted for each stolen vehicle and one offense for each attempt to steal a motor vehicle in a criminal incident. For example, if someone walked into a store, pulled a gun, and robbed five customers, it would be scored as one robbery. In instances where multiple Part I offenses are committed against multiple victims in the same criminal incident, the hierarchy rule is applied first, and then crimes are scored based on whether they were crimes against persons or crimes against property. For example, if an assailant robbed one person and murdered someone who tried to break up the robbery, only the murder would be scored, even though two crimes were committed against two different people in the same criminal incident. In addition to classifying and scoring offense data, law enforcement agencies must classify and score arrest data. In many ways, arrests are classified and scored similar to the way offenses are classified and scored. Arrest data submitted to the FBI reflect the number of people arrested, not the number of charges lodged. For example, if one person is arrested for multiple crimes, the reporting law enforcement agency reports one arrest. However, if one person is arrested multiple times, and there is a separation of time and space between the arrests, each arrest is recorded separately. If a person is arrested for multiple charges, the reporting agency must use only one crime classification when reporting the arrest. Thus, if a person is arrested for both Part I and Part II offenses, the reporting agency ignores the Part II offenses and scores only the most serious Part I crime (see Appendix C ) for which the person was arrested. If a person is arrested for Part II offenses, the reporting agency must determine which is the most serious offense and score an arrest only for that offense. If multiple people are arrested for the same crime, each person is counted as a separate arrest. If a reporting agency determines that someone in custody has committed other crimes, the agency does not report additional arrests; it reports only the original arrest. Development of the NIBRS The data collected and disseminated by the UCR remained largely unchanged over time (i.e., since the beginning of the UCR system in 1929). Starting in the 1970s, consensus grew in the law enforcement community that the UCR needed to be updated to provide more in-depth data to meet the needs of law enforcement into the 21 st century. In response, the FBI, through the Bureau of Justice Statistics (BJS), contracted for a phased study of the UCR program, which culminated with recommendations on how it could be improved. The study's final report, Blueprint for the Future of the Uniform Crime Reporting Program ( Blueprint ), was released in May 1985, and it outlined three areas where the UCR could be enhanced to meet the future needs of law enforcement. The study recommended that law enforcement agencies use an incident-based system to report offenses and arrests. It also recommended that some law enforcement agencies submit incident-based data for all of their known offenses and all arrests (i.e., full participation), while other law enforcement agencies submit only a more limited range of incident-based data for certain crimes (i.e., limited participation). The study also recommended that the national UCR program implement a quality assurance program. Based on the recommendation outlined in the Blueprint , the FBI developed guidelines and design specifications for what would later become the National Incident-Based Reporting System (NIBRS). The FBI chose the South Carolina Law Enforcement Division (SLED) to conduct a pilot study of the newly developed NIBRS guidelines and design specifications. SLED adapted its existing incident-based UCR system to meet NIBRS specifications, and it enlisted the assistance of nine local law enforcement agencies in the state to participate in the pilot study. The pilot study ran from March 1 to September 30, 1987, and it resulted in further refinement of NIBRS's guidelines and specifications. The FBI presented the NIBRS to law enforcement at a national UCR conference in March 1988. The conference gave the FBI the opportunity to receive feedback on the NIBRS from the law enforcement community. According to the FBI, conference attendees overwhelmingly supported implementation of the NIBRS nationwide. Attendees passed three overall recommendations: (1) that there be established a new, incident-based national crime reporting system; (2) that the FBI manage the program; and (3) that an advisory policy board composed of law enforcement executives be formed to help direct and implement the new program. The law enforcement community rejected the Blueprint ' s proposal to have both full and limited participating law enforcement agencies, and endorsed implementing the full version of the NIBRS nationwide. The NIBRS Compared with the UCR NIBRS Data As discussed above, under the UCR, local law enforcement agencies tally the number of known offenses for each Part I offense, as well as arrest data for both Part I and Part II offenses, and submit aggregate counts on a monthly basis to the FBI. Under the NIBRS, data are not aggregated; rather, data for each criminal incident are submitted to the FBI in a separate report. For each criminal incident, participating law enforcement agencies collect data on 53 different data elements, including data on the offense(s), the offender(s), the victim(s), the arrestee(s), and any property involved in the offense. The data elements are combined into six different data segments (see Appendices D and E ). The NIBRS allows for data on multiple offenses, offenders, and victims to be collected for each criminal incident. NIBRS data are intended to be a by-product of local incident-based reporting (IBR) systems. Therefore, local and state law enforcement agencies can develop their own IBR systems to suit their local needs, and they can use the data from their own IBR systems to participate in the NIBRS, as long as the data submitted to the FBI meets NIBRS specifications. State and local law enforcement agencies can add additional data elements or data values to their systems. The NIBRS does not use the UCR's Part I and Part II offense classifications. Instead, offenses are classified as being either a Group A or Group B offense (see Appendix F ). Group A contains 46 different offenses grouped into 22 offense categories. Group B contains 11 different offenses. Law enforcement agencies are required to submit incident reports, which contain data from all six data segments, for all Group A offenses. For Group B offenses, law enforcement agencies are required to submit only arrest reports, which contain data only from the arrestee data segment. The expanded list of crimes required the FBI to create definitions for crimes counted only in the NIBRS and to modify definitions for crimes that are a part of the UCR. For example, the FBI expanded the definition of rape to include rapes of both women and men. Under the UCR, rapes are defined as being committed against women only. NIBRS Certification Before a state can submit NIBRS data to the FBI, the state NIBRS program must be certified by the FBI. The FBI has developed a state certification policy, which uses the following criteria to evaluate the NIBRS data submitted by a state: Error rate—before a state can submit NIBRS data, the FBI requires that fewer than 4% of the incident reports submitted by the state contain errors for three consecutive months. Statistical reasonableness—before a state can submit NIBRS data, the FBI evaluates the reasonableness of the data based on analyses of trends, volumes, and monthly fluctuations. Updating capability and responsiveness—the FBI requires the state program to have ample ability to update its records, meet deadlines, and respond in a timely manner to error messages from the national program. System appropriateness—the FBI requires a state's NIBRS program to be systematically compatible with the NIBRS data reporting requirements and guidelines. Simply because a state's IBR program is certified as NIBRS-compliant does not necessarily mean that every law enforcement agency in the state is reporting NIBRS-compliant data. If a state's program is certified by the FBI, it means that the state program is capable of processing NIBRS data at the state level and submitting virtually error-free data to the FBI in an acceptable format. If a state program is certified as NIBRS-compliant, local law enforcement agencies within the state must submit their NIBRS data through the state program. If a state does not have a certified state program, the FBI will consider allowing local law enforcement agencies with NIBRS-compliant IBR systems to submit data directly to the FBI, if the agency serves a population of over 100,000. The FBI coordinates decisions regarding such requests with the appropriate state UCR program. If a local law enforcement agency in a state without a state UCR program wants to submit NIBRS data directly to the FBI, it will consider such a request if the agency has a NIBRS-compliant IBR system. The FBI reported that the number of local law enforcement agencies in states without UCR programs allowed to submit NIBRS data directly to the FBI is limited by the availability of resources at the FBI. When a local law enforcement agency is allowed to submit NIBRS data directly to the FBI, the agency must sign an agreement stating that it will discontinue direct reporting to the FBI when the state has a certified program. Classifying and Scoring NIBRS Data Like the UCR program, law enforcement agencies participating in the NIBRS have to classify and score offenses. However, the NIBRS does not use the hierarchy rule discussed previously because law enforcement agencies can report all of the offenses that occurred in a criminal incident. The FBI expanded the definition of the hotel rule under NIBRS to apply to rental storage facilities (i.e., mini-storage and self-storage buildings). For example, 10 storage units burglarized in one self-storage building would be counted as one burglary offense. However, NIBRS data reporting allows law enforcement agencies to report how many premises were entered (see Appendix D , data element 10 under the Offense segment). Using the same example, the break-ins at the storage facility would be reported as one burglary, even though the law enforcement agency would include data in the incident report indicating that 10 premises were entered. The separation of time and place rule still applies when classifying and scoring offenses under the NIBRS. Law enforcement agencies have to use the separation of time and place rule to determine whether a group of offenses should be reported as individual incidents, or whether the offenses should be reported as one incident where multiple offenses occurred. Like the UCR program, the NIBRS also distinguishes between crimes against persons and crimes against property. Crimes against persons and crimes against property are scored the same way for NIBRS reporting as they are for UCR reporting. However, because NIBRS Group A offenses include offenses that cannot be classified as crimes against persons (because they do not involve an actual victim) or classified as crimes against property (because property is not the object of the crime), the NIBRS includes another scoring category—crimes against society. For NIBRS reporting, crimes against society include drug/narcotics offenses, gambling offenses, pornography/obscene materials, and prostitution offenses (see Appendix F ). Reporting law enforcement agencies score one offense for each crime against society in an incident. Advantages of the NIBRS Because of the expanded amount of data collected in NIBRS reporting, the NIBRS has several advantages compared with the traditional UCR system. In addition to those described above, advantages of the NIBRS include the following: Data collection is not restricted to a limited number of offense categories (i.e., Part I offenses). Offense definitions can meet state, local, and national reporting needs. Details on individual crime incidents (offenses, offenders, victims, property, and arrests) can be collected and analyzed. Arrests and clearances can be linked to specific incidents and offenses. Distinctions can be made between attempted and completed crimes. Linkages can be established between variables for examining interrelationships between offenses, offenders, victims, property, and arrestees. Detailed crime analyses can be made within and across law enforcement jurisdictions. Strategic and tactical crime analyses can be made at the local and regional levels. Transition to the NIBRS According to the Justice Research and Statistics Association's IBR Resource Center, approximately 22% of the nation's population is covered by law enforcement agencies that report NIBRS-compliant data and 17% of reported crime is reported through the NIBRS program. As of August 2007, and as shown in Appendix A , 31 states had been certified by the FBI to submit NIBRS data. In addition, the FBI accepts NIBRS data directly from agencies in Alabama, Illinois, Kentucky, and the District of Columbia, even though each state does not have an FBI-certified NIBRS program. In 11 states (35% of all certified states), all law enforcement agencies in the state collect and submit NIBRS-compliant data. In another 10 states (32% of all certified states), between 50%-99% of law enforcement agencies in the state collect and submit NIBRS-compliant data. Limitations of UCR and NIBRS Data Limited Offense Data As discussed above, the UCR collects offense data on a limited number of crimes (Part I crimes), which means that offense data are available only for a small number of all crimes committed in the United States. Offense data are not available for Part II crimes, which tend to be committed at a greater frequency than Part I crimes. Currently, the UCR does not collect data on crimes commonly covered by the media, such as kidnapping, bribery, or child pornography. The FBI is trying to address this gap by implementing the NIBRS, but as discussed above, many jurisdictions have yet to make the switch from the UCR to the NIBRS. Neither the UCR nor the NIBRS collect data on political crimes, price-fixing and illegal environmental pollution. Moreover, the UCR and the NIBRS most likely undercount corporate and occupational crimes. Unreported Crimes As discussed above, both the UCR and the NIBRS collect data on the number of offenses known to law enforcement each year. However, not all crimes that occur are known to the police. In some cases, the victim(s) of or witness(es) to a crime might not report the incident to the police. Researchers have reported that a majority of crimes become known to the police only after they are reported by either the victims or citizens who witnessed the crime. If crimes are not reported to law enforcement, both the UCR and NIBRS will undercount the actual amount of crime that occurred. Reporting Practices of Law Enforcement Evidence shows that UCR data may be affected by the reporting practices of local law enforcement. In some instances, law enforcement officials, usually because of political pressure to lower the crime rates, might manipulate crime reports to decrease the amount of reported crime. In other instances, the number of reported offenses might be a product of how assiduously local law enforcement follow the FBI's definitions for crimes under the UCR or the NIBRS. For example, if a local law enforcement agency does not closely follow UCR or NIBRS definitions, the agency might classify an assault against a woman as an attempted rape, or a trespass as a burglary. Ironically, the number of reported offenses might increase as local law enforcement agencies become more efficient. If a law enforcement agency puts more officers on patrol, the number of known offenses might increase because there are more officers to catch offenders. If law enforcement agencies work to develop a better relationship with the citizens they serve, the reported number of offenses could increase because citizens might report more crimes. The number of reported offenses might also increase as law enforcement agencies develop better record-keeping systems and as they assign more employees to do dispatching, record keeping, and criminal incident reporting. Missing Data Federal law does not require local law enforcement agencies to submit offense data to the UCR program. Although participation in the UCR program has been above 90% since the 1970s, not all law enforcement agencies in the country submit UCR data to the FBI. Also, law enforcement agencies are not required to submit a full year of UCR data to the FBI. In some instances, a local law enforcement agency will submit only a few months' worth of data, or will fall shy of the full 12 months by 1 or 2 months. In other instances, a local law enforcement agency will submit offense data but will not submit any of the other data (e.g., the supplementary homicide report data or the hate crime data; see discussion above). One researcher found that missing data are not equally distributed among all law enforcement agencies in the country. The researcher reported that, for the years 1960-2003, law enforcement agencies serving populations under 2,500 people and university and college law enforcement agencies are more likely to have missing data than law enforcement agencies that serve populations over 2,500 people. In general, the larger the population the law enforcement agency served, the less likely the agency was to have missing data. The analysis showed that law enforcement agencies that served 250,000 or more people did not have missing data for the years 1960-2003. Imputation Procedures If a law enforcement agency does not report UCR data to the FBI for the entire year, the FBI uses imputation techniques to estimate the law enforcement agency's number of reported crimes for the entire year. The methodology differs depending on the number of months for which crime data were reported. If the law enforcement agency has submitted three or more months of data, the FBI estimates the total annual number of crimes for the jurisdiction by multiplying the reported number of crimes by a weight equal to "12/N," where "N" equals the number of months of data submitted by the law enforcement agency. For law enforcement agencies that have submitted less than three months of data ("non-reporting agencies"), the missing data are estimated based on the reported number of crimes from other similar agencies based on population. For core cities in a Metropolitan Statistical Area (MSA), the crime rate is estimated by applying the crime rate for all other law enforcement agencies in the agency's population group to the agency's population. For example, if a law enforcement agency served a city of 80,000 people and the murder rate for all other MSA core cities in its population group was 10 per 100,000, then the estimated number of murders for the city would be 8 (calculated as 80,000x10.0/100,000). The crime rates for the remaining agencies are estimated using the state rate for the agency's population group from the current year. In absence of a state rate, the FBI will apply the division or region rate. Agency-level estimates are always aggregated into larger geographic areas, such as MSAs, state, geographic division, region, and the nation. Researchers have stated that the imputation methods used by the FBI to estimate crime in jurisdictions that have not reported for the full year or non-reporting jurisdictions make questionable assumptions. The imputation method used by the FBI to estimate a full year's worth of data for jurisdictions that report three or more months of data implicitly assumes that the crime rate for non-reported months is the same as for reported months. If the crime rates in the months for which data were not reported differ from the rates in the months for which data were reported, then the imputation procedure could either overestimate or underestimate the jurisdiction's annual crime rate. The imputation procedure used to estimate the crime rate for non-reporting jurisdictions assumes that cities and towns with similar sized populations are also similar in other factors that might affect the city or town's crime rate, such as income distribution, unemployment rates, population density, and racial composition. National Crime Victimization Survey The National Crime Victimization Survey (NCVS) is the primary source for information on the characteristics of criminal victimization and on the number and types of crime not reported to law enforcement. The NCVS has four major objectives: (1) developing detailed information about the victims and consequences of crime, (2) estimating the number and types of crimes not reported to police, (3) providing uniform measures of selected types of crimes, and (4) permitting comparisons over time and population types (e.g., urban, suburban, and rural). NCVS's History The NCVS began as a way to supplement UCR data. In 1965, President Lyndon Johnson convened the President's Commission on Law Enforcement and the Administration of Justice (hereafter referred to as "the Commission"). The Commission was charged with examining the causes and characteristics of crime in the United States and formulating recommendations for polices and programs that could address crime in the country. At the time, the UCR was the only source for official crime data, and the Commission found that several limitations associated with the data prevented it from helping the Commission develop policy recommendations. To help rectify some of the limitations associated with UCR data, the Commission recommended the creation of a national survey of crime victimization. The first crime victimization survey pilot study was conducted in three Washington, DC, police precincts in the spring of 1966. The survey asked 511 Washington, DC, residents, chosen from a probability sample of homes, whether they had been a victim of one or more of a list of crimes. The Washington, DC, pilot study demonstrated that household surveys could provide a different picture of crime than the one derived from UCR data. The study showed that, depending on the type of crime, there were 3 to 10 times as many criminal incidents reported by victims than there were recorded in UCR data. A supplementary study was conducted in three cities: Boston, Chicago, and Washington, DC. The second study surveyed businesses and organizations in selected high-crime areas of all three cities about criminal victimizations they had experienced. The supplementary study also surveyed residents of Chicago and Boston about their household's criminal victimizations. Like the Washington, DC, pilot study, the supplementary study found that the number of reported victimizations exceeded the number of reported crimes. A third victimization survey sponsored by the Commission was conducted by the National Opinion Research Center (NORC). NORC's victimization survey differed from the two previous surveys in that it involved a national sample, not just a sample of local households and businesses. NORC's victimization survey interviewed one person in each of 10,000 households nationwide. Like the two previous pilot studies, NORC's survey found that more crime was being committed than was being reported to law enforcement. Unlike the other two studies, NORC's survey collected data on which crimes were not reported to the police and on the respondent's reason for not reporting the crime. Non-reporting was found to vary by offense. For example, the study found that 90% of consumer frauds were not reported, but 11% of motor vehicle thefts were unreported. NORC found that most people who chose not to report a crime to the police did so because they either thought the incident was a private matter or did not think the police could do anything about it. The three pilot studies indicated that UCR data underestimated the true level of crime in the United States. Moreover, the studies showed that a household survey could help estimate the extent of unreported crime, also known as the "dark figure of crime." They also demonstrated that a household survey was a reasonable method for estimating the number of criminal victimizations in the United States. The Commission recommended that a national criminal justice statistics center be established to collect victimization data on an ongoing basis. In 1968, the Law Enforcement Assistance Administration (LEAA) was created and charged with implementing a national victimization survey. In the early 1970s, LEAA, in cooperation with the U.S. Census Bureau, worked to develop a national victimization survey, which would come to be known as the National Crime Survey (NCS). The pilot studies for the NCS demonstrated that a large national sample of households would be required to obtain an accurate estimate of some crimes. The Census Bureau was chosen to conduct the NCS because it was the only organization that had the capacity to field such a large survey. During the development of the NCS, the survey's methodology was refined based on some of the lessons learned from the three pilot studies. There were a series of pretests, trial surveys, and record-check experiments to help address some of the methodological issues associated with implementing a nationwide victimization survey. Some of the issues examined included the use of a single household respondent, as opposed to interviewing everyone in the household; the respondent's ability to recall events; the length of the reference period; the minimum age of the respondent; and the appropriate question cues and wording. As a result of the studies, the NCS chose to interview all members of the household about victimizations they experienced. It was decided that the NCS would use a six-month reference period. It was also decided that only one person (referred to as a "household respondent") would answer questions about crimes against household property. The first NCS was conducted in July 1972 by the Census Bureau. The NCS was originally composed of four interrelated surveys: a national sample of households, referred to as the "Crime Panel"; a sample of households from central cities; and a national and central city sample of commercial establishments. As of 1976, data were no longer collected for the sample of households from central cities, nor were data collected for the national and central city sample of commercial establishments. Since 1976, the NCS consisted only of the national sample of households (i.e., the Crime Panel). In the mid-1970s, in response to concerns about the quality and usefulness of NCS data, the LEAA asked the National Academy of Sciences (NAS) to evaluate the NCS. In 1976, the NAS published a report that provided recommendations for how to improve the NCS. The NAS found that although the NCS was an effective instrument for measuring crime, certain aspects of the survey's methodology and scope could be improved. The NAS recommended that researchers investigate the following: Enhanced screening questions that would better stimulate respondents' recall of victimizations, thus reducing underreporting resulting from forgotten incidents. Screening questions that would sharpen the concepts of criminal victimization and diminish the effects of subjective interpretations of the survey questions. Additional questions on the nature and consequences of victimizations that would yield useful data for analysis. Enhanced questions and inquiries about domestic violence, rape, and sexual attack to get better estimates of these victimizations. The Bureau of Justice Statistics (BJS) sponsored a research consortium that investigated the issues raised in the NAS review and provided recommendations that would improve the accuracy and utility of the NCS. In 1986, the consortium proposed new instrumentation and procedures to improve the NCS. BJS chose to implement the consortium's proposals and redesign the NCS. BJS stated that the overall objectives for redesigning the NCS were to increase reporting of crime victimization and provide additional details on individual crime incidents. BJS also had more specific objectives for the redesign, including developing improved screening questions, thereby stimulating recall of incidents; sharpening concepts of victimization for survey respondents by providing a more thorough description of criminal incidents, thus diminishing effects of cognitive and subcultural differences among respondents; improving data collection techniques by adopting Computer-Assisted Telephone Interviewing (CATI) for some segments of survey participants; improving measures of rape and sexual attack by asking respondents directly about these crimes; and providing better measures of domestic violence. The recommended changes were phased in as part of a two stage process: near-term and long-term. The near-term changes focused on the NCS's procedures and questionnaires, but they were not substantial enough to affect the comparability of the crime rates for previous years (i.e., they were non-rate affecting changes). The near-term changes were implemented by the Census Bureau in July 1986. Long-term changes had a substantial impact on the crime rate reported by the NCS. The long-term changes to the NCS's design were phased in gradually. Starting in 1989, BJS and the Census Bureau pre-tested the long-term changes using 5% and 10% subsamples of the NCS sample. After extensive pre-testing, the long-term changes were fully implemented by BJS in 1992. Between 1986 and 1992, the following changes were made to the survey: Better "short cue" screening questions were added to stimulate respondent recall of victimization incidents. More thorough descriptions of crime incidents were added in an effort to help all respondents interpret NCS concepts correctly. CATI was introduced to improve data collection. Specific questions about rape and sexual assaults were added to improve measurement of these crimes. Screening questions were reworded and added to get a better measure of domestic violence. After the implementation of the redesigned NCS, BJS changed the name of the NCS to the National Crime Victimization Survey (NCVS). From January 1992 through June 1993, the full NCS-NCVS sample was divided into two parts. One half of the sample was administered the NCS, and the other half was administered the NCVS. BJS chose to give each half of the sample either the NCS or the NCVS to permit the continuous publication of estimates of the year-to-year change in crime rates with comparable data while the NCVS was being introduced. The procedure was also intended to provide data on how the reported rate of victimization might have changed from the NCS to the NCVS. Periodically, BJS has expanded the scope of the NCVS to address new issues in crime. In 1998, Congress required BJS to add questions to the NCVS to identify crime victims with developmental disabilities. In 1999, BJS added questions to the NCVS to determine the extent to which respondents who were victims of crime perceived the crimes to be hate crimes. In 2001, BJS added questions to the NCVS to explore the extent to which people were victimized by computer-related crimes. In 2004, the computer crimes questions were replaced by questions about identity theft. How NCVS Data Are Collected NCVS Data The Census Bureau conducts the NCVS for BJS. As shown in Appendix I , in 2005, data were collected from 67,000 people in 38,600 households. The survey asks respondents whether they have been the victim of rape and sexual assault, robbery, simple and aggravated assault, purse snatching/pickpocketing, burglary, theft, or motor vehicle theft. In addition to estimating the number of annual victimizations, the NCVS also gathers data on the details of each victimization incident. To do this, the survey collects data on the month, time, and location of the crime; the relationship between the victim and the offender; characteristics of the offender; self-protective actions taken by the victim during the incident and results of those actions; consequences of the victimization, including any injury or property loss; whether the crime was reported to the police and the reason for reporting or not reporting; and offender use of weapons, drugs, and alcohol. NCVS Methodology The NCVS sample is selected using a stratified, multistage cluster sample. The sampling process starts by identifying approximately 2,000 primary sampling units (PSUs) that are composed of standard metropolitan statistical areas, a county, or a small group of contiguous counties. PSUs are stratified with respect to important demographic characteristics, such as geographic region, population density, population growth rate, and proportion of nonwhite population. A sample of households is chosen from each stratum in a manner that is proportionate to their representation in the larger population. When a household is selected for the sample, all eligible people in the household are interviewed. Non-institutionalized persons aged 12 and older living in the United States are eligible to be interviewed for the NCVS. When a household is selected for the NCVS sample, eligible members of the household are interviewed once every six months for three years, for a total of seven interviews. After three years, the household is rotated out of the sample and a new one is brought in. The rotational panel design of the NCVS is accomplished by dividing all sampled households into six rotational groups, with each group containing six panels of households. Each month, one panel from each group is interviewed, so that in any given month, one-sixth of the sample is being interviewed for the first time, one-sixth is being interviewed for the second time, and so forth. The survey instrument used in the NCVS consists of three parts: the "control card," a basic "screen" questionnaire, and crime incident reports. The control card contains basic administrative information for the sampled household, including the house's address and basic household data, such as the household's income, whether the house is owned or rented, and the names, age, race, sex, marital status, and education of all individuals living in the household. The control card also contains a record of visits, telephone calls, interviews, and information about non-interviews. Information on the control card is provided by a "knowledgeable adult" in the household. The "knowledgeable adult" is interviewed about victimizations against the household (i.e., burglaries, motor vehicle thefts, and household larcenies). The screen questionnaire is designed to elicit information about whether the household or a particular respondent has experienced certain types of victimizations. The screen questionnaire provides respondents with a series of detailed questions and cues about victimizations and situations in which crimes may take place. Questions on the screen questionnaire describe crimes in plain language, avoiding technical legal terms. To elicit an accurate response, respondents are provided with detailed features that may characterize a criminal incident. If a screening question elicits a positive response, more information about the incident is collected on an incident report. For each separate victimization incident mentioned on the screening questionnaire, the respondent is asked to complete an incident report. Incident reports include a series of questions about the particular crime event, the offending parties, and the consequences of the crime. Some of the questions on incident reports include the following: Was the crime reported to the police? Was the offense completed or just attempted? Did the victim know the offender, or was the offender identified? If known, what were the demographic characteristics (i.e., race, gender, age) of the offender? Was a weapon used in the crime? Did the victim resist? Was there any monetary loss or physical injury, or both, that resulted from the victimization? The first interview is conducted in person, and all subsequent interviews, unless requested by the respondent, are conducted by telephone. Data collected during first interviews are used for bounding purposes and are excluded when calculating the crime rate. In the context of the NCVS, "bounding" refers to a process whereby the prior interview and the data collected during it are used in subsequent interviews to ensure that victimizations before the reference period and victimizations reported in prior interviews are not counted twice. Bounding procedures can help reduce the effects of "telescoping," which refers to the tendency of people to incorrectly identify the timing of past events. For example, if a respondent is asked whether he or she has been the victim of a crime in the past six months, the respondent might report a victimization that actually occurred seven months ago. The bounding procedure provides respondents with both a cognitive and mechanical bound. The prior interview can serve as an event that respondents can use to help determine whether a victimization occurred within the current reference period. Furthermore, if the interviewer finds that a reported victimization is similar to one reported previously, the interviewer can question the respondent further to ensure that the reported victimization did indeed occur in the current reference period. Data collected during bounding interviews are not used by BJS to calculate annual victimization rates. A growing number of interviews for the NCVS are being conducted via Computer-Assisted Telephone Interviewing (CATI). Currently, about 30% of all NCVS interviews are conducted by using CATI. As discussed above, the first interview is conducted face-to-face, and subsequent interviews are conducted by phone. Face-to-face and non-CATI telephone interviews are conducted using Paper and Pencil Interviewing (PAPI); that is, the respondent's answers are recorded on printed instruments. The survey has evolved from one in which all interviews were done face-to-face to one in which most interviews are conducted over the telephone, with a growing number of phone interviews employing CATI. With CATI, interviews are conducted from a centralized telephone facility where they read questions from a computer screen and record answers directly into a computer. The computer provides the interviewer with the next appropriate question based on the last answer; it also allows for automated internal consistency checks and reduces transcription errors. CATI improves data quality because all interviewers are in a centralized facility, allowing them to be monitored for adherence to standardized interviewing techniques. In some instances, an interviewer is unable to complete an interview with a household or an individual in the household (i.e., they are "noninterviews"). The NCVS classifies various types of noninterviews. Because the sample is a sample of households, and not of the people who live in the household, some sampled households may not be able to be interviewed. For example, the household may be vacant, occupied by persons who have usual residences elsewhere, or temporarily or permanently converted to a business. In these instances, the households are removed from the sample, either until the next time the household is to be interviewed (if the situation is temporary) or permanently, if the household will not be eligible for interviewing in the future. Other noninterviews occur when an interview cannot be completed with the entire eligible household, or when an interview cannot be completed with an eligible member of a household. Such noninterviews occur for a variety of reasons, including if no one is home during the three-week interview period, if the household or persons in the household refuse to be interviewed, and if the household is not reachable, for example, because of impassable roads. The NCVS does not rely on the respondent or the interviewer to classify reported victimizations. Rather, victimizations are classified based on details of the reported incident provided by the respondent. For example, a woman does not have to report that she was the victim of a rape for the victimization to be classified as a rape. If the details provided by the respondent indicate that the respondent was the victim of a rape, the victimization will be classified as a rape in the NCVS. Moreover, if the details of the incident do not meet the criteria necessary to define a victimization as a particular crime, the victimization will not be counted as a crime. For example, if a respondent believes that he/she was assaulted but the details do not meet the criteria of a simple assault, the victimization will not be counted as a simple assault in the NCVS. Limitations of NCVS Data Sampling and Non-sampling Error As described above, the NCVS estimates national crime rates by interviewing a sample of households across the country. Because the NCVS is a sample survey, it is subject to both sampling and non-sampling error, meaning that the estimated victimization rate might not accurately reflect the true victimization rate. Whenever samples are used to represent entire populations, there could be a discrepancy between the sample estimate and the true value of what the sample is trying to estimate. The NCVS accounts for sampling error by calculating confidence intervals for estimated rates of victimization. For example, in 2000, the estimated violent crime victimization rate was 27.9 victimizations per 100,000 people aged 12 and older. The calculated 95% confidence interval for the estimated violent crime victimization rate was 25.85 to 29.95 victimizations per 100,000 people aged 12 and older. The NCVS is also subject to non-sampling error. The methodology employed by the NCVS attempts to reduce the effects of non-sampling error as much as possible, but an unquantified amount remains. Non-sampling error can result from respondents not being able to recall victimizations that occurred to them during the reference period. Non-sampling error can also occur when respondents do not report crimes to the interviewer. Respondents may not report crimes because they know the perpetrator or because they are victims of certain crimes frequently enough that they forget that they were victimized or they do not consider the victimizations important enough to report. Sampling Bias The NCVS relies on interviews with household members to collect its data, but it is likely that some people sampled will not complete the survey. As shown in Appendix G , between 1996 and 2005, anywhere from 9% to 16% of people included in the sample did not complete the survey. If non-responders differ from responders in the number of victimizations they experienced, the estimated national victimization rate might be lower or higher than the true victimization rate. Researchers have reported that homeless people, young males, and members of minority groups are less likely to be included in the NCVS sample and have higher rates of victimization than their older, female, non-minority counterparts. Series Victimizations When a respondent experiences six or more similar but separate victimizations, and when the respondent is unable to recall the details of each incident well enough to describe them to the interviewer, the interviewer completes one incident report to cover the series of incidents. The incident report is completed using information from the most recent incident. BJS does not include series victimizations when it calculates annual victimization rates. However, BJS does use series victimization data in special reports where series victimizations are an important aspect of the subject being analyzed (e.g., domestic violence). In these instances, one series is counted as one incident. It is likely that not including series victimization estimates in the annual victimization estimates would result in an underestimation of the true national victimization rate. But the question remains, how large would this effect be? Each year, BJS includes data on the number and percentage of total victimizations reported as series victimizations. As shown in Figure 1 , the percentage of personal crimes reported as series victimizations ranged from 3.5% in 2001 to 4.7% in 2003 and 2004. The percentage of property crimes reported as series victimizations was consistent from 2001 to 2004 (0.8%) and decreased to 0.5% in 2005. Changes in Household Residents As described above, a sample of households is selected to be interviewed for the NCVS, and it is the household, not the people in the household, that remains in the sample. Hence, the interviewer interviews anyone in the household over the age of 12 at each enumeration, even if the residents of the household have changed from the previous interview. This can result in some cases where unbounded interviews can be included in the national victimization estimates. For example, if a new family moves into the household while the household is in the sample, the interviews with the family will be unbounded because the bounding interview for the household was conducted during the first interview with the household. If a family member was under the age of 12 at the time of the bounding interview but turns 12 while the household is in the sample, the interview with the family member that "aged in" to the sample is unbounded. As described above, unbounded interviews may result in inflated estimates of victimizations. It has been estimated that between 17% and 19% of household and person interviews were unbounded in any given year of data. Limitations on the Scope of Crimes Covered The NCVS collects data only on crimes that have a victim. Data on "victimless" crimes—such as drug crimes, prostitution, and gambling—cannot be collected by the NCVS. Data on a host of other crimes—including illegal weapons possession, murder, crimes perpetrated against business or commercial establishments, consumer fraud, possession of stolen property, and public order offenses—are also excluded from the NCVS. As a result, the crimes that the NCVS collects data on make up a small part of all criminal offenses committed in the United States. Survey Design and Implementation The design of the NCVS survey instrument and the methods used to administer it can affect estimated victimization rates. As described above, changes in the wording of questions associated with the redesign of the NCVS increased reported rates of victimization. The redesign showed that the wording of screening questions can influence respondents' ability to recall victimizations. Researchers have reported that both incident rates and subgroup variation in reported victimization are affected by the wording of screening questions. It has been reported that short screening questions may cue a respondent's recall of only a small subset of incidents that involved the most serious or frequent crimes, whereas longer screening questions encourage the recounting of a fuller range of victimizations. In addition to wording and type of questions included in the survey, the survey's methods can influence the number of reported victimizations. As discussed above, the NCVS has started to conduct more interviews using CATI. Researchers have found that using CATI can increase the number of reported victimizations for some crimes. The use of CATI from a centralized telephone facility has been shown to increase the number of reported crimes. It is believed that the combined effect of centralization (ability to monitor interviewers) and computerization of the survey help standardize the interviewer-respondent interaction, resulting in higher and more realistic crime rates. NCVS surveys that used CATI resulted in higher crime rates than surveys that did not; for example, violence, crimes of theft, and household larceny increased by 15%-20%, and burglary increased by about 10%. CATI's effect on motor vehicle thefts was negligible. Because CATI provides greater anonymity for respondents than in-person interviews, respondents may answer sensitive questions more honestly, thereby producing a greater number of reported victimizations. The length of the recall period used by the NCVS can affect estimated victimization rates. The six-month reference period used by the NCVS was not chosen because it was the optimal reference period, but rather because it provided a balance between accuracy and economy. Longer reference periods make it difficult for respondents to recall past victimizations accurately. Also, the longer the reference period, the more likely it is that a greater number of victimizations will be reported, because respondents are at-risk for victimization for a longer period of time. Shorter reference periods would increase the cost of conducting the NCVS because respondents would have to be interviewed more frequently. The UCR Compared with the NCVS261 The Department of Justice (DOJ) uses both the UCR and the NCVS to measure the magnitude, nature, and impact of crime in the United States. Both the UCR and the NCVS are important because, as one pair of researchers states, "crime, unlike the weather, is a phenomenon that is not directly observable. No one measure is capable of providing all the information about the extent and characteristics of crime." The UCR measures offenses known to the police, and the NCVS collects data on crimes that people have experienced, whether they were reported to the police or not. DOJ states, "each program produces valuable information about aspects of the Nation's crime problem. Because both the UCR and NCVS programs are conducted for different purposes, use different methods, and focus on somewhat different aspects of crime, the information they produce together provides a more comprehensive panorama of the Nation's crime problem than either could produce alone." The NCVS was designed to complement the UCR, yet the UCR and the NCVS serve two different purposes. The primary objective of the UCR is to provide a reliable set of criminal justice statistics for law enforcement administration, operation, and management. The NCVS was created to provide previously unavailable information about crime (including crime not reported to the police), victims, and offenders. The UCR and the NCVS collect data on an overlapping, but not identical, set of offenses against an overlapping, but not identical, population. The NCVS does not collect data on homicide, arson, or commercial crimes, and the UCR does not collect offense data on sexual assaults or simple assaults. Because the UCR collects data on offenses known to police, it includes offenses committed against children under the age of 12, visitors from other countries, and businesses or organizations. The NCVS's methodology precludes the survey from collecting data on crimes against these populations. The methodologies used by the UCR and the NCVS differ in some important aspects. First, the UCR and the NCVS have different definitions for some crimes. One example is the definition used by the UCR and the NCVS for rape. The UCR defines rape as the "carnal knowledge of a female forcibly and against her will" (see Appendix B ). However, under the NCVS, rape and sexual assault can be perpetrated against both men and women. Second, the UCR and the NCVS use different methods for calculating the crime rates for some crimes. The crime rates for all Part I offenses are calculated on a per capita basis (i.e., the number of offenses per 100,000 people). The NCVS calculates property crime rates (burglary, theft, and motor vehicle theft) on a per household basis (i.e., the number of crimes per 1,000 households). Third, the methodologies used by both programs are subject to limitations and sources of error that can affect the quality, accuracy, and reliability of their estimates and hence influence comparisons of the data produced by the two programs. As discussed above, the UCR is a voluntary program, which means that some agencies might not submit data for the entire year, or at all. Similarly, because the NCVS interviews a sample of households, its victimization estimates are subject to both sampling and nonsampling errors. Select Issues As discussed above, there are issues associated with UCR, NIBRS, and NCVS data. Moreover, there are issues Congress might face when considering the future of each program, especially the NIBRS and the NCVS. These issues include (1) barriers to implementing the NIBRS nationwide, (2) potential increases in the crime rate because of transitioning to the NIBRS, and (3) cuts in the NCVS sample size and the effects associated with the decrease in sample size. Each of these issues is discussed in more detail below. Implementing the NIBRS Nationwide274 As discussed above, implementing the NIBRS system nationwide has been a slow process. The SEARCH group collected data from the 64 largest law enforcement agencies in the United States to determine what impediments they face in making the transition to the NIBRS. SEARCH found that some law enforcement agencies' record management systems (RMS) were more capable of making the switch from the UCR to the NIBRS than others. SEARCH reported that some law enforcement agencies have RMSs that are unable to report NIBRS data, either because the data are in an incompatible format (i.e., they still follow the hierarchy rule and fail to capture multiple offenses and victims), or because they do not record data for all of the mandatory data elements or code the data in a NIBRS-compliant manner. Some law enforcement agencies reported that they had antiquated systems that are fragmented and in need of upgrades or replacement. Other law enforcement agencies have automated incident-based systems that meet the agency's operational needs but fail to capture the necessary data in an appropriate format for NIBRS reporting. Law enforcement agencies identified seven general impediments to NIBRS implementation in their jurisdictions: Funding : SEARCH reported that the general perception was that implementing the NIBRS is very costly for local law enforcement agencies. Law enforcement agencies are concerned that they will incur a series of new costs, including developing or acquiring new or upgrading existing hardware or software; implementing automated incident-based reporting at the street level; hiring new data entry staff to process the additional data collected; establishing new quality control procedures; and having to increase the volume and complexity of training. Law enforcement agencies expressed concern that NIBRS is not a funding priority among local decision makers and stakeholders. Uncertainty of benefits : Law enforcement agencies reported that no clear operational value for the use of NIBRS data has been established. For example, NIBRS data do not include information on the address where a crime took place, hence NIBRS data cannot be used for crime mapping. Absent a demonstration of its practical use, law enforcement agencies felt that NIBRS data were more useful to researchers than to them. Policy concerns : Law enforcement agencies expressed concern that reported crime will increase when they implement the NIBRS because NIBRS does not use the hierarchy rule, meaning that all crimes in an incident will be reported (a more detailed discussion of this issue can be found below). Administrative issues : According to SEARCH, there was some concern that law enforcement officers would spend more time completing incident reports, which would decrease the time they have to respond to calls for service. Law enforcement agencies were also concerned about the time that would have to be spent on training officers on how to complete NIBRS incident reports and the technical support necessary for ongoing operations. Federal and state reporting : SEARCH reported that some law enforcement agencies were concerned about the "all or nothing" policy of NIBRS participation, which meant that if law enforcement agencies could not meet every NIBRS data reporting element, they could not participate in the program. Law enforcement agencies were also concerned about meeting the reporting requirements set forth by state programs, which had in some cases expanded reporting requirement beyond those required for the national NIBRS program. Data elements : Law enforcement agencies reported that some of the data elements, such as the victim-offender relationship, multiple offenses, and multiple victims, did not provide investigative value. Other data elements were viewed as being largely subjective (i.e., bias motivation and victim ethnicity) or irrelevant (i.e., residential status of an arrestee or the nature of suspected substance abuse). Education : SEARCH found that law enforcement agencies were concerned that key decision makers and stakeholders did not have sufficient or accurate information regarding the objectives or nature of the NIBRS. It appears that although local law enforcement agencies are receptive to the idea of reporting NIBRS data, several barriers prevent law enforcement agencies from making the switch from the UCR to the NIBRS. Congress may want to consider whether anything could be done to promote a more rapid expansion of the NIBRS program. Policy options for Congress might include the following: Appropriate grant funds to be awarded to state and local law enforcement agencies to allow them to update or expand their crime data reporting systems. In 2001, BJS awarded over $13 million in grants to states for the purpose of implementing NIBRS-compatible systems. Grant funds for this purpose have not been available since 2001. Provide funding to agencies such as the National Institute of Justice to allow them to develop NIBRS software that could be distributed at no charge to local law enforcement. Congress may also consider making grant funds available to local law enforcement agencies to allow them to purchase NIBRS software from a vendor. This could allow law enforcement agencies to customize the software to meet their specifications. Provide funding to an organization such as the Justice Research and Statistics Association to allow them to provide training and continued support to local law enforcement agencies that implement NIBRS systems. Does the NIBRS Increase the Crime Rate? 275 Some local officials have expressed concern that implementing the NIBRS will result in a higher reported crime rate in their jurisdictions. As described above, the NIBRS does not use the hierarchy rule, so all crimes in an incident are reported, unlike the UCR, where only the most serious offense in an incident is reported. Therefore, local officials are concerned that crime rates may appear to increase even though the actual number of crimes committed does not change. BJS conducted a study that compared NIBRS-computed crime rates to UCR crime rates for agencies in nine NIBRS-certified states for 1991-1996. To be included in the study, an agency must have submitted at least one full year of data and it must serve a "nonzero" population (i.e., police departments or sheriff's offices, but it would most likely not include state or county police). The study included 4,068 cases from 1,131 unique law enforcement agencies. Summary UCR data were derived from NIBRS data by using a computer program that applied the hierarchy rule to reported incidents in the NIBRS data. BJS found that, overall, the difference between the crime rates calculated using NIBRS and UCR data was small. On average, the NIBRS index crime rate was 2% higher than the UCR crime rate. On average, the NIBRS violent crime rate was higher than the UCR violent crime rate by less than 1%, and the NIBRS property crime rate was higher than the UCR property crime rate by slightly more than 2%. However, the difference between the NIBRS rate and the UCR rate varied depending on the crime. For murder, the NIBRS and UCR rates were the same. For rape, robbery, and aggravated assault, the difference between the NIBRS and UCR rates was, on average, less than 1%. NIBRS larceny/theft rates were, on average, higher than UCR larceny/theft rates by about 3%, and NIBRS motor vehicle theft rates were higher than UCR theft rates by about 4.5%. BJS also individually evaluated each case to see how the NIBRS crime rates differed from the UCR crime rates. As shown in Table 1 , in 97% of the cases, the difference between the NIBRS crime rate and the UCR crime rate for violent crimes was 5.5% or less. By comparison, the percentage of cases where there was a 5.5% or less difference between the NIBRS crime rate and the UCR crime was smaller (90% overall) for property offenses, which is not surprising given that most property offenses would not be reported under the UCR if they were committed in concert with a violent offense. BJS reported that the distribution of rate changes for all index offenses showed that 92.5% of the cases had a rate difference of -0.5% to 15.5%. Almost 48% of the cases had a rate difference between -0.5% to 0.5% for index crimes, and 39% of the cases had no difference between the NIBRS rates and the UCR rates. For violent crime, the distribution of rate changes showed that 98.9% of the cases had a rate difference between 0% and 15.5%, 84.3% of cases had a rate difference between 0% and 0.5%, and 82.2% of the cases had no difference. For property crime, 91.7% of the cases had a rate difference between -0.5% and 15.5%, 48% of the cases had a rate difference between -0.5% and 0.5%, and 40.1% of the cases had no difference. Overall, the data show that the transition to NIBRS can increase the reported crime rate. In most instances, the increase in the crime rate will be small, and property crimes, rather than violent crimes, are more likely to increase. However, there are instances where the increase in reported crime rates can be more than 15.5%. BJS reports that jurisdictions with little crime tend to show exaggerated changes in their crime rates when they switch from the UCR to the NIBRS. Hence, most of the drastic changes in reported crime rates likely came from jurisdictions that did not report a lot of crime to begin with. If or when the FBI chooses to publish Crime in the United States using NIBRS data, it may influence the way Congress uses crimes statistics to develop policy and allocate funding. As shown above, the change from the UCR to the NIBRS may make it appear like the crime rate in some states, counties, and cities has increased. Congress might want to be aware of the impact that the change to NIBRS could have on the reported crime rate before deciding whether to allocate more funding to jurisdictions that showed an increased crime rate. Also, the formula for the Edward Byrne Memorial Justice Assistance Grant (JAG) Program uses UCR violent crime data to allocate funding to state and local governments. One policy option for Congress would be to change the JAG formula to incorporate NIBRS data. Another policy option would be to leave the JAG formula as it currently is and require the FBI to modify each state's NIBRS data to produce summary UCR data. Decreases in the NCVS Sample Size The sample size used in the NCS/NCVS has decreased since it was first conducted in the early 1970s. In June 1984, the NCS's sample size was cut from the original sample size of 72,000 households to 59,000 households. Additional cuts to the sample size were instituted in 1992 (a 10% reduction), 1996 (a 12% reduction), and 2002 (a 4% reduction). All decreases in the sample size were done to reduce costs. Even with the NCVS's decreasing sample size, the size of the sample is still much larger than most other surveys conducted in the United States. However, as one researcher warned, decreases in the sample size can affect the ability of the NCVS data to produce reliable annual measures and changes in annual rates of statistically rare forms of victimization (such as rape). As the size of the sample decreases, the standard error associated with the estimate of the victimization statistic can increase, which could make it harder to detect statistically significant changes in the annual victimization rates or differences in the victimization rates of two different subgroups of people. For example, if a decrease in sample size results in an increased standard error for the estimation of assault victimizations, researchers might not be able to determine whether a change in reported assault victimizations reflects an actual change in nationwide assault victimizations or simply statistical variation. Congress may want to consider whether to provide additional funding to BJS to allow it to expand the sample size of the NCVS. Additional funding could allow BJS to expand the sample size to what it was in the 1970s, thereby allowing for more accuracy in estimating national victimization rates. Appendix A. Status of UCR and NIBRS Reporting, by State Appendix B. UCR Part I and Part II Offenses The FBI collects data on both the number of offenses known to police and the number of arrests made for all Part I offenses. The FBI collects data on the number of arrests made for all Part II offenses. The offenses listed under the "Part I Offenses" heading are ranked according to the UCR's hierarchy rule. Part I Offenses Criminal Homicide Forcible Rape Robbery Aggravated Assault Burglary Larceny-theft (except motor vehicle theft) Motor Vehicle Theft Arson Part II Offenses Other Assaults Forgery and Counterfeiting Fraud Embezzlement Stolen Property: Buying, Receiving, or Possessing Vandalism Weapons: Carrying, Possessing, etc. Prostitution and Commercialized Vice Sex Offenses Drug Abuse Violations Gambling Offenses Against the Family and Children Driving Under the Influence Liquor Laws Drunkenness Disorderly Conduct Vagrancy All Other Offenses Suspicion Curfew and Loitering Laws (Persons under 18) Runaways (Persons under 18) Appendix C. UCR Hierarchy of Part I Offenses 1. Criminal Homicide a. Murder and Nonnegligent Manslaughter b. Manslaughter by Negligence 2. Forcible Rape a. Rape by Force b. Attempts to Commit Rape by Force 3. Robbery a. Firearm b. Knife or Cutting Instrument c. Other Dangerous Weapon d. Strong-arm—Hands, Fists, Feet, etc. 4. Aggravated Assault a. Firearm b. Knife or Cutting Instrument c. Other Dangerous Weapon d. Strong-arm—Hands, Fists, Feet, etc. 5. Burglary a. Forcible Entry b. Unlawful Entry—No Force c. Attempted Forcible Entry 6. Larceny-theft (except Motor Vehicle Theft) 7. Motor Vehicle Theft a. Autos b. Trucks and Buses c. Other Vehicles 8. Arson a.-g. Structural h.-i. Mobile j. Other Appendix D. NIBRS Data Elements Administrative Segment 1. ORI number 2. Incident number 3. Incident date/hour 4. Cleared exceptionally 5. Exceptional clearance date Offense Segment [1. ORI number] [2. Incident number] 6. UCR offense code 7. Offense attempted/completed 8. Offender(s) suspected of using 8A. Bias motivation 9. Location type 10. Number of premises entered 11. Method of entry 12. Type of criminal activity/gang information 13. Type of weapon/force involved Property Segment [1. ORI number] [2. Incident number] 14. Type property loss/etc. 15. Property description 16. Value of property 17. Date recovered 18. Number of stolen motor vehicles 19. Number of recovered motor vehicles 20. Suspected drug type 21. Estimated drug quantity 22. Type drug measurement Victim Segment [1. ORI number] [2. Incident number] 23. Victim (sequence) number 24. Victim connected to UCR offense code(s) 25. Type of victim 26. Age (of victim) 27. Sex (of victim) 28. Race (of victim) 29. Ethnicity (of victim) 30. Resident status (of victim) 31. Aggravated assault/homicide circumstances 32. Additional justifiable homicide circumstances 33. Type injury 34. Offender number(s) to be related 35. Relationship(s) of victim to offender(s) Offender Segment [1. ORI number] [2. Incident number] 36. Offender (sequence) number 37. Age (of offender) 38. Sex (of offender) 39. Race (of offender) Arrestee Segment [1. ORI number] [2. Incident number] 40. Arrestee (sequence) number 41. Arrest (transaction) number 42. Arrest date 43. Type of arrest 44. Multiple Arrestee Segments Indicator 45. UCR arrest offense code 46. Arrestee was armed with 47. Age (of arrestee) 48. Sex (of arrestee) 49. Race (of arrestee) 50. Ethnicity (of arrestee) 51. Resident status (of arrestee) 52. Disposition of arrestee under 18 Appendix E. Relationship Between NIBRS Data Elements Appendix F. NIBRS Group A and Group B Offenses Group A Offenses 1. Arson 2. Assault Offenses Aggravated Assault Simple Assault Intimidation 3. Bribery 4. Burglary/Breaking and Entering 5. Counterfeiting/Forgery 6. Destruction/Damage/Vandalism of Property 7. Drug/Narcotic Offenses Drug/Narcotic Violations Drug Equipment Violations 8. Embezzlement 9. Extortion/Blackmail 10. Fraud Offenses False Pretenses/Swindle/Confidence Game Credit Card/Automated Teller Machine Fraud Impersonation Welfare Fraud Wire Fraud 11. Gambling Offenses Betting/Wagering Operating/Promoting/Assisting Gambling Gambling Equipment Violations Sports Tampering 12. Homicide Offenses Murder and Nonnegligent Manslaughter Negligent Manslaughter Justifiable Homicide 13. Kidnapping/Abduction 14. Larceny/Theft Offenses Pocket Picking Purse-snatching Shoplifting Theft from Building Theft from Coin-operated Machine or Device Theft from Motor Vehicle Theft of Motor Vehicle Parts or Accessories All Other Larceny 15. Motor Vehicle Theft 16. Pornography/Obscene Materials 17. Prostitution Offenses Prostitution Assisting or Promoting Prostitution 18. Robbery 19. Sex Offenses, Forcible Forcible Rape Forcible Sodomy Sexual Assault with an Object Forcible Fondling 20. Sex Offenses, Nonforcible Incest Statutory Rape 21. Stolen Property Offenses (receiving, etc.) 22. Weapons Laws Violations Group B Offenses 1. Bad Checks 2. Curfew/Loitering/Vagrancy Violations 3. Disorderly Conduct 4. Driving Under the Influence 5. Drunkenness 6. Family Offenses, Nonviolent 7. Liquor Law Violations 8. Peeping Tom 9. Runaway 10. Trespass of Real Property 11. All Other Offenses Appendix G. UCR Offense Definitions Part I Offenses Criminal homicide (a.) Murder and nonnegligent manslaughter: the willful (nonnegligent) killing of one human being by another. Deaths caused by negligence, attempts to kill, assaults to kill, suicides, and accidental deaths are excluded. Justifiable homicides are classified separately and the definition is limited to: (1) the killing of a felon by a law enforcement officer in the line of duty; or (2) the killing of a felon, during the commission of a felony, by a private citizen. ( b.) Manslaughter by negligence: the killing of another person through gross negligence. Deaths of persons due to their own negligence, accidental deaths not resulting from gross negligence, and traffic fatalities are not included in the category "Manslaughter by negligence." Forcible rape The carnal knowledge of a female forcibly and against her will. Rapes by force and attempts or assaults to rape, regardless of the age of the victim, are included. Statutory offenses (no force used—victim under age of consent) are excluded. Robbery The taking or attempting to take anything of value from the care, custody, or control of a person or persons by force or threat of force or violence and/or by putting the victim in fear. Aggravated assault An unlawful attack by one person upon another for the purpose of inflicting severe or aggravated bodily injury. This type of assault usually is accompanied by the use of a weapon or by means likely to produce death or great bodily harm. Simple assaults are excluded. Burglary (breaking or entering) The unlawful entry of a structure to commit a felony or a theft. Attempted forcible entry is included. Larceny-theft (except motor vehicle theft) The unlawful taking, carrying, leading, or riding away of property from the possession or constructive possession of another. Examples are thefts of bicycles, motor vehicle parts and accessories, shoplifting, pocket-picking, or the stealing of any property or article that is not taken by force and violence or by fraud. Attempted larcenies are included. Embezzlement, confidence games, forgery, check fraud, etc. are excluded. Motor vehicle theft The theft or attempted theft of a motor vehicle. A motor vehicle is self-propelled and runs on land surface and not on rails. Motorboats, construction equipment, airplanes, and farming equipment are specifically excluded from this category. Arson Any willful or malicious burning or attempt to burn, with or without intent to defraud, a dwelling house, public building, motor vehicle or aircraft, personal property of another, etc. Part II Offenses Other assaults (simple) Assaults and attempted assaults which are not of an aggravated nature and do not result in serious injury to the victim. Stalking, intimidation, coercion, and hazing are included. Forgery and counterfeiting The altering, copying, or imitating of something, without authority or right, with the intent to deceive or defraud by passing the copy or thing altered or imitated as that which is original or genuine; or the selling, buying, or possession of an altered, copied, or imitated thing with the intent to deceive or defraud. Attempts are included. Fraud The intentional perversion of the truth for the purpose of inducing another person or other entity in reliance upon it to part with something of value or to surrender a legal right. Fraudulent conversion and obtaining of money or property by false pretenses. Confidence games and bad checks, except forgeries and counterfeiting, are included. Embezzlement The unlawful misappropriation or misapplication by an offender to his/her own use or purpose of money, property, or some other thing of value entrusted to his/her care, custody, or control. Stolen property: buying, receiving, possessing Buying, receiving, possessing, selling, concealing, or transporting any property with the knowledge that it has been unlawfully taken, as by burglary, embezzlement, fraud, larceny, robbery, etc. Attempts are included. Vandalism To willfully or maliciously destroy, injure, disfigure, or deface any public or private property, real or personal, without the consent of the owner or person having custody or control by cutting, tearing, breaking, marking, painting, drawing, covering with filth, or any other such means as may be specified by local law. Attempts are included. Weapons: carrying, possessing, etc The violation of laws or ordinances prohibiting the manufacture, sale, purchase, transportation, possession, concealment, or use of firearms, cutting instruments, explosives, incendiary devices, or other deadly weapons. Attempts are included. Prostitution and commercialized vice The unlawful promotion of or participation in sexual activities for profit, including attempts. To solicit customers or transport persons for prostitution purposes; to own, manage, or operate a dwelling or other establishment for the purpose of providing a place where prostitution is performed; or to otherwise assist or promote prostitution. Sex offenses (except forcible rape, prostitution, and commercialized vice) Offenses against chastity, common decency, morals, and the like. Incest, indecent exposure, and statutory rape are included. Attempts are included. Drug abuse violations The violation of laws prohibiting the production, distribution, and/or use of certain controlled substances. The unlawful cultivation, manufacture, distribution, sale, purchase, use, possession, transportation, or importation of any controlled drug or narcotic substance. Arrests for violations of state and local laws, specifically those relating to the unlawful possession, sale, use, growing, manufacturing, and making of narcotic drugs. The following drug categories are specified: opium or cocaine and their derivatives (morphine, heroin, codeine); marijuana; synthetic narcotics—manufactured narcotics that can cause true addiction (demerol, methadone); and dangerous nonnarcotic drugs (barbiturates, benzedrine). Gambling To unlawfully bet or wager money or something else of value; assist, promote, or operate a game of chance for money or some other stake; possess or transmit wagering information; manufacture, sell, purchase, possess, or transport gambling equipment, devices, or goods; or tamper with the outcome of a sporting event or contest to gain a gambling advantage. Offenses against the family and children Unlawful nonviolent acts by a family member (or legal guardian) that threaten the physical, mental, or economic well-being or morals of another family member and that are not classifiable as other offenses, such as Assault or Sex Offenses. Attempts are included. Driving under the influence Driving or operating a motor vehicle or common carrier while mentally or physically impaired as the result of consuming an alcoholic beverage or using a drug or narcotic. Liquor laws The violation of state or local laws or ordinances prohibiting the manufacture, sale, purchase, transportation, possession, or use of alcoholic beverages, not including driving under the influence and drunkenness. Federal violations are excluded. Drunkenness To drink alcoholic beverages to the extent that one's mental faculties and physical coordination are substantially impaired. Driving under the influence is excluded. Disorderly conduct Any behavior that tends to disturb the public peace or decorum, scandalize the community, or shock the public sense of morality. Vagrancy The violation of a court order, regulation, ordinance, or law requiring the withdrawal of persons from the streets or other specified areas; prohibiting persons from remaining in an area or place in an idle or aimless manner; or prohibiting persons from going from place to place without visible means of support. All other offenses All violations of state or local laws not specifically identified as Part I or Part II offenses, except traffic violations. Suspicion Arrested for no specific offense and released without formal charges being placed. Curfew and loitering laws (persons under age 18) Violations by juveniles of local curfew or loitering ordinances. Runaways (persons under age 18) Limited to juveniles taken into protective custody under the provisions of local statutes. Appendix H. NIBRS Offense Definitions Group A Offenses Arson To unlawfully and intentionally damage or attempt to damage any real or personal property by fire or incendiary device. Assault Offenses An unlawful attack by one person upon another. Aggravated Assault An unlawful attack by one person upon another wherein the offender uses a weapon or displays it in a threatening manner, or the victim suffers obvious severe or aggravated bodily injury involving apparent broken bones, loss of teeth, possible internal injury, severe laceration, or loss of consciousness. Simple Assault An unlawful physical attack by one person upon another where neither the offender displays a weapon, nor the victim suffers obvious severe or aggravated bodily injury involving apparent broken bones, loss of teeth, possible internal injury, severe laceration, or loss of consciousness. Intimidation To unlawfully place another person in reasonable fear of bodily harm through the use of threatening words and/or other conduct but without displaying a weapon or subjecting the victim to actual physical attack. Bribery The offering, giving, receiving, or soliciting of anything of value (i.e., a bribe, gratuity, or kickback) to sway the judgment or action of a person in a position of trust or influence. Burglary/Breaking and Entering The unlawful entry into a building or other structure with the intent to commit a felony or a theft. Counterfeiting/Forgery The altering, copying, or imitation of something, without authority or right, with the intent to deceive or defraud by passing the copy or thing altered or imitated as that which is original or genuine or the selling, buying, or possession of an altered, copied, or imitated thing with the intent to deceive or defraud. Destruction/Damage/Vandalism of Property To willfully or maliciously destroy, damage, deface, or otherwise injure real or personal property without the consent of the owner or the person having custody or control of it. Drug/Narcotic Offenses The violation of laws prohibiting the production, distribution, and/or use of certain controlled substances and the equipment or devices utilized in their preparation and/or use. Drug/Narcotic Violations The unlawful cultivation, manufacture, distribution, sale, purchase, use, possession, transportation, or importation of any controlled drug or narcotic substance. Drug Equipment Violations The unlawful manufacture, sale, purchase, possession, or transportation of equipment or devices utilized in preparing and/or using drugs or narcotics. Embezzlement The unlawful misappropriation by an offender to his/her own use or purpose of money, property, or some other thing of value entrusted to his/her care, custody, or control. Extortion/Blackmail To unlawfully obtain money, property, or any other thing of value, either tangible or intangible, through the use or threat of force, misuse of authority, threat of criminal prosecution, threat of destruction of reputation or social standing, or through other coercive means. Fraud Offenses The intentional perversion of the truth for the purpose of inducing another person or other entity in reliance upon it to part with something of value or to surrender a legal right. False Pretenses/Swindle/Confidence Game The intentional misrepresentation of existing fact or condition or the use of some other deceptive scheme or device to obtain money, goods, or other things of value. Credit Card/Automated Teller Machine Fraud The unlawful use of a credit (or debit) card or automatic teller machine for fraudulent purposes. Impersonation Falsely representing one's identity or position and acting in the character or position thus unlawfully assumed to deceive others and thereby gain a profit or advantage, enjoy some right or privilege, or subject another person or entity to an expense, charge, or liability that would not have otherwise been incurred. Welfare Fraud The use of deceitful statements, practices, or devices to unlawfully obtain welfare benefits. Wire Fraud The use of an electric or electronic communications facility to intentionally transmit a false and/or deceptive message in furtherance of a fraudulent activity. Gambling Offenses To unlawfully bet or wager money or something else of value; assist, promote, or operate a game of chance for money or some other stake; possess or transmit wagering information; manufacture, sell, purchase, possess, or transport gambling equipment, devices, or goods; or tamper with the outcome of a sporting event or contest to gain a gambling advantage. Betting/Wagering To unlawfully stake money or something else of value on the happening of an uncertain event or on the ascertainment of a fact in dispute. Operating/Promoting/Assisting Gambling To unlawfully operate, promote, or assist in the operation of a game of chance, lottery, or other gambling activity. Gambling Equipment Violations To unlawfully manufacture, sell, buy, possess, or transport equipment, devices, and/or goods used for gambling purposes. Sports Tampering To unlawfully alter, meddle in, or otherwise interfere with a sporting contest or event for the purpose of gaining a gambling advantage. Homicide Offenses The killing of one human being by another. Murder and Nonnegligent Manslaughter The willful (nonnegligent) killing of one human being by another. Negligent Manslaughter The killing of another person through negligence. Justifiable Homicide (Not a crime) The killing of a perpetrator of a serious criminal offense by a peace officer in the line of duty, or the killing, during the commission of a serious criminal offense, of the perpetrator by a private individual. Kidnapping/Abduction The unlawful seizure, transportation, and/or detention of a person against his/her will or of a minor without the consent of his/her custodial parent(s) or legal guardian. Larceny/Theft Offenses The unlawful taking, carrying, leading, or riding away of property from the possession or constructive possession of another person. Pocket-picking The theft of articles from another person's physical possession by stealth where the victim usually does not become immediately aware of the theft. Purse-snatching The grabbing or snatching of a purse, handbag, etc., from the physical possession of another person. Shoplifting The theft by someone other than an employee of the victim of goods or merchandise exposed for sale. Theft from Building A theft from within a building which is either open to the general public or to which the offender has legal access. Theft from Coin-operated Machine or Device A theft from a machine or device that is operated or activated by the use of coins. Theft from Motor Vehicle (Except Theft of Motor Vehicle Parts or Accessories) The theft of articles from a motor vehicle, locked or unlocked. Theft of Motor Vehicle Parts or Accessories The theft of any part or accessory affixed to the interior or exterior of a motor vehicle in a manner which would make the item an attachment of the vehicle or necessary for its operation. All Other Larceny All thefts that do not fit any of the definitions of the specific subcategories of Larceny/Theft listed above. Motor Vehicle Theft The theft of a motor vehicle. Pornography/Obscene Material The violation of laws or ordinances prohibiting the manufacture, publishing, sale, purchase, or possession of sexually explicit material (e.g., literature or photographs). Prostitution Offenses To unlawfully engage in or promote sexual activities for profit. Prostitution To unlawfully engage in sexual relations for profit. Assisting or Promoting Prostitution To solicit customers or transport persons for prostitution purposes; to own, manage, or operate a dwelling or other establishment for the purpose of providing a place where prostitution is performed; or to otherwise assist or promote prostitution. Robbery The taking or attempting to take anything of value under confrontational circumstances from the control, custody, or care of another person by force or threat of force or violence and/or by putting the victim in fear of immediate harm. Sex Offenses (Forcible) Any sexual act directed against another person, forcibly and/or against that person's will or not forcibly or against the person's will in instances where the victim is incapable of giving consent. Forcible Rape The carnal knowledge of a person, forcibly and/or against that person's will or not forcibly or against the person's will in instances where the victim is incapable of giving consent because of his/her temporary or permanent mental or physical incapacity. Forcible Sodomy Oral or anal sexual intercourse with another person, forcibly and/or against that person's will or not forcibly or against the person's will in instances where the victim is incapable of giving consent because of his/her youth or because of his/her temporary or permanent mental or physical incapacity. Sexual Assault with an Object To use an object or instrument to unlawfully penetrate, however slightly, the genital or anal opening of the body of another person, forcibly and/or against that person's will or not forcibly or against the person's will in instances where the victim is incapable of giving consent because of his/her youth or because of his/her temporary or permanent mental or physical incapacity. Forcible Fondling The touching of the private body parts of another person for the purpose of sexual gratification, forcibly and/or against that person's will or not forcibly or against the person's will in instances where the victim is incapable of giving consent because of his/her youth or because of his/her temporary or permanent mental or physical incapacity. Sex Offenses (Nonforcible) Unlawful, nonforcible sexual intercourse. Incest Nonforcible sexual intercourse between persons who are related to each other within the degrees wherein marriage is prohibited by law. Statutory Rape Nonforcible sexual intercourse with a person who is under the statutory age of consent. Stolen Property Offenses Receiving, buying, selling, possessing, concealing, or transporting any property with the knowledge that it has been unlawfully taken, as by Burglary, Embezzlement, Fraud, Larceny, Robbery, etc. Weapons Laws Violations The violation of laws or ordinances prohibiting the manufacture, sale, purchase, transportation, possession, concealment, or use of firearms, cutting instruments, explosives, incendiary devices, or other deadly weapons. Group B Offenses Bad Checks Knowingly and intentionally writing and/or negotiating checks drawn against insufficient or nonexistent funds. Curfew/Loitering/Vagrancy Violations The violation of a court order, regulation, ordinance, or law requiring the withdrawal of persons from the streets or other specified areas; prohibiting persons from remaining in an area or place in an idle or aimless manner; or prohibiting persons from going from place to place without visible means of support. Disorderly Conduct Any behavior that tends to disturb the public peace or decorum, scandalize the community, or shock the public sense of morality. Driving Under the Influence Driving or operating a motor vehicle or common carrier while mentally or physically impaired as the result of consuming an alcoholic beverage or using a drug or narcotic. Drunkenness To drink alcoholic beverages to the extent that one's mental faculties and physical coordination are substantially impaired. Family Offenses (Nonviolent) Unlawful, nonviolent acts by a family member (or legal guardian) that threaten the physical, mental, or economic well-being or morals of another family member and that are not classifiable as other offenses, such as Assault, Incest, Statutory Rape, etc. Liquor Law Violations The violation of laws or ordinances prohibiting the manufacture, sale, purchase, transportation, possession, or use of alcoholic beverages. Peeping Tom To secretly look through a window, doorway, keyhole, or other aperture for the purpose of voyeurism. Runaway A person under 18 years of age who has left home without the permission of his/her parent(s) or legal guardian. Trespass of Real Property To unlawfully enter land, a dwelling, or other real property. All Other Offenses All crimes that are not Group "A" offenses and not included in one of the specifically named Group "B" crime categories listed previously. Appendix I. Number of Households and Persons Interviewed for the NCVS, by Year

Crime data collected through the Uniform Crime Reports (UCR), the National Incident-Based Reporting System (NIBRS), and the National Crime Victimization Survey (NCVS) are used by Congress to inform policy decisions and allocate federal criminal justice funding to states. As such, it is important to understand how each program collects and reports crime data, and the limitations associated with the data. This report reviews (1) the history of the UCR, the NIBRS, and the NCVS; (2) the methods each program uses to collect crime data; and (3) the limitations of the data collected by each program. The report then compares the similarities and differences of UCR and NCVS data. It concludes by reviewing issues related to the NIBRS and the NCVS. The UCR represents the first effort to create a national, standardized measure of the incidence of crime. It was conceived as a way to measure the effectiveness of local law enforcement and to provide law enforcement with data that could be used to help fight crime. UCR data are now used extensively by researchers, government officials, and the media for research, policy, and planning purposes. The UCR also provides some of the most commonly cited crime statistics in the United States. The UCR reports offense and arrest data for 8 different Part I offenses and arrest data for 21 different Part II offenses. The NIBRS was developed by the Federal Bureau of Investigation to respond to the law enforcement community's belief that the UCR needed to be updated to provide more in-depth data to meet the needs of law enforcement into the 21st century. The NIBRS collects data, including data on offense(s), offender(s), victim(s), arrestee(s), and any property involved in an offense, for 46 different Group A offenses and 11 different Group B offenses. Despite the more detailed crime data that the NIBRS can provide, nationwide implementation of the program has been slow, for a variety of reasons, including cost considerations. The NCVS is the primary source of information on the characteristics of criminal victimization, and on the number and types of crime not reported to law enforcement. The NCVS has four major objectives: (1) to develop detailed information about the victims and consequences of crime, (2) to estimate the number and types of crimes not reported to police, (3) to provide uniform measures of selected types of crimes, and (4) to permit comparisons over time and population type (e.g., urban, suburban, and rural). The NCVS asks respondents whether they have been the victim of rape and sexual assault, robbery, simple and aggravated assault, purse snatching/pickpocketing, burglary, theft, or motor vehicle theft. In addition to collecting data on the number of victimizations, the NCVS gathers data on the details of each incident of victimization. This report will be updated as warranted.

Introduction In 2007, much higher than expected defaults and delinquencies in the "subprime" segment of the mortgage market, led to a significant slowdown of the housing market. Most of these mortgages were financed not by traditional banks, but by global capital markets through asset or mortgage-backed securities. Thus, rather than being confined to the institutions who made the loans initially, the losses caused by the unexpected volume of mortgage defaults have been felt throughout the financial system by any person or institution who bought such securities. In addition, financial guaranty insurance companies, often known as "monoline" insurers, have also been impacted because they provided insurance for various asset-backed bond issues. These insurers also insure a variety of other bonds. Consequently, if the ratings of a bond insurer should fall (due to widespread default problems associated with a particular category of bonds), then the ratings of other bonds insured by the same firm will also decline. Such spillover and contagion effects are raising questions regarding the possibility of a government-sponsored rescue of bond insurers in difficulty. Although the federal government does not currently oversee insurers, various proposals for broad federal oversight of all insurers have been introduced, including S. 40 / H.R. 3200 in the 110 th Congress. The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing on "The State of the Bond Insurance Industry" on February 14, 2008, and the full Financial Services Committee is scheduled to examine "Municipal Bond Turmoil: Impact on Cities, Towns, and States" on March 12, 2008. At the time of writing, there have been no bills focused on the current bond insurance market introduced. This report begins with a description of the bond insurance industry and its business model, including the relatively recent move into providing insurance for asset-backed securities. An analysis of the current market difficulties follows along with the various possibilities of spillover effects. Finally, a number of broader policy questions are briefly discussed. This report will be updated as events warrant, particularly if and when Congress takes action on the issue. The Bond Insurance Industry The bond insurance industry is small relative to the entire industry as a whole. According to the Association of Financial Guaranty Insurers (AFGI), total premiums collected in 2006 by the 12 insurers and reinsurers that represented nearly all the industry were $3.2 billion. In comparison, the total direct premium collected by U.S. property/casualty insurers in 2006 was $447.8 billion, and that collected by life and health insurers was $619.7 billion. While the total premium volume is fairly low, the total net par value of the bonds insured by its members is much higher, namely $2.3 trillion with four companies, Ambac, FGIC, FSA, and MBIA, insuring approximately $2.0 trillion of that $2.3 trillion. The oldest of the insurers, Ambac Assurance Corporation, was established less than 40 years ago. The bond insurance sector is relatively small because the companies are restricted, under the state chartering laws, to providing only one kind of insurance, financial guaranty insurance, which is why they are often referred to as monolines. While this restriction applies to the business activity of providing financial guarantees to securities, it does not limit the types of securities that can be insured. Bond insurance basically guarantees bond purchasers that interest payments will be made on time, and if the issuers default, that principal will eventually be returned. This insurance is typically purchased by the issuer of the bond for a one-time payment. The purpose of this insurance, therefore, is to "credit enhance" or raise the credit rating that would have been assigned based upon the financial strength of the original issuer to that of the insurance company guaranteeing the bond. A higher credit rating may be useful for issuers wanting to attract more investors, in particular smaller bond issuers or those unfamiliar to most investors. Many institutions also prefer highly rated "AAA" securities either because risk-based capital requirements are less for institutions holding such securities or, in the case of mutual funds, because of specific investment requirements. Issuers without the necessary capital reserves can still obtain higher ratings for their securities by purchasing bond insurance. Municipal Bonds and Asset-Backed Securities Monoline insurers began writing insurance for municipal bonds, and this insurance remains their primary business (60% of their total according to AFGI). Over the past 10 years, the annual share of municipal bonds that are issued with bond insurance has varied from approximately 40% to more than 55% with the current total being approximately 50% of the outstanding municipal bonds. Municipal bonds are typically purchased for their tax advantages, often by individual investors who are not seeking risky securities. Individual households held $911 billion in municipal debt at the end of the third quarter of 2007, 35.4% of the total. Other large holders of municipal debt include various types of mutual funds ($895.6 billion or 34.8%) and property/casualty insurance companies ($346.8 billion or 13.5%). Insuring municipal bonds historically been a low-risk line of business. Municipalities rarely default on their bond offerings, so the losses required to be paid by insurers have been very low. While they rarely default, municipalities often do not maintain the capital reserves or other requirements rating agencies look for in awarding AAA ratings. Bond insurers sought a AAA rating so the bonds they insure would also share this status, making the insurance attractive to many municipalities. If a bond insurer were to lose its AAA rating, it would become very difficult, if not impossible, for the firm to write new business. If a monoline is unable to attract new business, they would be forced to pay any existing claims with existing resources, rather than being able to rely upon the cash flow from new business. The bond insurer would essentially be in what is known as "run off" in the insurance industry unless the AAA rating could be re-established. Hence, protection of a AAA rating is essential for such insurers to remain ongoing concerns. Over time, bond insurers expanded the types of products that they insured, branching out into public and infrastructure bonds originated by issuers from other countries (14% of their business according to AFGI), and into other classes of asset-backed securities also known as structured finance or securitization (26% of the business). Structured finance is the process of pooling similar types of financial assets (typically loans) and transforming them into bonds or debt securities. Investors typically purchase these asset-backed securities by paying an initial lump sum, and they are repaid the principal and interest over time with the cash flows generated from the underlying assets. Monolines begin to guarantee asset-backed securities in the 1990s. Ambac, for example, created a specific division to focus on these securities in 1993. Movement into Credit Default Swaps A traditional insurance policy is a long-standing method of protecting oneself from financial loss. As financial markets have become more sophisticated, however, other financial instruments have been developed that may offer similar protection in a different form. Derivatives known as credit default swaps (CDS) are one of these newer instruments. A CDS is an agreement between two parties where the seller agrees to provide payment to the buyer in the event of a third party credit event, such as default on a security. In return, the buyer typically makes periodic payment to the seller. From an economic point of view, a CDS can be identical to an insurance policy. Unlike a traditional insurance policy, however, CDS are not regulated by state insurance departments and are tradeable assets that can be easily bought and sold on the open market. The CDS contract terms can be whatever the two parties agree to, and there is no general requirement that any capital be held by the seller to back the promise made in the contract. When monoline insurers expanded into offering guarantees for asset-backed securities, they apparently did so as protection sellers on CDSs rather than through selling more traditional insurance products. The move to CDS, however, did require the creation of separate subsidiaries to offer the CDS, because state insurance regulators generally would not allow insurance companies to offer them. The insurers, however, were allowed to write insurance policies to their subsidiaries guaranteeing the CDS entered into by the subsidiaries. According to AFGI, the movement toward CDS contracting was initiated by its customers due to more favorable accounting treatment and regulatory reasons. As long as the CDS contract is on the same terms as the traditional insurance policies, the switch to CDS contracting would not alter capital requirements for the financial guarantor wanting to maintain a very high credit rating. Both AGFI and the individual bond insurer MBIA indicate that the vast majority of the CDS offered by bond insurers mirrored the guaranty of the traditional products—namely, prompt interest payments and ultimate return of principle under the original terms of the security. (In response to CRS questions, AFGI also indicated that one insurer, ACA, which already has been severely downgraded, had entered into some swaps that required payment if the insurer were downgraded, which likely contributed to its difficulties.) One important difference between CDS and traditional insurance is the accounting treatment. As a tradeable instrument, a CDS must be assigned a current value, or "marked to market," on a company's financial statements under standards put forth by the Financial Accounting Standards Board (FASB). Changes in the value of the contract must generally be reported as current income during each reporting period. An insurance policy, however, is not marked to market in a similar manner. Thus, if there is significant increase in a default risk that is being covered by a CDS, the market value of the CDS to the buyer would rise significantly, (the value to the seller would, of course, drop significantly) and this rise (or drop) would have to be reflected on the income statement. This would not be the case if the identical risk were covered by an insurance policy. This accounting difference between traditional insurance policies and CDS holds even if the economic substance and legal commitment of the insurance policy and the CDS are identical. Current Bond Insurer Situation As noted above, the current difficulty in the bond insurance market is rooted in the unexpected rise in mortgage defaults and foreclosures, which caused an increase in defaults on a number of mortgage-backed securities, including many that had previously been thought to be essentially risk-free. This crisis affects bond insurers in a number of ways. The most straightforward is that, if they insure any securities that default due to the non-performance of the underlying mortgages, the bond insurer would be responsible for paying off these securities, which would mean an increase in future payments to be made by the insurer. A second, more immediate impact would be on the insurer's balance sheet, particularly if the insurance protection is provided in the form of CDS, rather than a traditional policy. Even if default has not occurred, as the probability of default on a security covered by a CDS increases, the insurers offering the protection must show a loss on their books, even if the immediate cash flow has not changed. Finally, the bond insurers may be affected by generally increased skepticism on the part of investors and the ratings agencies. Over the past months, market sentiment on bond insurers has turned substantially negative. Stock prices for bond insurers are down substantially, nearly 90% in the last year for Ambac, which has been downgraded to Aa by one rating agency (Fitch), but has to this point kept AAA ratings from Moodys and Standard & Poor's. Other downgrades have included FGIC to AA by Fitch and Standard & Poor's, and SCA to A by Fitch. One insurer, ACA, has been downgraded all the way to junk levels by Standard and Poor's. Several insurers have scrambled to raise capital to avoid being downgraded. Two large insurers, MBIA and Ambac, have been successful in raising sufficient capital to maintain AAA ratings from at least two of the rating agencies. Multi-billion dollar paper losses have been reported, primarily from the value of the insurers' CDS contracts. New York State Insurance Superintendent Eric Dinallo has held meetings with various banks and other financial institutions attempting to arrange some kind of rescue package to prevent further downgrades. No rescue package has been forthcoming from Superintendent Dinallo's efforts, although they may have contributed to the ability of some of the insurers to raise new capital. Losses in the hundreds of billions of dollars throughout the financial system have been foreseen by some analysts. Different market participants have come up with dramatically different views on the future of the bond industry. Two competing views are summarized below, the first promoted, unsurprisingly, by many in the bond industry, while the second is voiced more by outside skeptics. An Optimistic View According to this view, the bond insurers are not in trouble for the following reasons: First, when bonds go into default, the insurer pays only the interest and principal at the time the payments are scheduled. The firms generally do not have to accelerate the payment schedule if the insured bond defaults, if the insured bond's credit rating falls, or if the guarantor's rating falls. As a result, the concern over monolines being unable to meet their payment obligations has been somewhat exaggerated. Second, it is argued that, because a credible reputation is extremely valuable to attracting future business, financial monolines only insure highly-rated bonds. Based on this assumption, it is unlikely that they would have insured the riskier bonds backed by subprime mortgages. Third, turmoil in the mortgage-backed security market associated with the subprime crisis may effect the liquidity and value of all such securities, even those that do not contain subprime loans. While investors trying to sell these securities are likely to absorb losses associated with falling mark-to-market values, it is maintained that insurers would only be affected if the underlying mortgage holders failed to make payments. As long as cash payments are still being made, the declining market value of the securities would not trigger any losses from the guarantor, since the market value of the security is not being insured. Hence, optimists maintain that insurers, while buffeted by a skeptical market, are not headed for long-term financial trouble. A Pessimistic View The pessimistic view holds that monoline insurers are in serious trouble. Pessimists observe that past ratings of monolines not only fail to reflect the increase in default associated with the increase of the share of asset-backed bonds they guarantee, but that these bonds are backed by assets highly susceptible to default, such as subprime mortgages. From this perspective, the guaranty industry did, in fact, agree to provide insurance to the riskier securities backed by subprime mortgages, and their ratings should be revised to reflect a high level of financial risk. Those making this argument assert that the industry is currently not fully disclosing all information that will eventually emerge as the financial market turmoil continues. It is possible as well that the situation falls somewhat between the two. As was noted above, monoline insurers expanded their business from providing insurance to municipal bonds to providing insurance to asset-backed securities/bonds, some of which were backed by mortgage loans. Even in the absence of a mortgage default crisis, mortgage loans generally have a greater probability of default than municipal bonds. Previous ratings of financial monolines, therefore, may not have reflected the increase in default risk solely resulting from a shift in the ratio of bonds backed by municipals relative to bonds backed by other types of financial assets. Hence, the current ratings pressures may be the market accurately reassessing the prospects of the insurers in their expanded line of business. If this is correct, the monoline industry may need increased capital to back the riskier bonds and retain a AAA rating, but it may not be in risk of default or bankruptcy. At the February 14 hearing, Secretary Dinallo indicated that he did not see the bond insurers at risk for insolvency, but that they were definitely facing difficulties in maintaining their ratings. Important considerations going forward include the following: Will a large portion of the bond insurance market be downgraded? Would downgrades lead to fewer customers and put the insurers in serious jeopardy? What percentage of securities backed by monolines eventually go to claim, thus requiring the insurers to make substantial real payments? Are there other surprises in the insurers' books? Did the insurers in fact insure more risky securities than is currently indicated? Are any of the insurers, like ACA, counterparty to derivatives that might require immediate payment upon a downgrade? Spillover Effects from Monoline Difficulties The direct impact of a monoline insurer being downgraded from AAA is critical for that company. What may not be obvious, however, are the effects on other actors in the financial system, some of whom may never have even heard of the asset-backed securities and credit default swaps that are the catalyst for the current problems. These participants and possible impacts are discussed below. Individual Investors The crucial question for individuals holding municipal bonds is whether they are "buy and hold" investors who are using the bond for ongoing income and then the return of principle at maturity, or whether they are intending to sell the bonds before maturity. For the buy-and-hold investor, the downgrade makes no difference, unless the bond issuer defaults in the future. Since municipal bond defaults are exceedingly rare, the downgrade will likely have no impact on this investor. For someone intending to sell the municipal bonds before maturity, the downgrade cuts the value of the bond. How much of a loss in value would depend on how low the insurer was downgraded and the rating on the underlying bond. In addition to holding individual municipal bonds, many individuals hold the bonds indirectly through mutual funds. These individuals are facing losses in the value of the funds just as the individual who was planning on trading the bonds that he or she owned. Municipalities For the large majority of insured bonds that have already been sold, it makes essentially no difference to the issuing municipality whether or not the insurer is downgraded as the municipalities commitment to pay off the terms of the bond is unchanged. The exception to this is a small class of securities known as auction-rate securities. Although these are long-term securities, the interest rate paid by municipalities is set at periodic auctions. The turmoil in the market, including doubts about bond insurers, has caused many of these auctions to fail, resulting in higher immediate interest costs for municipalities issuing these bonds. In 2006, approximately 8.5% of the municipal bond volume were auction-rate bonds. The dollar value was $32.99 billion, of which $21.39 billion was insured. In the future, however, municipalities will likely face a choice between paying a higher premium on insurance from one of the remaining AAA-rated bond insurers, assuming that AAA-rated bond insurers remain, or paying a higher interest rate for their bonds if they offer them either without insurance or with lower rated insurance. In 2007, a AAA-rated bond's average yield was 4.07%, compared with 4.17% for AA, 4.43% for A, and 4.78% for BAA. Depending on the comparison between future insurance premiums and interest rates on differently rated bonds, significant numbers of municipalities might choose to forgo bond insurance altogether. The possible damage to future municipal bond offerings was reportedly a significant factor in Superintendent Dinallo's encouragement of the newly created Berkshire-Hathaway bond insurer. Other Financial Institutions Financial and institutional investors holding insured securities that lose AAA ratings may find they are no longer in regulatory compliance after these downgrades. Banks and insurers face regulatory requirements concerning the amount of capital they must hold against their outstanding loans and written insurance policies. Some pension funds are required to hold AAA investment grade securities. Downgrades will subsequently reduce the value of holdings, and these investors must hold more capital or rebalance their portfolios with higher quality assets. Estimates of the magnitude of this effect are obviously highly speculative at this point in time, and the range of estimates is very wide. One Barclays Capital analysis puts the additional capital needed by global banks to be as high as $143 billion. This $143 billion figure includes both U.S. and European banks, and takes into account the market value losses as well as the increased capital required by regulators since the banks would be holding lower-rated securities. A Morgan Stanley analyst, however, reportedly indicated on a conference call that they found total bank exposures in the United States to be in the $20 billion to $25 billion range with likely losses being $5 billion to $7 billion. Future Policy Issues The future of the individual bond insurers revolve around the actual extent of their losses on asset-backed securities and whether or not they are able to retain their AAA ratings. While the answer to these questions are largely unknowable at the moment, the situation does seem to raise three significant policy questions: Is an immediate federal government response necessary to address the situation and avert possible widespread losses and systemic risk? Was a regulatory failure at least partially responsible for allowing conditions for a potential crisis situation to exist? What regulatory changes, in particular those addressing the use of derivatives, may prevent future financial instability? If the potential losses are truly so high, it would seem to be in the self-interest of a wide number of financial institutions to help the insurers retain their AAA rating with or without direct government intervention. Unless a single, very well capitalized individual or firm becomes convinced that buying out a large bond insurer made business sense, the odds of a purely private rescue seem small. This is primarily due to the collective action problems due to the large number of actors involved. Even if the overall losses would be huge, for each individual bank or insurer affected, the most logical course of action may be to sit back and let somebody else put their money up to solve the problem. In such a case, government coordination, even if no government money is directly involved, might avert the larger loss. This was essentially the solution to the 1998 Long Term Capital Management (LTCM) failure that was brokered by the Federal Reserve. The bond insurer situation, however, is much more complicated than LTCM was. There are several bond insurers in difficulty and hundreds or thousands of institutions that could be affected if the insurers fail. To this point, the direct government intervention has been much less, than in the LTCM rescue. The primary government official pushing for some sort of solution right now is Superintendent Dinallo, who is the insurance regulator of the state where most bond insurers are based, but who does not have the same overall status that the leadership of the Federal Reserve did in the LTCM crisis. The current absence of federal involvement at the micro level points to the more macro questions about regulatory failure. The bond insurers, like all insurers, are state regulated entities. While most are domiciled in New York, the largest, Ambac is domiciled in Wisconsin, and the insurer most negatively affected by the current crisis, ACA, is domiciled in Maryland. Questions by Members of Congress about whether state insurance regulators have the ability to ensure the solvency of insurers were raised in earnest in the late 1980s after several large insolvencies and have continued as the financial services marketplace has become increasingly complex since then. The current bond insurer difficulties will likely cause such questions to be raised again due to the central role played by the relatively new and sophisticated financial instruments, such as credit derivatives and collateralized debt obligations. In addition to the question of how insurers should be regulated, the crisis also may raise questions about whether and how financial derivatives, such as the credit default swaps offered by the bond insurers, should be regulated. Currently, some derivatives trading is regulated by the Commodity Futures Trading Commission under the Commodity Exchange Act. Other derivative instruments, including CDS, are traded in over-the-counter (off-exchange) markets that are essentially unregulated. Congress has repeatedly considered the question of whether unregulated derivatives markets have the potential to facilitate fraud, price manipulation, or financial instability; for example, in December 2007, the Senate passed legislation ( H.R. 2419 , Title XIII) that would expand the CFTC's authority over currently unregulated energy derivatives. Unregulated financial derivatives markets have increased in size such that a widespread crisis in derivatives could cause substantial damage to the rest of the financial system and lead to a downturn in the real economy. This sort of systemic risk is seen as a major rationale for regulating other financial services, such as banks. If derivatives are posing a similar systemic risk, some may point to this in arguing for their regulation as well.

Beginning in 2007, higher than expected defaults and delinquencies in "subprime" mortgages led to a significant slowdown of the housing market. Most of these mortgages were financed by capital markets through asset- or mortgage-backed securities, rather than by traditional banks. Thus, rather than being confined to the institutions that made the now-questionable loans, losses caused by unexpected mortgage defaults have been felt throughout the financial system by any entity who bought mortgage-backed securities. In addition, financial guaranty insurance companies, often known as "monoline" insurers, have also been affected because they insured the prompt payment of interest and return of principal for various securities that may now not be able to pay the promised amounts. With most possible insurance payouts still in the future, these insurers have yet to experience large real losses. Possible massive future losses, however, have caused financial turmoil for insurers, downgrades from rating agencies, and fears about further harm to other institutions, individuals, and municipalities. While the federal government does not currently oversee any insurers, various proposals for broad federal oversight have been introduced, including S. 40/H.R. 3200 in the 110th Congress. The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing entitled "The State of the Bond Insurance Industry" on February 14, 2008, and the full Financial Services Committee is scheduled to examine "Municipal Bond Turmoil: Impact on Cities, Towns, and States," on March 12, 2008. The financial guaranty insurance industry began less than four decades ago with insurance policies being offered on municipal bonds. Bond insurers became known as monoline insurers because they were limited by the regulators to offering financial guaranty insurance, and relatively few companies entered the business. While insuring municipal bonds has remained the majority of their business, bond insurers also expanded into offering insurance for international bonds and the aforementioned asset-backed securities. The insurance provided on the asset-backed securities has been offered through relatively new financial derivatives known as credit default swaps, rather than through traditional insurance policies. The coverage provided through such swaps has in most cases been essentially identical to that provided through traditional insurance policies, but the accounting treatment is different for these tradeable contracts. As the risk of default for the underlying securities has risen, the value of the credit default swaps to insurers has fallen, resulting in multi-billion dollar paper losses for bond insurers. With the possibility of wider financial damage spilling over from bond insurer difficulties, various market participants and government regulators have broached the idea of some sort of rescue for the troubled insurers. Uncertainty about the need for, and size of, such a rescue, as well as complexities in the bond insurer situation have stymied any such rescue to this point. In addition to the immediate demands of crisis management, the turmoil surrounding the bond insurers may also bring longer term regulatory issues to the fore, including questions about future federal oversight regulation of insurers and future federal oversight of derivatives, many of which are essentially unregulated. This report will be updated as events warrant.

The Five-Month Waiting Period for Social Security Disability Insurance Benefits Title II of the Social Security Act provides that certain individuals may be entitled to Social Security Disability Insurance (SSDI) benefits under the federal Old Age, Survivors, and Disability Insurance (OASDI) program if they meet the following statutory requirements: The individual's medical condition meets the definition of disability as specified in Section 216 of the act; The individual has filed a claim for disability benefits; The individual is insured, generally requiring either a work history or the work history of a parent or spouse, as specified in Section 214 of the act; The individual has not reached normal retirement age as provided in Section 216 of the act; and The individual has completed a five-month waiting period. The Five-Month Waiting Period The waiting period for SSDI benefits consists of five consecutive calendar months beginning with the first full calendar month in which a covered individual satisfied the test of disability. If an individual's disabling condition began before he or she met the insurance requirements, the waiting period would begin with the first full calendar month after insured status was gained. During this waiting period, SSDI benefits cannot be paid. It is important to note that this waiting period begins at the onset of the disabling condition and is not affected by the date a worker applies for SSDI benefits. Workers are encouraged by the Social Security Administration (SSA) to apply for benefits at the onset of their disability. The first month counted as part of the waiting period can be no more than 17 months before the month of application and thus, retroactive benefits are limited to 12 months from the date of application. Retroactive Benefits SSA provides retroactive SSDI benefits when the onset of disability occurred before an application for benefits was filed. In such cases, a beneficiary is entitled to benefits retroactive to five months after the date of disability onset provided that this date is within one year of the date of application. Exception to the Five-Month Waiting Period Section 223 of the act provides one exception to the five-month waiting period. A person who, in the five years immediately preceding the onset of a current disability, had either received SSDI benefits or had a disabling condition that met the requirements set forth in Section 216 of the act (42 U.S.C. §416), is entitled to immediate benefits paid from the onset of disability. Legislative History of the SSDI Waiting Period A waiting period from the onset of disability to eligibility for benefits has been part of the SSDI program from its inception. In 1954, Congress made the first provisions for loss of work due to disability and included language that exempted a period of disability from being counted when determining retirement benefits. Two years later, Congress authorized the payment of SSDI benefits to persons over the age of 50 after a six-month waiting period. The age requirement was removed in 1960. In recent years, Congress has introduced a variety of legislative initiatives to reduce or eliminate the five-month waiting period. Congress's Justification for Instituting a Waiting Period In 1955, the House Ways and Means Committee recommended passage of the proposed Social Security Amendments and discussed the rationale for a six-month waiting period between the onset of disability and eligibility for federal benefits. A committee report cited the unique nature of the federal definition of disability and called its requirement that a disabling condition be expected to result in either death or long duration "more exacting" than the disability definitions commonly used by commercial insurance carriers at the time, many of which had their own six-month waiting periods. In addition, the Ways and Means Committee expressed that the six-month waiting period was "long enough to permit most temporary conditions to be corrected or to show definite signs of probable recovery" and would be of sufficient length to make it "unprofitable for a person who can work not to do so." Changes to the SSDI Waiting Period Two significant changes to the original six-month waiting period have been passed as part of the creation of the SSDI program. The first change eliminated the waiting period for disabled workers who were previous SSDI recipients or who had a previous disabling condition in the five years prior to the onset of their current disability. To be exempted from the waiting period, the previous disabling condition must have met the statutory definition of disability as provided in Title II of the act. In their reports to the House and Senate on the 1960 Amendments, the Ways and Means and Finance Committees affirmed that the six-month waiting period for those with previous disabilities as a possible barrier to return to work efforts, stating that Most disability insurance beneficiaries who return to work do so despite severe impairments. Where a disabled person becomes employed without any improvement of his condition, a more or less slight change in his situation can result in the loss of his job and make him once again eligible for disability insurance benefits. Other disabled persons, whose medical conditions may improve sufficiently to require termination of benefits, may subsequently grow worse again and become reentitled to benefits. A new six-month qualifying period during which they receive neither earnings nor benefits imposes a hardship on them and their families, and may be a real bar to any further work attempts. The second change to the SSDI waiting period reduced the waiting period from six to five months. The intent of this change was to reduce the financial burden on applicants, and the Ways and Means Committee reported that "reducing the waiting period from six months to five months would diminish the financial hardships faced by those workers who have little or no savings or other resources to fall back on during the early months of long-term disability." The Senate Finance Committee went further than the House and recommended reducing the waiting period to four months. Potential Income Supports During the Five-Month Waiting Period Supplemental Security Income Title XVI of the act authorizes Supplemental Security Income (SSI) benefits for individuals who meet the statutory test of disability or are over the age of 65 and who fall below specific income and asset thresholds. SSI beneficiaries need not have any prior work history or meet the insurance requirements of SSDI, and there is no waiting period between the onset of a disability and eligibility for SSI benefits. In December 2012, of the 8.4 million disabled-worker beneficiaries aged 18-64 receiving SSDI benefits, 1.1 million or 13.1% also received federally administered SSI benefits. Thus, SSI can be used by some disabled workers to lessen the economic hardship faced by the lack of earnings and benefits during the SSDI waiting period. SSI benefits are not available to residents of Puerto Rico, Guam, or the U.S. Virgin Islands. The maximum federal SSI payment, referred to as the federal benefit rate, is $721 per month for an individual living independently and $1,082 for a couple living independently in 2014. Forty-four states and the District of Columbia add a supplement to this benefit for their residents. The amount of the federal benefit, plus any state supplement, may be reduced or offset by some earned and unearned income. Since most SSI recipients have other income, the average monthly SSI payment is less than the federal benefit rate. In December 2013, the average federally administered SSI payment was $546.38 for adults aged 18 to 64. Thirty-nine states, the District of Columbia, and the Commonwealth of the Northern Mariana Islands grant Medicaid eligibility to all SSI recipients or have Medicaid eligibility rules that are the same as those of the SSI program. Temporary Disability Insurance California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island currently administer Temporary Disability Insurance (TDI) programs that provide either state or private benefits to workers with disabilities who are not receiving SSDI benefits. The six TDI programs provide temporary benefits, with maximum durations of between 26 and 52 weeks, for those with an earnings history who are unable to work because of a disability and who are not receiving workers' compensation or SSDI benefits. In addition to state TDI, employees of the railroad industry in all states are eligible for TDI benefits administered by the federal Railroad Retirement Board in accordance with provisions of the Railroad Unemployment Insurance Act. Workers' Compensation Workers' compensation systems in each state provide wage replacement and medical benefits to workers unable to work because of an employment-related illness or injury and may be able to pay benefits during the SSDI waiting period. The federal government administers workers' compensation for its employees under the Federal Employees' Compensation Act. The federal government also administers workers' compensation systems for some private sector employees in the maritime, mining, and railroad industries through the Longshore and Harbor Workers Compensation Program, the Black Lung Benefits Program, and the Energy Employees' Occupational Illness Compensation Program. Unemployment Compensation In each state, workers covered by state unemployment insurance (UI) systems may be eligible to receive partial wage replacement in the event of a job separation. The states, however, require that those receiving unemployment compensation be able and willing to work, a condition that may exclude many waiting for SSDI eligibility (especially an individual who would earn in excess of the substantial gainful activity), since it is assumed that the individual is unable to work. Unemployment benefits are administered by the states within federal guidelines under Title III of the act, and unemployment compensation provisions for individuals who are ill or disabled vary by state. The Government Accountability Office (GAO) found that 117,000 individuals (less than 1.0% of all SSDI beneficiaries) received concurrent SSDI and UI cash benefits in fiscal year (FY) 2010. SSA's Office of the Chief Actuary estimated that 0.4% of disabled-worker beneficiaries would be in receipt of both SSDI and UI benefits in 2014. Private Disability Insurance Private disability insurance programs offered by employers can be used to provide wage replacement benefits during the five-month waiting period for SSDI benefits. In March 2013, 39% of private-sector workers participated in some form of short-term disability insurance plan while 32% of private-sector workers were covered by long-term disability insurance. It has been estimated that up to 20% of SSDI beneficiaries have received payments from private disability insurance policies before being eligible for federal benefits. Impact of the Five-Month SSDI Waiting Period The five-month waiting period between the onset of disability and eligibility for SSDI may have a negative impact on the income of those seeking to enter the program. During this waiting period, persons with disabilities are either not working or earning less than the substantial gainful activity (SGA) threshold. In addition, claimants are either not receiving monthly benefits to replace lost wages or are receiving only SSI benefits, which are usually lower than SSDI benefits. A July 2012 analysis by the Congressional Budget Office (CBO) estimated that the elimination of the five-month waiting period would increase outlays to SSDI by approximately $8.0 billion dollars in 2022 (about 4% of program outlays). One impact that may not be as clear, however, is the role that the waiting period plays in discouraging possible beneficiaries from applying for benefits. This waiting period, and its accompanying loss of income, lessen the overall generosity of the SSDI benefit.

Social Security Disability Insurance (SSDI) is authorized by Title II of the Social Security Act and provides income replacement for eligible individuals who are unable to work due to a long-term injury or illness that is expected to last at least one year or result in death. Current eligibility requirements include (1) verification of an applicant's disability, (2) filing a claim, (3) a "recent work" and "duration of work" test, (4) verification that an individual has not reached normal retirement age, and (5) a five-month waiting period from disability-onset. In implementing the five-month waiting period for SSDI benefits, Congress sought to set a time frame that would be long enough for a short-term injury or illness to be corrected, but would also deter individuals who can work from applying for benefits. The first month counted as part of the waiting period can be no more than 17 months before the month of application, and benefits can be applied retroactively for up to 12 months. The Social Security Administration (SSA) encourages eligible individuals to apply for benefits as soon as possible after the onset of a disabling condition. The waiting period does not apply to individuals who have been previous recipients of SSDI in the five years prior to any current disability. Several other programs, such as Supplemental Security Income (SSI), temporary disability insurance, workers' compensation, unemployment compensation, and private disability insurance, can provide funds for eligible SSDI applicants facing financial hardship during the five-month wait period.

Background At the time that Hatch-Waxman was being debated by Congress and subsequently implemented by the FDA, the biotechnology industry was just beginning to develop its first biologics for use as human therapeutic agents. The first FDA approval of a biotechnology drug for human use, human insulin, occurred in 1982, followed by human growth hormone in 1985, alpha interferon in 1986, tissue plasminogen activator in 1987, and erythropoietin in 1989. Most biologics require special handling (such as refrigeration) and are usually administered to patients via injection or infused directly into the bloodstream. Biotechnology products are expected to become a larger share of the drugs sold by the pharmaceutical industry to U.S. consumers. However, with no equivalent to the generic alternatives for chemical drugs, the cost of therapeutic biologics is often prohibitively high for individual patients. For example, the costs per year (in 2009) of some commonly used biologic drugs: Enbrel for rheumatoid arthritis, $26,000; Herceptin for breast cancer, $37,000; Rebif for multiple sclerosis, $40,000; Humira for Crohn's disease, $51,000; and Cerezyme for Gaucher's disease, $200,000. Spending by Medicare in 2006 on Epogen, a treatment for anemia, was $2.8 billion, more than the entire FY2006 budget for FDA, which was $1.863 billion. Medicare spending on biologics totaled about $13 billion in 2007. Spending on all pharmaceuticals currently represents about 11% of health care spending in the United States. Increasingly insurers are adopting strategies to manage the use of expensive biologics, such as a tiered formulary (resulting in higher patient cost-sharing) and prior authorization (requiring physicians to obtain approval from an insurer for coverage before a prescription is filled or administered). In situations in which such expensive drugs have no effect on overall survival, insurers may turn to "innovative payment models, such as providing payment only in cases in which a drug actually leads to clinical improvement." Market Competition For chemical drugs, some experts argue that "generic medications decrease prices 60% to 90% on branded oral-solid medications." The Congressional Budget Office estimated the savings generated by generic drug use in 1994 was between $8 billion and $10 billion. The generic drug industry achieves these cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs that were incurred by the brand-name manufacturer. In the case of chemical pharmaceuticals, before a generic drug can be marketed, the generic drug company must demonstrate to the FDA that the drug product is identical to the original product. This "sameness" allows the generic company to rely on or "reference" the FDA's previous finding of safety and effectiveness for the approved drug. Even though patents for several specialty biotechnology drug products have expired, very few have had to face the same type of market competition that occurs with chemical drugs. In contrast to the relatively simple structure and manufacture of chemical drugs, follow-on biological products, with their more complex nature and method of manufacture, will not be identical to the brand-name product, but may instead be shown to be similar. The Generic Pharmaceutical Association (GPhA) advocated that the FDA establish a regulatory system for the approval of follow-on biologics under its existing statutory authority. However, the Biotechnology Industry Organization (BIO) filed a citizen petition with the FDA requesting a number of actions that would inhibit the approval of follow-on biologics. On April 12, 2006, the European Commission approved the first biosimilar product Omnitrope, a human growth hormone, in Europe following a positive scientific opinion issued by the European Medicines Agency (EMA); a second biosimilar human growth hormone, Valtropin, was approved on April 24, 2006. Sales of Omnitrope in the United States only occurred following the April 10, 2006, ruling by the U.S. District Court in the District of Columbia in favor of Omnitrope's sponsor, Sandoz. The court ruled that the FDA must move forward with consideration of the abbreviated application, submitted by Sandoz in 2003, that presents Omnitrope as "indistinguishable" from the FDA-approved Genotropin marketed by Pfizer. Sandoz "alleged that the FDA had violated its statutory obligation to act on the Omnitrope application within 180 days, a time frame that the FDA characterized as merely a congressional aspiration." Federal Trade Commission Report In June 2009 the Federal Trade Commission (FTC) released a report that examines the potential impact of follow-on biologics on the price of biologic drugs and compares this with the impact of generic drugs on the chemical drug market. The report found that for a number of reasons the competition between follow-on and brand-name biologics is unlikely to be similar to generic and brand-name chemical drug competition. Based on these findings, the FTC report concluded that the 12- to 14-year market exclusivity period is too long to promote innovation, particularly since the brand-name firm will retain substantial market share after the follow-on biologic enters the market. The report also stated that follow-on biologic manufacturers are unlikely to require a 180-day marketing exclusivity period as an incentive to develop interchangeable products. Lastly, the report concluded that special procedures to resolve patent issues are unnecessary and could undermine patent incentives and harm consumers. The Obama Administration believed that its proposal of a seven-year market exclusivity period was "a generous compromise between what the FTC research has concluded and what the pharmaceutical industry has advocated." In contrast, a group representing the biotechnology industry believed that 12 to 14 years of market exclusivity was necessary to promote innovation and that patent resolution procedures would benefit patients, physicians, insurers, and manufacturers. Others provided commentary and recommendations on the length of the data exclusivity period, including John Calfee of the American Enterprise Institute, Alex Brill, a principal at Matrix Global Advisors, LLC and former chief economist to the House Ways and Means Committee (seven years), and Duke University economist Henry Grabowski (12.9 to 16.2 years). Economic Studies on Potential Savings Economic studies on potential savings to the federal government over 10 years due to the use of follow-on biologics have ranged "between nothing and $14 billion." A study by Avalere Health estimated "government savings at $3.6 billion in the first 10 years"; another study by Express Scripts estimated "10-year consumer savings at $71 billion and federal savings at $14 billion." On June 25, 2008, the Congressional Budget Office (CBO) released a cost estimate on a bill introduced in the 110 th Congress, S. 1695 (Kennedy). The CBO study found that enactment of S. 1695 would save the federal government $5.9 billion over 10 years (2009-2018) and would reduce total expenditures on biologics in the United States by about $25 billion over the same period. The Obama Administration FY2010 budget proposal estimated the amount of savings, following the implementation of a pathway for the approval of follow-on biologics, at $9.2 billion over a 10-year period (2010-2019). Patient Safety Although most observers agree that lower prices for biologics would be of great benefit both to consumers and payers, some have expressed concern that the abbreviated application process allowing for expedited FDA approval of these complex therapeutics might compromise patient safety. A report published in October 2008 investigated the nature, frequency and timing of safety-related regulatory actions for biologics approved in the United States and the European Union. It found that 41 of 174 biologics approved since 1995 were the subject of 82 regulatory actions regarding safety. These regulatory actions were primarily letters to healthcare professionals and some "black box" warnings on product labels but no product withdrawals. The October 2008 study found that the probability of a first safety-related regulatory action was 14% 3 years after approval and 29% 10 years after approval. The authors noted that these may be underestimates—not all drugs are marketed right after approval (and some may never be marketed), but all biologics that obtained market authorization were included in the study. As is the case with chemically produced drugs, many safety problems are identified only after drug approval because some serious adverse drug effects are rare and will only become apparent following use in large numbers of patients. Lastly, and perhaps most importantly for individuals interested in follow-on biologics products, the study found that the first biologics approved in a chemical, pharmacological and therapeutic subgroup (in other words, innovator products) were especially prone to safety-related regulatory action compared with later approved products in that subgroup. Relevant Laws In general, biological products are regulated ( licensed for marketing) under the Public Health Service Act—originally by the National Institutes of Health (NIH) and its precursors and later, starting in 1972, by the FDA—and chemical drugs are regulated ( approved for marketing) under the Federal Food Drug and Cosmetic Act—by the FDA. This section provides a brief history of these two Acts and other relevant laws, as well as some of the important amendments that have occurred during the past 100 years. Biologics Control Act of 1902 The regulation of biologics by the federal government began with the Biologics Control Act of 1902, "the first enduring scheme of national regulation for any pharmaceutical product." The act was groundbreaking, "the very first premarket approval statute in history." It set new precedents, "shifting from retrospective post-market to prospective pre-market government review." The Biologics Act was passed in response to deaths (many in children) from tetanus contamination of smallpox vaccine and diphtheria antitoxin. The act focused on the manufacturing process of such biologic products and required an inspection of the manufacturing facility before a federal license was issued to market the product. Pure Food and Drugs Act and the Federal Food Drug and Cosmetic Act The Biologics Act predates the regulation of drugs under the Pure Food and Drugs Act, which was enacted in 1906. The 1906 Act "did not include any form of premarket control over new drugs to ensure their safety ... [and] did not include any controls over manufacturing establishments, unlike the pre-existing Biologics Act and the later-enacted Federal Food Drug and Cosmetic Act (FDC Act)." The Pure Food and Drugs Act was replaced by the FDC Act in 1938. The FDC Act required that drug manufacturers submit a new drug application (NDA) prior to marketing that demonstrated, among other things, that the product was safe. The Public Health Service Act The Biologics Act was revised and re-codified (42 USC 262) when the Public Health Service Act (PHS Act) was passed in 1944. The 1944 Act specified that a biological product that has been licensed for marketing by the FDA under the PHS Act is also subject to regulation (though not approval) under the FDC Act. A biological product is defined under section 351(i) of the PHS Act, as a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product ... applicable to the prevention, treatment or cure of a disease or condition of human beings. Section 351(j) of the PHS Act states that "the FDC Act applies to a biological product subject to regulation under this section, except that a product for which a license has been approved under subsection (a) shall not be required to have an approved application under section 505 of such Act." Most biological products regulated under the PHS Act also meet the definition of a drug under section 201(g) of the FDC Act: articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or animals; and articles (other than food) intended to affect the structure or any function of the body of man or other animals. The PHS Act was amended by FDA Modernization Act of 1997 (FDAMA) to require a single biological license application (BLA) for a biological product, rather than the two licenses—Establishment License Application (ELA) and Product License Application (PLA)—that had been required between 1944 and 1997. The PHS Act provides authority to suspend a license immediately if there is a danger to public health. Natural Source Biological Products and the Hatch-Waxman Act As stated previously, biological products are, in general, regulated—licensed for marketing—under the PHS Act, and chemical drugs are regulated—approved for marketing—under the FDC Act. However, through a historical quirk, the FDA was given regulatory authority over certain natural source biological products; these products have been regulated as drugs under the FDC Act rather than as biologics under the PHS Act. In 1941, three years prior to the re-codification of the Biologics Act, Congress gave the FDA authority over the marketing of insulin. Insulin is a peptide hormone, a small protein that regulates carbohydrate metabolism. In the 1940s, insulin "was obtained in the same manner as many biologics, namely extraction from animals. Despite this similarity with biologics, insulin was regulated by FDA." In addition to insulin, the distinction of a biological product regulated as a drug under the FDC Act rather than as a biologic under the PHS Act holds true for a small set of products that are mostly hormones: glucagon, human growth hormone, hormones to treat infertility, hormones used to manage menopause and osteoporosis, and certain medical enzymes (hyaluronidase and urokinase). This distinction is important because the Hatch-Waxman Act provides a mechanism for the approval of generic drugs under the FDC Act but not under the PHS Act. Generic pharmaceutical companies could seek to gain approval of follow-on biological products for the small number of biologics approved under the FDA Act but not the much larger group of biologics approved under the PHS Act. Hatch-Waxman added two abbreviated pathways to the FDC Act for subsequent versions of already approved products: section 505(j) and section 505(b)(2). Section 505(j) established an Abbreviated New Drug Application (ANDA) process for a generic drug that contains the same active ingredient as the brand-name innovator drug. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved innovator drug, and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The 505(j) pathway is used for the approval of most generic chemical drugs. Under the second pathway, a drug that has a significant difference from an innovator drug, but is still sufficiently similar to that drug, may be the subject of a 505(b)(2) application. The company filing the application must submit additional non-clinical and clinical data to show that the proposed product is safe and effective. However, the application may rely on published literature or on the FDA's finding of safety and effectiveness for the already approved product to support the approval of the proposed product. The 505(b)(2) pathway has been used to approve Omnitrope, a follow-on human growth hormone, and a few other follow-on protein products. All have been members of the small set of biologic products that were regulated as drugs. Regulatory Framework Following enactment of the 1902 Biologics Act, regulatory responsibility for biologics was first delegated to the Hygienic Laboratory, a precursor of NIH. In 1972, regulatory authority for biologics was transferred from the NIH Division of Biological Standards to the FDA Bureau of Biologics, which eventually became the agency's Center for Biologics Evaluation and Research (CBER). Because biotechnology products frequently cross the conventional boundaries between biologics, drugs, and devices, determining the jurisdictional status of these new products has been difficult for both the FDA and industry. Some products have had characteristics that met multiple statutory and scientific definitions. In 1991, the FDA published an Intercenter Agreement between CBER and the Center for Drug Evaluation and Research (CDER). In general, the agreement stated that traditional biologics (vaccines, blood, blood products, antitoxins, allergenic products), as well as most biotechnology products, would be regulated by CBER. The small set of biologics mentioned earlier that are regulated as drugs under the FDC Act would continue to be regulated by CDER, regardless of the method of manufacture. In 2002, however, the FDA announced its intention to reorganize review responsibilities, consolidating review of new pharmaceutical products under CDER, thereby allowing CBER to concentrate on vaccines, blood safety, gene therapy, and tissue transplantation. On June 30, 2003, responsibility for most therapeutic biologics was transferred from CBER to CDER. Under the new structure, biological products transferred to CDER will continue to be regulated as licensed biologics under section 351 of the PHS Act. Examples of products transferred to CDER include monoclonal antibodies; proteins intended for therapeutic use (interferons, thrombolytic enzymes); immunomodulators (other than vaccines and allergenic products); and, growth factors, cytokines, and monoclonal antibodies intended to alter production of blood cells. Remaining at CBER are traditional biologics such as vaccines, allergenic products, antitoxins, antivenins, venoms, and blood and blood products, including recombinant versions of plasma derivatives (clotting factors produced via biotechnology). As stated previously, the Hatch-Waxman Act added two abbreviated pathways under the FDC Act—505(j) and 505(b)(2)—but not under the PHS Act, for the approval of additional products subsequent to the innovator product. Because of the complex nature of most biological products and their methods of manufacture, such products will not be identical to the brand-name product; therefore, the 505(j) pathway cannot be used for product approval. However, if a biological product is sufficiently similar to the innovator product, the 505(b)(2) pathway may be used by a company for the approval of its biologic. Following the enactment of Hatch-Waxman, the FDA published in 1999 a draft guidance on applications covered by section 505(b)(2); the guidance has never been finalized. As things currently stand, and as discussed above, the 505(b)(2) pathway has been used only for those biologics that have been regulated as drugs under the FDC Act. However, the vast majority of biologics have been regulated under the PHS Act. The FDA's position is that additional legislation is required to provide such a pathway under the PHS Act. For traditional biologics regulated under the PHS Act, the agency's longstanding policy has been that a full BLA, including clinical testing, would be required for the licensing of each such product. In a 1974 Federal Register notice, the FDA stated that [u]nlike the regulation of human and animal drugs, all biological products are required to undergo clinical testing in order to demonstrate safety, purity, potency and effectiveness prior to licensing, regardless whether other versions of the same product are already marketed or standards for the product have been adopted by rulemaking. Indeed, many of the existing standards require specific clinical testing before approval will be granted. This is required because all biological products are to some extent different and thus each must be separately proved safe, pure, potent, and effective.... There is no such thing as a "me-too" biologic. When publishing the final rule on the ANDA procedure that had been outlined in Hatch-Waxman, the FDA stated in 1992 that "these procedures are inapplicable to ... biological drug products licensed under 42 USC 262 (section 351 of the PHS Act)." Most recently, during hearing testimony on May 2, 2007, before the Subcommittee on Health of the House Energy and Commerce Committee, Janet Woodcock, Deputy Commissioner and Chief Medical Officer of the FDA, stated in response to questioning that there is no pathway under the PHS Act for the approval or licensing of follow-on biologics that is similar to the 505(b)(2) pathway under the FDC Act, and that the FDA would be willing to work with Congress in crafting a legislative approach to creating such a pathway. Scientific Challenges Comparing a follow-on protein with the brand-name product is more scientifically challenging than comparing generic and brand-name chemical drugs. For chemically synthesized drugs, which are relatively small molecules, the equivalence of chemical composition between the generic drug and innovator drug is relatively easy to determine. In contrast, therapeutic proteins are much larger in size (100- to 1,000-fold larger than chemically synthesized drugs), have a much more complex three-dimensional structure, and may consist of mixtures rather than one pure entity. A protein is a large organic molecule composed of a long chain of component parts, called amino acids, which are linked by chemical bonds. This amino acid chain folds into a complex three-dimensional structure. Slight changes in the chain or three-dimensional shape can influence the protein's biological activity. All manufactured biologics (brand or follow-on) can vary slightly from lot to lot, even when the manufacturing process has not been changed. Proteins can also be altered by the addition of other chemicals, such as sugar groups (glycosylation), at various points along the amino acid chain. In many cases, current technology will not allow complete characterization of biological products. In prepared testimony before Congress, FDA Deputy Commissioner Janet Woodcock outlined the scientific challenges involved in determining the safety and effectiveness of follow-on biologics, often referred to by FDA as follow-on protein products: Current technologies, such as peptide mapping, protein sequencing, and mass spectroscopy enable manufacturers to determine, with certainty, the amino acid sequence of a recombinant protein. However, the amino acid sequence is the most rudimentary characteristic of a protein. Conclusive analysis of other aspects of a protein's structure requires much more sophisticated technologies and is fraught with uncertainties that are proportional to the size and complexity of the protein itself. Such complexities include folding of the protein's amino acid chain into highly organized structures, post-translational modification of the protein with a broad range of biochemical additions (e.g., glycosylation, acetylation, phosphorylation, etc.), and association of multiple protein molecules into aggregates. It is the combination of the protein's amino acid sequence and its structural modifications that give a protein its unique functional characteristics. Therefore, the ability to predict the clinical comparability of two products depends on our understanding of the relationship between the structural characteristics of the protein and its function, as well as on our ability to demonstrate structural similarity between the follow-on protein and the reference product. Although this currently may be possible for some relatively simple protein products, technology is not yet sufficiently advanced to allow this type of comparison for more complex protein products. Another challenge for the FDA is determining whether the follow-on biologic is sufficiently similar to the brand-name biologic that the two products are interchangeable. Several terms are important to this discussion. Products that are considered to be therapeutically equivalent "are approved drug products, usually made by different manufacturers, that are pharmaceutical equivalents and for which bioequivalence has been demonstrated. Therapeutic equivalents can be expected to have the same clinical effect and safety profile when administered to patients under the conditions specified in the labeling." Pharmaceutical equivalents are products that contain the same active ingredient in the same strength, dosage form, and route of administration. Bioequivalence means that the products are absorbed into the body at a similar rate and extent. Interchangeability "is not defined by FDA and could have a number of different meanings. It could refer to products that are therapeutic equivalents, and thus could, in some circumstances, be substituted at the pharmacy level without a physician's intervention. Alternatively, the term could describe similar products that are not 'substitutable' but which, under a physician's supervision, could be used to treat the same disease or condition in the same patient." Most drugs approved under section 505(j) are therapeutically equivalent to the already approved drug product. In her testimony, Dr. Woodcock explains the importance of a determination of therapeutic equivalence for a generic drug and the reasons why such a determination for a follow-on protein product may not be possible, at least at the present time: In many jurisdictions, therapeutically equivalent drugs may be substituted at the pharmacy level, without a physician's intervention.... Because of the variability and complexity of protein molecules, current limitations of analytical methods, and the difficulties in manufacturing a consistent product, it is unlikely that, for most proteins, a manufacturer of a follow-on protein product could demonstrate that its product is identical to an already approved product. Therefore, the section 505(j) generic drug approval pathway, which is predicated on a finding of the same active ingredient, will not ordinarily be available for protein products. Immunogenicity , or the ability to elicit an immune response, is another important term in the discussion of follow-on proteins. An immune response to a therapeutic protein can range from detectable, but clinically insignificant, to one that can cause safety problems for the patient or limit the effectiveness of the product. For some biologics, such as vaccines, stimulating an immune response is the intended outcome. However, for other types of therapeutic products, an immune response can lower the clinical effect of a protein. Dr. Woodcock describes the implications at length in the prepared testimony: Adverse safety events from an immune response could include hypersensitivity reactions such as anaphylaxis, rash, fever and kidney problems, to cross-reaction with an endogenous (naturally occurring in the body) protein (e.g., erythropoietin). Immunogenicity may be influenced by patient-related, disease-related, or product-related factors. Immune responses to administered protein products can be extremely serious or life-threatening; therefore, this issue requires significant attention. The ability to predict immunogenicity of a protein product, particularly the more complex proteins, is extremely limited. Therefore, some degree of clinical assessment of a new product's immunogenic potential will ordinarily be needed. The extent of independent testing needed will again depend on a variety of scientific factors such as the indication, whether the product is to be administered chronically, the overall assessment of the product's immunogenic potential, and whether there is the possibility of generating a cross-reaction with an important endogenous molecule. Even if a follow-on protein product is found to be safe and effective by the FDA, this finding does not mean that the follow-on protein product would be interchangeable with, or substitutable for, the originally approved brand-name product. To establish that the follow-on protein product is substitutable for the brand-name product, the manufacturer of the follow-on product must demonstrate through additional clinical data that repeated switches from the follow-on product to the brand-name product (and vice versa) would have no negative effect on the safety and/or effectiveness of the products. In other words, there must be no problems with immunogenicity. "For many follow-on protein products, and, in particular, the more complex proteins, there is a significant potential for repeated switches between products to have a negative impact on the safety and/or effectiveness. Therefore, the ability to make determinations of substitutability for follow-on protein products may be limited." Legislation Legislative History Efforts by Congress to address the need for an pathway for the licensure of follow-on biologics began with the introduction of the Access to Life-Saving Medicine Act ( H.R. 6257 , Waxman, and S. 4016 , Schumer) which was introduced near the end of the 109 th Congress and received no further action. Early in the first session of the 110 th Congress, two competing legislative approaches were introduced that would have allowed FDA to approve follow-on biologic products. In general, the approach taken by H.R. 1038 (Waxman) and its companion bill S. 623 (Schumer) were favored by the generic drug industry, while H.R. 1956 (Inslee), and S. 1505 (Gregg) were favored by companies that have developed the innovator or brand-name products. The introduction of S. 1695 (Kennedy) in June 2007 provided a third approach. The bipartisan Senate sponsors (Senators Kennedy, Hatch, Enzi, and Clinton) of S. 1695 claimed to have negotiated a compromise between the brand-name manufacturers and the generic drug industry. The sponsors of S. 1695 intended to add the bill's language to legislation ( H.R. 2900 / S. 1082 / H.R. 3580 ) reauthorizing FDA's user fee programs when this larger FDA bill entered conference negotiations. However, when H.R. 3580 became P.L. 110-85 on September 27, 2007, it did not include S. 1695 . The introduction of H.R. 5629 (Eshoo) in March 2008 provided yet another approach. H.R. 5629 was similar in some respects to S. 1695 with a few important differences that were favored by the brand-name industry. S. 1695 was reported on November 19, 2008. No further action was taken on this or the other follow-on biologics bills in the 110 th Congress. In the 111 th Congress, H.R. 1427 (Waxman) contained a number of changes when compared with H.R. 1038 (Waxman) from the 110 th Congress. H.R. 1548 (Eshoo) was essentially the same as H.R. 5629 (Eshoo) as introduced in the 110 th Congress with a few minor changes. Health care reform legislation also provided a pathway for the approval of follow-on biologics. The biologics provisions were added to PPACA in "Title VII—Improving Access to Innovative Medical Therapies" as "Subtitle A—Biologics Price Competition and Innovation," sections 7001 through 7003. The following paragraphs briefly describe the biologics provisions in the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 ). Biologics Provisions in PPACA, P.L. 111-148 Interchangeability A determination on interchangeability is required if the application shows that the biological product (1) is biosimilar to the reference product, (2) can be expected to produce the same clinical result in any given patient, and (3) can be alternated or switched with use of the reference product without risk to the patient in terms of safety or diminished efficacy compared with use of the reference product alone. There is no requirement on the publication of guidance. Clinical studies PPACA requires information in the FDA application demonstrating that the follow-on biologic is similar to the reference product based on data from a clinical study or studies to demonstrate safety, purity, and potency for one or more appropriate conditions of use for which the reference product is licensed. However, the Secretary may determine that elements in the application, such as clinical studies, may be unnecessary. FDA Guidance documents FDA may publish proposed guidance for public comment prior to publication of final guidance, and if so, FDA must establish a process to allow public input regarding priorities for issuing guidance. The issuance or non-issuance of guidance would not preclude the review of, or action on, an application. Data exclusivity for reference product Data exclusivity is separate from the protection provided by a patent. Data exclusivity is the period of time during which the manufacturer of a follow-on product, in the preparation of its application for FDA approval, is blocked from referring to the data submitted in the original application to FDA for the approval of the brand-name product; this results in a period of exclusive marketing for the brand-name product. PPACA provides a 12-year exclusivity period from the date on which the reference product was first approved. If a reference product has been designated an orphan drug, an application for a biosimilar or interchangeable product may not be filed until the later of (1) the seven-year period of orphan drug exclusivity described in the FFDCA or (2) the 12-year period established by the Senate bill. Market exclusivity for the first interchangeable product PPACA allows for a period of exclusive marketing for the follow-on biologic product that is the first to be established as interchangeable with the reference product. Patents56 PPACA sets forth provisions governing patent infringement claims against an applicant or prospective applicant for a follow-on biological product license. It establishs new processes for identifying patents that might be disputed between the brand-name company and the company submitting a biosimilar application and also would establish a multistep patent resolution process. Biological products approved under FFDCA PPACA stipulates that all biological product applications must be submitted under section 351 of the PHS Act. For the small number of biological products that have been approved under section 505 of the FFDCA, the approved application is deemed to be a license for the biological product under section 351 as of 10 years after enactment. User fees The Secretary of HHS must develop recommendations regarding goals for the review of follow-on biologic product applications for FY2013 through the end of FY2017 and present them to Congress. The recommendations must be published in the Federal Register with a 30-day public comment period, and a public meeting must be held. The revised recommendations would be presented to Congress by January 15, 2012. Based on these recommendations, it is the sense of the Senate that Congress should authorize a user fee program effective October 1, 2012. Through October 1, 2010, the Secretary must collect data on the cost of follow-on biologic application review as conducted according to the prescription drug user fee program. Two years after receiving the first user fee for a follow-on biological product application and every two years thereafter until October 1, 2013, the Secretary must perform an audit of the application review costs. An alteration of the user fee would occur depending on results of the audit, as specified in the bill. Pediatric biologics57 PPACA provides for an extra six months of market exclusivity for a new biologic drug if pediatric studies are conducted prior to FDA approval of the drug. An extra six months of market exclusivity is provided for a biologic drug already on the market if pediatric studies are conducted and the request for the extension is made not less than nine months before the expiration of the original exclusivity period. PPACA requires an IOM study to be conducted that will review and assess the number and importance of biological products for children that are being tested as a result of these biologics provisions, as well as biological products that are not being tested for pediatric use, and offer recommendations for ensuring pediatric testing of biological products. Savings PPACA requires the HHS Secretary and the Treasury Secretary to determine for each fiscal year the amount saved to the federal government as a result of enactment of the approval pathway for biosimilar biological products; the savings will be used for deficit reduction.

On March 23, 2010, President Obama signed into law a comprehensive health care reform bill, the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148). PPACA establishes a new regulatory authority within the Food and Drug Administration (FDA) by creating a licensure pathway for follow-on biologics, also called biosimilars, and authorizing the agency to collect associated fees. A biologic is a preparation, such as a drug or a vaccine, that is made from living organisms. A follow-on biologic, or biosimilar, is similar to the brand-name (innovator) product made by the pharmaceutical or biotechnology industry. In contrast to a biologic, most commonly used drugs are synthesized via a chemical process. Biologics often require special handling (such as refrigeration) and are usually administered to patients via injection or infused directly into the bloodstream. The new regulatory pathway is analogous to the FDA's authority for approving generic chemical drugs under the Drug Price Competition and Patent Term Restoration Act of 1984 (P.L. 98-417). Often referred to as the Hatch-Waxman Act, this law allows the generic company to establish that its drug product is chemically the same as the already approved innovator drug, and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The generic drug industry achieves cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs that were incurred by the brand-name manufacturer. The cost of specialty drug products, such as biologics, is often prohibitively high. For example, the costs per year (in 2009) of some commonly used biologic drugs: Enbrel for rheumatoid arthritis, $26,000; Herceptin for breast cancer, $37,000; Rebif for multiple sclerosis, $40,000; Humira for Crohn's disease, $51,000; and Cerezyme for Gaucher's disease, $200,000. A pathway enabling the FDA approval of follow-on biologics will allow for market competition and reduction in prices, though perhaps not to the same extent as that which occurred with generic chemical drugs under Hatch-Waxman (P.L. 98-417). In contrast to chemical drugs, which are small molecules and for which the equivalence of chemical composition between the generic drug and innovator drug is relatively easy to determine, a biologic, such as a protein, is much larger in size and much more complex in structure. Therefore, comparing a follow-on protein with the brand-name product is more scientifically challenging than comparing chemical drugs. In many cases, current technology will not allow complete characterization of biological products. Additional clinical trials may be necessary before the FDA would approve a follow-on biologic. This report provides a brief introduction to the relevant law, the regulatory framework at the FDA, the scientific challenges for the FDA in considering the approval of follow-on biologics, and a brief description of the biologics provisions in PPACA. Economic studies on potential savings to the federal government over 10 years due to the use of follow-on biologics have ranged between nothing and $14 billion.

Geopolitical Considerations From December 2011 to January 2012, some Iranian government officials openly threatened to close the Strait of Hormuz, a major artery of the global oil market, if sanctions are imposed on Iran's oil exports. Iran's first Vice President Mohammad Reza Rahimi first stated that threat on December 28, 2011. Various Iranian naval and other commanders restated and in some cases changed the threat somewhat. For example, on January 3, 2012, the commander of Iran's regular army, Ataollah Salehi, warned the United States not to return the departing U.S.S. John Stennis aircraft carrier to the Gulf. Perhaps recognizing the potential for conflict with superior U.S. forces, a few Iranian figures, including regular Navy commander Habibollah Sayyari, issued statements downplaying or softening the warnings and threats. The Iranian threats were issued during "Velayat 90," naval exercises held from December 23, 2011, to January 2, 2012, which culminated with the test firing of Iran-made surface-to-surface missiles. Oil exports are critical to Iran, providing 76% of export earnings and 62% of government revenues. Many experts see Iran's warnings as a reiteration of its long held position to defend these exports. Context and Possible Causes of Iran's Threats Iran's threats occurred as it faced increasing likelihood that multilateral sanctions would be adopted that could reduce Iran's oil export earnings. Previously, United Nations and multilateral sanctions had sought to reduce Iran's ability to develop its nuclear program by undermining its ability to develop its energy sector—targeting investment and financial linkages—but not directly targeting Iran's ability to export oil. Following a report by the International Atomic Energy Agency (IAEA) on November 8, 2011, which presented information that Iran had researched nuclear weapons designs in the past, the United States, Britain, and Canada took additional steps to shut Iran out of the international banking system. Iran reacted by expelling the British Ambassador to Iran. Then, on November 29, 2011, a mob ransacked the British Embassy in Tehran with the widely reported support of Iran's internal security force, the Basij militia. That action led to the closure of the Iranian and British embassies in London and Tehran, respectively. These events occurred at the same time Congress was completing action on the FY2012 National Defense Authorization Act ( P.L. 112-81 ), containing a provision to sanction foreign banks that do business with Iran's Central Bank. Iran's Central Bank is the prime conduit through which buyers pay Iran for oil. That bill was signed into law on December 31, 2011. The attack on British diplomatic property caused the EU to consider an embargo on purchases of Iranian oil, which was agreed to by EU foreign ministers on January 23, 2012. The Strait of Hormuz The Strait of Hormuz is the narrow waterway that forms the entrance to the Persian Gulf from the Gulf of Oman and ultimately the Arabian Sea. At its narrowest point it is 22 nautical miles wide and falls within Iranian and Omani territorial waters. There are two shipping lanes through the Strait, one in each direction. Each is two miles wide and they are separated by a two-mile buffer. See Figure 1 . Iran's Intent to Implement Its Threats Most observers believe that Iran, because of its own dependence on commerce through the Strait, intends to shape the international debate on Iran policy rather than to actually attempt to close the waterway. Oil exports are vital to the Iranian government's fiscal health and the Iranian economy as a whole. Iran relies on the Strait not only for its oil exports, but also for the shipment of some needed food and medical products, although Iran could attempt to re-route imports through ports outside the Strait, such as Jask, or with established overland trade routes through Pakistan or Iraq. This implies that the likelihood that Iran might attempt to close the Strait increases if a broad embargo on purchases of Iran's oil emerges. At its January 23, 2012, meeting, the EU agreed to an embargo to take full effect by July 1, 2012. This EU move might remove what may be the most important factor restraining Iran from taking that step at this time. As a result of the EU decision, some Iranian leaders immediately reiterated the threat to the Strait. Some others threatened to immediately cut off exports to the EU and thereby deny the EU time to identify alternative suppliers. Iran also may fear—and U.S. statements and actions seem to justify such a fear—that closing the waterway would provoke all-out conflict with the United States (see " U.S. Statements of Intent " below). Iran might be concerned that such a conflict would lead to U.S. military action not just to reopen the Strait but also to destroy its military and nuclear infrastructure. Further, by threatening traffic through the Straits, Iran may risk alienating other nations, including its neighbors and customers. Most of the oil from the Persian Gulf goes to Asian nations. China is Iran's largest customer and Iran is China's third largest source of oil imports. In the wake of threats from Iran, China quickly dispatched Vice Foreign Minister Zhai Jun to Tehran, presumably to try to persuade Iran to withdraw its threats. Chinese and Indian officials have indicated their countries will continue to buy Iranian crude. However, according to reports, difficulties with payment terms have led to a reduction in Chinese import of Iranian crude in early 2012. Iran's Capabilities to Implement Its Threat In assessing Iran's capabilities to close the Strait, Chairman of the Joint Chiefs of Staff Martin Dempsey said on January 8, 2012, that [The Iranians have] invested in capabilities that could, in fact, for a period of time block the Straits of Hormuz. We've invested in capabilities to ensure that, if that happens, we can defeat that. And so the simple answer is, yes, they can block it. Iran's naval capabilities are divided among the two main branches of its armed forces – the regular Islamic Republic of Iran Navy (IRIN, regular Navy), a holdover of the military of the former Shah of Iran, and the Islamic Revolutionary Guard Corps Navy (IRGC Navy). The IRIN controls the larger coastal combatant ships such as six Corvette-class (i.e., light frigate) ships. It also operates Iran's three Kilo-class submarines purchased in the 1990s from Russia. The more politically powerful IRGC Navy is a branch of the IRGC, which is considered allied to Iran's hardliners and which plays a role in internal security and support for pro-Iranian movements in the Middle East. The IRIN, with its larger ships, has been assigned to patrol the more open waters of the Gulf of Oman; the IRGC Navy, with its lighter fleet, is assigned to close-in waters of the Strait of Hormuz and Persian Gulf. As a hallmark of its role as guardian of the Islamic revolution, the IRGC Navy has long been perceived as more willing to undertake operations not fully vetted by senior political leaders, whereas the IRIN is considered more traditional and restrained in its approach. Through new purchases and tactics adopted since the 1980-1988 Iran-Iraq war, Iran's naval forces have developed a clear asymmetric warfare capability intended to use Iran's long coast to frustrate larger adversaries. Among other specific capabilities in Iran's inventory are: Mines . Iran is believed to possess as many as 5,000 mines of different types, including moored mines, advanced mines such as the MDM-3 that can be dropped from aircraft, and other types. Detecting and clearing mines once they have been placed in the water can be difficult and time-consuming task. Mine-clearing operations could be made more challenging if they are undertaken while U.S. and coalition forces are also attempting to counter other Iranian forces, such as speed boats, mini-submarines, and shore-based cruise missiles. U.S. and coalition forces might choose to suppress other threats before starting mine-clearing operations. This could reduce the risk to mine-clearing forces, but lengthen the total timeline for clearing the Gulf of mines. Small Boats . The IRGC Navy is perceived as a greater threat for "asymmetric warfare" because of its small fleet and unconventional tactics, such as "swarming," which it has developed since the end of the Iran-Iraq war in 1988. Swarming is characterized by deployment of dozens, or perhaps even hundreds of cruise-missile or other armed small boats, launched from different bases, to converge on and attack a discreet target such as a warship or oil tanker. Numerous U.S. observers are particularly concerned about the use of such tactics, particularly in the relatively close confines of the Strait of Hormuz. To carry out this tactic, among others, the IRGC Navy controls a large number of generally smaller ships of many different classes. These include 10 China-supplied Hudong-class missile patrol boats bought in the 1990s and equipped with C-802 sea-skimming cruise missiles; 9 C-14 missile boats, also made by China and received in 2006; another China-made boat, the MK-13 patrol craft that can be armed with cruise missiles and torpedoes; about 40 Iran-made patrol craft called the PEYKAAP; and 30-40 Swedish-made Boghammer fast-patrol boats. Iran also has an unspecified number of small boats designed in Italy (Fabio Buzzi Design) but made in Iran itself. Submarines . Torpedoes launched from Iran's three Kilo-class submarines or its up to nearly a dozen mini or midget submarines could inflict potentially devastating damage on a warship, as shown by the March 2010 sinking of the South Korean corvette Cheonan by a torpedo that South Korea, United States, and other countries concluded was fired by a North Korean mini-submarine. Iran's decision to base its three Russian-made Kilo-class submarines outside the Strait of Hormuz suggests that the ships would be used during a confrontation to threaten surface ships operating in the Gulf of Oman. Coastal Cruise Missiles . The IRGC Navy controls several batteries of CSS-C-2 "Seersucker" and China-made C-801 and C-802 anti-ship missiles emplaced along Iran's coast. These missiles can be readily deployed anywhere along the Iranian coast. Lebanese Hezbollah, which is supported and armed by Iran, used a C-802 to severely damage an Israeli naval vessel in the 2006 Israel-Hezbollah war. Scenarios for Long Term Low-Intensity Conflict in the Gulf Rather than close the Strait outright, some experts believe that it is more likely that Iran would use the capabilities discussed to disrupt, threaten, harass, and otherwise create substantial instability for shipping in the Gulf. Similar to attempting to close the Strait, employing these low-intensity tactics and operations could be intended to cause the United States and its partners to think twice about increasing economic, diplomatic, or military pressure against Iran. Iran might begin with a less violent option and progress over time to more violent ones, or implement a combination of highly violent options from the outset. Potential options available to Iran include but are not limited to the following, which are listed in no particular order: Declaring that the Strait of Hormuz or other parts of the Gulf are closed to shipping, without stating explicitly what the consequences might be for ships that attempt to transit those waters. Declaring more explicitly that ships transiting the Strait or other parts of the Gulf are subject to being intercepted and detained, or attacked. Using speed boats, other surface craft, or aircraft to harass, block the path of, or fire warning shots at ships transiting the Strait or other parts of the Gulf. Using the above assets, and perhaps also shore-based rockets, artillery, and cruise missiles, mini-submarines, or swimmers, to selectively or more systematically attack selected ships transiting the Strait or other parts of the Gulf. Mining the Strait and perhaps other parts of the Gulf. Declaring that foreign naval ships operating in certain waters outside the Strait (i.e., in the Gulf of Oman) will be subject to attack. Using submarines, surface ships, shore-based cruise missiles, and aircraft to attack foreign naval ships operating in waters outside the Strait. In response to subsequent U.S. and coalition military actions to keep the Gulf open, Iran's list of potential options would expand to include using theater ballistic missiles, submarines, commandos, or aircraft to attack military or economic land targets on the western side of the Gulf, and perhaps ordering terrorist attacks against targets both in the Persian Gulf region and beyond. There is precedent for many of the scenarios discussed above. Iran used many of these tactics during the 1980-1988 Iran-Iraq war in an effort to respond to Iraq's conventional air superiority and to the perceived U.S. alignment with Iraq in that war. Iran laid mines in the Gulf to disrupt tanker traffic and used Chinese-made Silkworm cruise missiles to damage oil tankers and oil loading facilities. These actions prompted U.S. operation Earnest Will (July 1987-September 1988), to reflag and militarily escort through the Gulf Kuwaiti oil tankers and to de-mine the Gulf. When a mine struck the U.S.S. Samuel B. Roberts on April 14, 1988, it prompted the U.S. to launch operation Praying Mantis (April 18, 1988), in which the U.S. Navy attacked two Iranian oil platforms. Iran attempted a retaliatory assault on U.S. naval forces in the Gulf which resulted in the destruction of about 25% of Iran's conventional naval fleet. Iran also had one failed attempt to use "swarming" tactics—that time against a fixed infrastructure target—in October 1987: Iran sent a flotilla of about 60 small boats to attack the Saudi-Kuwaiti offshore oil terminal at Khafji, but was turned back by Saudi Arabia's air force. The Saudis reportedly were alerted to the attack by the United States. Later, in the mid-1990s, Iran raised substantial U.S. and Gulf state concerns by building up troops, artillery, cruise missiles, and anti-aircraft artillery on islands in the Gulf, including those it has seized from the United Arab Emirates. More recently, in March 2007, Iran seized and held for about two weeks a group of British marines whose ship Iran said had wandered into its territorial waters—an assertion denied by Britain. Potential Diplomatic Resolution of the Iranian Threat Resumed multilateral nuclear talks could provide a diplomatic means to reduce any threat Iran posed to traffic through the Strait. Since 2006, Iran has negotiated with six countries—the so-called "P5+1," permanent U.N. Security Council members plus Germany—to identify steps that could assure the international community that Iran's nuclear program is purely peaceful. The last round of talks was held in January 2011, and made virtually no progress, contributing to subsequent U.S. and EU decisions to add sanctions against Iran. Recently, Iran has shown interest in resuming nuclear talks, perhaps in an attempt to head off broadening sanctions. On December 31, 2011, Iran's chief nuclear negotiator, Seyed Jallili, stated that Iran would respond positively to an October 2011 letter by EU foreign policy director Catherine Ashton to enter a new round of nuclear negotiation. However, and despite comments by Iranian President Mahmud Ahmadinejad on January 26, 2012 welcoming new talks, no formal response has been sent and no talks are scheduled. Progress on these talks could motivate the EU to weaken sanctions, which in turn could reduce Iran's motivation to threaten traffic through the Strait. As a further sign of conciliation, Iran allowed an International Atomic Energy Agency team to visit Iran to discuss Iran's past work on a nuclear explosive device. The visit occurred during January 29-31, 2012. These issues are discussed in greater detail in CRS Report RS20871, Iran Sanctions , by [author name scrubbed]. Potential Military Response U.S. Statements of Intent U.S. officials have stated that the United States would not tolerate an attempt by Iran to close the Strait, and would respond by taking action to reopen the waterway: On December 28, 2011, a spokeswoman for the U.S. Navy's 5 th Fleet, which is responsible for the Persian Gulf region, stated, "Anyone who threatens to disrupt freedom of navigation in an international strait is clearly outside the community of nations; any disruption will not be tolerated." That same day, DOD press secretary George Little reportedly stated "Any attempt to close the strait will not be tolerated." On January 8, 2012, in an interview on the CBS television show Face The Nation , Secretary of Defense Leon Panetta stated, "We have made very clear that the United States will not tolerate blocking of the Straits of Hormuz. That's another red line for us—and that we will respond to that." In the same interview, General Martin Dempsey, the Chairman of the Joint Chiefs of Staff, stated, that "we've described that as an intolerable act. And it's not just intolerable for us. It's intolerable to the world. But we would take action and reopen the straits." On January 13, 2012, it was reported that "The Obama Administration is relying on a secret channel of communication to warn Iran's supreme leader, Ayatollah Ali Khamenei, that closing the Strait of Hormuz is a 'red line' that would provoke an American response...." Although U.S. statements have addressed Iran's threat to close the Strait outright, it is widely assumed by experts and observers that the United States will act against Iranian efforts to harass or interfere with the free flow of commerce in the Strait in such scenarios discussed above. As noted previously, the United States skirmished with Iran repeatedly during 1987-88 on occasions where Iran sought to interfere with international shipping but did not try to close the Strait outright. U.S. Confidence in Its Ability to Keep the Strait Open There appears to be a general consensus among observers who track Iran's armed forces that Iran has the military capacity—using mines, speed boats, submarines, shore-based cruise missiles, aircraft and other systems—to disrupt the flow of commercial shipping into and out of the Persian Gulf. There also appears to be a consensus that the U.S. military, acting alone or with coalition partners, has the capacity to then counter Iran's forces and restore the flow of shipping, but that the effort would likely take some time—days, weeks, or perhaps months—particularly if a large number of Iranian mines needed to be cleared from the Gulf. However, U.S. forces are presumably monitoring for mine deployment and may interrupt such an initiative by Iran before a large number of mines were able to be deployed. This in turn runs the risk of leading to more extensive military engagement. A January 13, 2012, press report stated, "Estimates by naval analysts of how long it could take for American forces to reopen the strait range from a day to several months, but the consensus is that while Iran's naval forces could inflict damage, they would ultimately be destroyed." A January 5, 2012, press report states that "Should Iran's rulers ever make good their threats to block the Straits of Hormuz, they could almost certainly achieve their aim within a matter of hours. But they could also find themselves sparking a punishing—if perhaps short-lived—regional conflict from which they could emerge the primary losers.... Few believe Tehran could keep the straits closed for long—perhaps no more than a handful of days...." A December 29, 2011, press report states that "Iran can disrupt traffic through the Strait of Hormuz but probably cannot completely shut down the world's most important oil route, military analysts say.... What the Iranians can do ... is harass traffic through the Gulf—anything from stopping tankers to outright attacks. The goal would be to panic markets, drive up shipping insurance rates and spark a rise in world oil prices enough to pressure the United States to back down on sanctions." An Iranian attempt to close the Gulf to shipping could take many forms, as could a U.S. and coalition military response. In a military confrontation between Iran and the United States and other countries over the flow of shipping into and out of the Gulf, events could unfold and culminate rapidly, within a few hours or days, or more slowly, over a period of weeks or months. There might be multiple rounds of Iranian initiatives and U.S. and coalition responses, with quieter periods in between. During these events, there might be few or no moments when the Gulf is fully closed (i.e., no ships entering or leaving) or fully open (i.e., ships entering or leaving with no risk of Iranian harassment or attack). The confrontation would carry a risk of escalating to a wider military conflict between Iran and the United States and coalition partners. The possibility of conflict with Iran complicates U.S. defense policy just weeks after completing a U.S. troop pullout from Iraq and the announcement of a new defense guidance predicated on shrinking resources. The new guidance includes an increased emphasis on the Asia-Pacific region but also states that the U.S. military will invest in capabilities required to operate effectively against any moves by actors such as Iran or China to counter U.S. power-projection capabilities. Potential U.S. and Coalition Military Responses It is possible that U.K. forces would join U.S. forces in responding militarily to an Iranian attempt to close the Gulf. The U.K.'s Secretary of Defense, Philip Hammond, stated in early January 2012 that "Disruption to the flow of oil through the Strait of Hormuz would threaten regional and global economic growth. Any attempt by Iran to do this would be illegal and unsuccessful." Since that statement, Britain reportedly has sent additional warships to the Gulf to augment U.S. capabilities there. Other potential coalition partners would include other western allies and the Gulf Cooperation Council states. Asian oil consumers have also signaled their discomfort with the prospect of disruption and could take a negative stance against any Iranian action to disrupt or close the Strait. U.S. and coalition military actions would likely be tailored to a large degree on the exact nature of Iran's actions. U.S. and coalition forces could clear mines, organize convoys or establish a protected shipping corridor, and defend ships against Iranian attacks without attacking Iranian targets ashore. A broader alternative would be to extend operations to include air strikes against shore-based Iranian anti-ship weapons and supporting surface-to-air missile batteries, radars, and command-and-control facilities. A still-broader alternative would be to extend options further, to include strikes against shore-based Iranian military assets that are not involved in Iran's effort to close the Gulf, including, potentially, targets believed to be associated with the development of an Iranian nuclear weapon capability. U.S. and coalition forces could attack Iranian anti-shipping assets only after Iran has used them to attack ships, or attack those assets preemptively. Attacks could be concentrated against assets of the IRGC, which has primary responsibility for the Persian Gulf within Iran's military establishment, or be spread more broadly to also include assets of Iran's state armed forces. As far as mine-clearing operations, during the 1980s tanker war in the Gulf, a total of 17 minesweepers (six from the U.S. Navy, nine from European navies, and two from the Soviet Navy) were used to clear mines from the Gulf. Given the limited mine-clearing assets that the United States has stationed at Bahrain (four mine countermeasures ships and one squadron of mine-clearing helicopters ), the additional minesweepers provided by coalition partners could be of particular value in mitigating the need for the United States to transport additional mine-clearing ships and helicopters into the area. U.S. and coalition forces could counter Iranian speed boats and surface craft operating at sea using ship-based guns and missiles as well as land- and sea-based airplanes and helicopters armed with missiles, rockets, guided bombs, and guns. U.S. and coalition naval forces could use aircraft to attack Iranian speed boats and other surface craft that are tied up at pier, but Iran could make this more difficult by dispersing its speed boats and other surface craft along Iran's lengthy Persian Gulf shoreline. U.S. and coalition military leaders might choose to initially keep their warships out of confined waters until the threat posed by speed boats has been suppressed by attacks from aircraft; doing so could reduce the risk to U.S. or coalition warships but lengthen timelines for reopening the Gulf. Some of Iran's shore-based anti-ship cruise missiles (ASCMs) are fired from launchers that are mobile and camouflaged, making them more difficult to locate and destroy. Even so, a January 5, 2012, press report quoted a "U.S. naval officer with considerable experience in the region" as stating "Anti-ship cruise missiles are mobile, yet can ... be found and destroyed." Many of the radars that provide targeting for these missiles reportedly are in fixed locations, making them easier to attack. With regard to combating Iran's submarine capabilities, detecting a well-maintained, proficiently operated Kilo-class submarine that is submerged and waiting quietly near a choke point like the Strait of Hormuz can be a challenge for a navy, even the U.S. Navy, that has capable antisubmarine forces. On the other hand, the threat posed by Kilo-class submarines can be reduced by tracking their movements in the days and weeks prior to the start of a confrontation. Diesel-electric submarines like the Kilo design have a submerged endurance of no more than a few days, and are vulnerable to attack when they surface to snorkel. They are also vulnerable in port. Iran's mini-submarines are more likely to be used inside the Gulf. Their small size could make them particularly difficult to detect, but they also have limited at-sea endurance and can carry limited ordnance payloads. The naval officer cited above reportedly also said of Iran's forces that "Submarines are short-duration threats—they eventually have to come to port for resupply and when they do they will be sitting ducks." Oil Market Considerations The Strait of Hormuz is a key artery of the global oil market. Persian Gulf oil exporters—Iraq, Kuwait, Saudi Arabia, the United Arab Emirates and Qatar—shipped about 17 million barrels a day (Mb/d) of oil through the Strait in 2011, which is roughly 20% of the global oil market and 35% of seaborne trade according to the Energy Information Administration. On average, 14 crude oil tankers leave the Persian Gulf through the Strait each day with more than 85% of these crude oil exports going to Asian countries, including China, Japan, India, and South Korea. The United States imports 1.8 Mb/d from Persian Gulf countries, roughly 10% of U.S. consumption. Separately, more than a quarter of the world's liquefied natural gas (LNG) trade, equal to about 2.6% of global natural gas consumption, moves through the Strait. This is primarily exports from Qatar to Europe and Asia. The United States imports little LNG. The Persian Gulf is also home to the world's spare oil production capacity. Current estimates for global spare oil production capacity tend to be around 2 to 3 Mb/d. OPEC members hold spare capacity as a result of their market management strategy. Basically all of this spare capacity is held by Persian Gulf oil producers—mostly Saudi Arabia, with small amounts in Kuwait and the United Arab Emirates. Spare capacity is viewed as a cushion to the oil market which can be used to offset supply disruptions. However, given its location, this spare capacity would not be available to offset a disruption to the Strait of Hormuz. There is little ability for oil shipments to bypass the Strait through alternative routes, particularly in the short-run. According to reports, Saudi Arabia could redirect 1.5 Mb/d of oil currently exported through the Persian Gulf to terminals on its Red Sea coast through unutilized capacity currently available on its East-West pipeline. A 1.5 Mb/d pipeline to bypass the Strait is being built in the United Arab Emirates, but it is not likely to be completed until the middle of 2012. Several other pipelines that ran through Iraq and Saudi Arabia to the Mediterranean and Red Sea export facilities have been out of operation for many years, and it is unclear how readily they could be returned to operation. A disruption of oil through the Strait of Hormuz could significantly affect global oil prices. Though most of the flows through the Strait go to Asia, the oil market is globally integrated and a disruption anywhere can contribute to higher oil prices everywhere. A disruption of oil exported from the Persian Gulf to Asia would leave Asian refineries bidding for oil from alternative sources elsewhere. Due to the wide number of relevant variables, there is significant uncertainty on how much a disruption could contribute to higher crude oil prices. While disruption risks in the past may have contributed to prices being higher than they might have otherwise been, actual Iran-related events have not necessarily resulted in clear and significant price increases ex-post (see Table 1 ). The numerous variables affecting the price of oil at any given time can make it difficult to estimate what specific change in price is due to a specific event. Nonetheless, reductions or threatened reductions to supply do tend to push oil prices up. Key uncertainties for the impact of a disruption would be how much global oil supply was reduced, risks of further reductions, and duration of the disruption. Risk of damage to oil production and export facilities in the Persian Gulf would also be of concern. The response of oil-importing countries would also be important, namely if and how consumer countries released strategic oil stockpiles, in addition to any possible military response. Conditions in the rest of the oil market and the global economy would also affect how prices eventually responded. For example, disruptions that occur during periods of strong global oil demand growth and limited supply growth elsewhere may have a relatively greater price impacts than those that occur when demand is falling and other sources of supply are growing or commercial oil inventories are high. Given limited bypass options, outright closure of the Strait would represent an unprecedented disruption to global oil supply and would likely cause a substantial increase in oil prices. However, as suggested above, outright closure may be unlikely, and even if it occurred, might not persist for very long. Another possibility is the harassment of tanker traffic through the Strait as described above. The impact of harassment would depend on the degree to which it effectively reduced oil exports through the Strait and its duration. Harassment could reduce the rate at which oil exited the Gulf, raise the cost of transport, and raise worries of future disruption. A third possibility—one already pursued by Iran—is that Iranian officials can make threatening statements suggesting they will disrupt tanker traffic. The increased perception of risk could contribute to higher oil prices without requiring military action, though this is only effective in contributing to oil prices as long as and to the degree that global oil market participants take such threats seriously. Such a measure can benefit Iran by increasing their oil revenues without risking military retaliation. In the event of a disruption, consumer countries could release strategic stocks to offset the impact on oil supply. The United States currently holds 696 million barrels of crude oil in the Strategic Petroleum Reserve (SPR), a publicly held stockpile of crude oil to be used to offset supply disruptions. The United States coordinates use of its SPR with other members of the International Energy Agency (IEA), which include Japan, Germany, South Korea, and other members of the Organization for Economic Cooperation and Development (OECD). Oil importing members of the IEA have an obligation to hold oil stocks equal to at least 90 days worth of net imports. The IEA has coordinated to collectively release stocks three times since the organization was created in the wake of the 1973/1974 oil crisis: after Iraq's invasion of Kuwait in 1990/1991; after Hurricanes Katrina and Rita in 2005; and in response to prolonged disruption of Libyan oil production in 2011. IEA countries hold about 4.2 billion barrels of crude oil and refined products in inventory, of which 1.5 billion are held by governments. If drawn down at the maximum rate technically possible, these government-held stocks could be delivered to the market at an average rate of 10.4 Mb/d of crude oil and 4 Mb/d of products in the first month of an IEA collective action, diminishing thereafter. (The rate diminishes as stocks are depleted.) By offsetting the loss of supply, a strategic stock release could blunt the impact a disruption can have on oil prices. There are several additional resources to respond to an oil supply emergency. In some IEA member countries oil companies are required by governments to hold emergency stocks. These can be made available to supplement a release government held strategic stocks elsewhere. IEA members can also coordinate demand restraint measures to offset the impact of a supply disruption. Some non-OECD governments, including China, have started building strategic stocks and some oil exporters, including Saudi Arabia, hold small amounts of crude in storage near consumer markets. Conclusion Concerns about broadening international sanctions on Iran's oil exports prompted some Iranian officials to make threatening statements about closing the Strait of Hormuz. Iran has invested in the military capability to close or disrupt traffic through the Strait. If Iran attempted to do so, the United States—which has invested in military preparedness to keep the Strait open—would respond, potentially joined by other countries. Such a military response may or may not be limited to simply reopening the Strait for transit. The threat of military response, coupled with its economic concern about disrupting commerce with its own trading partners, makes Iran unlikely to attempt to close the Strait of Hormuz. Iran has the option of harassing tanker traffic through the Gulf as it has in the past, though that also runs the risk of military retaliation and alienating customers. However, it is possible that Iranian action becomes relatively more likely as more countries reduce or refuse Iranian exports. Alternatively, Iran may choose to continue making threatening statements without actually acting and/or to seek a diplomatic solution to curb oil sanctions through renewing international talks on its nuclear program. A disruption of oil exports through the Strait would have significant impacts on oil prices around the world. To some degree a disruption could be offset by release from the U.S. Strategic Petroleum Reserve and similar reserves in other countries. Even without an extant disruption, concerns about a future disruption may also contribute to oil prices being higher than they might otherwise be by creating uncertainty about a large portion of the world's oil supply. Iran has the option of making threatening statements about the Strait without actually acting, which is what it has been doing since December 2011. So long as oil market participants consider this a credible future threat, it could contribute to upward pressure on oil prices. Even prior to Iran's recent threats, legislation in Congress to increase sanctions on Iran was pending, and some had been recently adopted, such as sanctions against banks that do business with Iran's Central Bank. Some legislation still pending might receive more attention in light of Iran's threats to the Strait. If hostilities with Iran were to occur in the Strait, it is likely that the question of presidential authority to use force will be raised. Appendix. Legal Framework Applicable to International Straits A "global diplomatic effort to regulate and write rules for all ocean areas, all uses of the seas and all of its resources" led the United Nations to convene the Third United Nations Conference on the Sea in 1973 and adoption of the United Nations Convention on the Law of the Sea (UNCLOS) in 1982. The Convention states: Recognizing the desirability of establishing through this Convention, with due regard for the sovereignty of all States, a legal order for the seas and oceans which will facilitate international communication, and will promote the peaceful uses of the seas and oceans … Believing that the codification and progressive development of the law of the sea achieved in this Convention will contribute to the strengthening of peace, security, cooperation and friendly relations among all nations in conformity with the principles of justice and equal rights … [and] Affirming that matters not regulated by this Convention continue to be governed by the rules and principles of general international law… Parties to the Convention agreed to the adoption of the comprehensive international treaty after nine years of negotiations. UNCLOS generally incorporates the rules of international law codified in the1958 United Nations Convention on the High Seas, but also comprehensively addresses the use of other areas of the sea including, for example, the territorial seas, natural resources, and the seabed. While the United States is a signatory to the 1958 Convention on the High Seas, it is not a party to UNCLOS. However, UNCLOS is generally viewed as a codification of customary international law. With respect to the coastal nations bordering the Straits of Hormuz, Iran is a signatory to UNCLOS but has not ratified the Convention and Oman is both a signatory to and has ratified the Convention. Straits used for international navigation are addressed in UNCLOS. Specifically, Part III (Arts. 34-45) of the Convention is comprised of various provisions related to the legal status of waters forming straits and authorized forms of passage through such waters. The general provisions (Arts. 34-36) establish the legal status of waters forming straits and scope of application. The remaining Articles in Part III identify the legal regimes of transit passage and innocent passage, including the rights and duties of transiting vessels as well as the rights and duties of States bordering the straits. Transit passage is defined as "the exercise in accordance with this Part of the freedom of navigation and overflight solely for the purpose of continuous and expeditious transit of the strait between one part of the high seas or an exclusive economic zone and another part of the high seas or an exclusive economic zone." While exercising the right of transit passage, ships and aircraft are required to: (a) proceed without delay through or over the strait; (b) refrain from any threat or use of force against the sovereignty, territorial integrity or political independence of the States bordering the strait; and (c) refrain from any activities other than those incident to their normal modes of continuous and expeditious transit unless necessary by force majeure or by distress. The States bordering the straits may adopt laws and regulations related to safety and navigation of maritime traffic, pollution, fishing, and commodity trades. However, authorized laws and regulations "shall not discriminate in form or in fact among foreign ships or in their application have the practical effect of denying, hampering or impairing the right of transit passage." In support of the safety and navigation of maritime traffic, States bordering straits may "designate sea lanes and prescribe traffic separation schemes … to promote the safe passage of ships." With respect to the Straits of Hormuz, the States bordering the straits have designated sea lanes and a traffic separation scheme as adopted by the Maritime Safety Committee of the Inter-Governmental Maritime Consultative Organization (a specialized agency of the United Nations, now known as the International Maritime Organization (IMO)) in 1979. States bordering straits may substitute other sea lanes or traffic separation schemes, after consultation with a competent international organization (IMO). Ships in transit passage are required to respect the applicable sea lanes and traffic separation schemes established in accordance with UNCLOS. Finally, States bordering straits "shall not hamper transit passage and shall give appropriate publicity to any danger to navigation or overflight within or over the strait of which they have knowledge. There shall be no suspension of transit passage."

Some officials of the Islamic Republic of Iran have recently renewed threats to close or exercise control over the Strait of Hormuz. Iran's threats appear to have been prompted by the likely imposition of new multilateral sanctions targeting Iran's economic lifeline—the export of oil and other energy products. In the past, Iranian leaders have made similar threats and comments when the country's oil exports have been threatened. However, as in the past, the prospect of a major disruption of maritime traffic in the Strait risks damaging Iranian interests. U.S. and allied military capabilities in the region remain formidable. This makes a prolonged outright closure of the Strait appear unlikely. Nevertheless, such threats can and do raise tensions in global energy markets and leave the United States and other global oil consumers to consider the risks of another potential conflict in the Middle East. This report explains Iranian threats to the Strait of Hormuz, and analyzes the implications of some scenarios for potential U.S. or international conflict with Iran. These scenarios include Outright Closure. An outright closure of the Strait of Hormuz, a major artery of the global oil market, would be an unprecedented disruption of global oil supply and contribute to higher global oil prices. However, at present, this appears to be a low probability event. Were this to occur, it is not likely to be prolonged. It would likely trigger a military response from the United States and others, which could reach beyond simply reestablishing Strait transit. Iran would also alienate countries that currently oppose broader oil sanctions. Iran could become more likely to actually pursue this if few or no countries were willing to import its oil. Harassment and/or Infrastructure Damage. Iran could harass tanker traffic through the Strait through a range of measures without necessarily shutting down all traffic. This took place during the Iran-Iraq war in the 1980s. Also, critical energy production and export infrastructure could be damaged as a result of military action by Iran, the United States, or other actors. Harassment or infrastructure damage could contribute to lower exports of oil from the Persian Gulf, greater uncertainty around oil supply, higher shipping costs, and consequently higher oil prices. However, harassment also runs the risk of triggering a military response and alienating Iran's remaining oil customers. Continued Threats. Iranian officials could continue to make threatening statements without taking action. This could still raise energy market tensions and contribute to higher oil prices, though only to the degree that oil market participants take such threats seriously. If an oil disruption does occur, the United States has the option of temporarily offsetting its effects through the release of oil from the Strategic Petroleum Reserve. Such action could be coordinated with other countries that hold strategic reserves, as was done with other members of the International Energy Agency after the disruption of Libyan crude supplies in 2011. Iran's threats suggest to many experts that international and multilateral sanctions—and the prospect of additional sanctions—have begun to affect its political and strategic calculations. The threats have been coupled with a publicly announced agreement by Iran to resume talks with six countries on measures that would assure the international community that Iran's nuclear program is used for purely peaceful purposes. Some experts believe that the pressure on Iran's economy, and its agreement to renewed talks, provide the best opportunity in at least two years to reach agreement with Iran on curbing its nuclear program.

Background Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses was normally included in general insurance policies without additional cost to the policyholders. Following the attacks, both primary insurers and reinsurers pulled back from offering terrorism coverage. Because insurance is required for a variety of economic transactions, particularly borrowing for commercial development, it was feared that a lack of insurance against terrorism loss would have a wider economic impact. Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA). TRIA created a temporary three-year Terrorism Insurance Program to calm the insurance markets through a government reinsurance backstop sharing in terrorism losses. The idea was to give the private industry time to gather the data and create the structures and capacity necessary for private insurance to cover terrorism risk. TRIA requires insurers to offer terrorism coverage, but does not require commercial policyholders to purchase the coverage. This program was extended in 2005 and 2007. In 2005, the extension legislation focused on reducing the government's exposure from TRIA by increasing the minimum covered event size, increasing the insurer deductible, reducing the government share of losses, and increasing the post-event mandatory recoupment. In 2007, the primary change was to accelerate the after-the-fact recoupment. While the prospective government share of losses has been reduced over time, the 2007 reauthorization also expanded the program to cover losses from acts of domestic terrorism. The TRIA program expired at the end of 2014, as provided for in the 2007 extension. The initial thresholds of the current program are as follows: 1. A terrorist act must cause $5 million in insured losses to be certified for TRIA coverage. 2. The aggregate insured losses from a certified act of terrorism must be $100 million in a year for the government coverage to begin. 3. An individual insurer must meet a deductible of 20% of its annual premiums for the government coverage to begin. Once these thresholds are passed, the government covers 85% of insured losses due to terrorism with the private insurers retaining 15% of the losses. No premiums are charged by the government for this coverage. Instead, if the insured losses are under $27.5 billion, the Secretary of the Treasury is required to recoup 133% of government outlays through a surcharge on commercial property/casualty insurance policies. As insured losses rise above $27.5 billion, the Secretary is required to recoup a reduced amount of the outlays. At some high insured loss level, which will depend on the exact distribution of losses, the Secretary would no longer be required to recoup outlays, but would retain the discretionary authority to do so. Under current law, all mandatory recoupment must be completed by the end of FY2017. Since TRIA's passage, private industry's willingness and ability to cover terrorism risk have increased. According to industry surveys, prices for terrorism coverage have generally trended downward, and approximately 60% of commercial policyholders have purchased coverage over the past few years. This relative market calm has been under the umbrella of TRIA coverage, and it is unclear how the insurance market may react to the expiration of the federal program. Legislation in the 113th Congress The Terrorism Risk Insurance Act of 2002 Reauthorization Act of 2013 (H.R. 508) Representative Michael Grimm along with nine cosponsors introduced H.R. 508 on February 5, 2013. The bill is a reauthorization of the existing TRIA program that would extend the program five years, until the end of 2019. It would also extend the deadline for mandatory recoupment seven years, until September 30, 2024. The bill has been referred to the House Committee on Financial Services. The Fostering Resilience to Terrorism Act of 2013 (H.R. 1945) Representative Bennie Thompson along with one cosponsor introduced H.R. 1945 on May 9, 2013. The bill would extend the expiration date of the program 10 years, until the end of 2024, and would extend the deadline for mandatory recoupment seven years, until September 30, 2024. It would also add the Secretary of Homeland Security as the lead authority responsible for certifying an act of terrorism and require the Secretary to provide information and reports on terrorism risks and best practices to foster resilience in the face of terrorism. The Secretary of the Treasury would remain in the certification process but as a concurring party, not the lead authority; the program in general would remain under the authority of the Treasury. H.R. 1945 has been referred to the House Committee on Financial Services and the House Committee on Homeland Security. Terrorism Risk Insurance Program Reauthorization Act of 2013 (H.R. 2146) Representative Michael Capuano along with 20 cosponsors introduced H.R. 2146 on May 23, 2013. The bill is a reauthorization of the existing TRIA program that would extend the program 10 years, until the end of 2024, as well as extend the deadline for mandatory recoupment by 10 years, until September 30, 2027. In addition, the President's Working Group on Financial Markets is to continue filing reports on market conditions for terrorism risk insurance, with reports required in 2017, 2020, and 2023. The bill has been referred to the House Committee on Financial Services. Terrorism Risk Insurance Program Reauthorization Act of 2014(S. 2244) Senator Charles Schumer along with eight cosponsors introduced S. 2244 on April 10, 2014. The bill would extend the current TRIA program seven years, until December 31, 2021, while also decreasing the federal loss sharing amount and increasing the amount to be retained by the industry and recouped by the government. Specifically, S. 2244 as introduced would decrease the federal loss sharing gradually from 85% to 80%, and increase the insurance marketplace aggregate retention amount by $2 billion per year until it reaches $37.5 billion from the current $27.5 billion, and extend the various dates for mandatory recoupment by seven years. Under these extended dates, if an act of terrorism occurs prior to 2018, all mandatory recoupment premiums must be collected by September 30, 2019. If an act occurs in 2018, 35% of the mandatory recoupment premiums would be collected by September 30, 2019, with the rest by September 30, 2024. If the terrorist act occurs after 2018, all of the mandatory recoupment premiums would be collected by September 30, 2024. Committee Consideration The Senate Committee on Banking, Housing, and Urban Affairs marked up S. 2244 on June 3, 2014. A number of amendments were adopted en bloc, including a change in the mandatory recoupment provisions to require that 135.5% of the federal payments be recouped; a requirement for the Treasury to study the certification process and issue final rules governing the process, including a timeline; and a Government Accountability Office (GAO) study of the possible effects of instituting premiums to be paid by the insurer to the government for the coverage provided under TRIA. One amendment was rejected on a recorded vote in committee. Senator Tom Coburn offered an amendment that would have changed the timing of the mandatory recoupment, giving more time for the recoupment in the case of larger attacks. This amendment failed on a vote of 7-15. The bill as amended was ordered reported favorably on a vote of 22-0. The written report ( S.Rept. 113-99 ) was filed on June 26, 2014. Senate Floor Consideration S. 2244 was considered by the full Senate by unanimous consent on July 17, 2014, with three amendments adopted. S.Amdt. 3552 was offered by Senator Jon Testor. This amendment added a second title to the bill relating to the licensing of insurance agents and brokers. This Title II is similar to both H.R. 1155 and Title II of S. 1926 as the two bills passed the House and the Senate respectively. S.Amdt. 3552 included a two-year sunset provision, however, that was not in either of these bills. It was adopted by voice vote. S.Amdt. 3551 was offered by Senator Jeff Flake. This amendment added an advisory committee on risk sharing mechanism; similar language is included in H.R. 4871 . This amendment was adopted on a vote of 97-0. S.Amdt. 3550 was offered by Senator David Vitter. This amendment added a section requiring that one member of the Board of Governors of the Federal Reserve have experience with community banking. It was adopted by voice vote. Senator Coburn offered S.Amdt. 3549 extending the timing of the recoupment provisions in the case of a large terrorist attack. A point of order on budgetary grounds was raised against this amendment and a motion to waive this point of order was rejected on a vote of 48-49. The amended version of S. 2244 was passed by the full Senate on a vote of 93-4. Administration Reaction The Office of Management and Budget (OMB) released a Statement of Administration Policy (SAP) on July 17, 2014. This SAP endorsed extension of the TRIA program along with reforms to "further reduce taxpayer exposure, increase private sector contributions, and better position the Program for future transition to the private sector." It also specifically supported Senate passage of S. 2244 . House Floor Consideration The House Committee on Rules met on December 9, 2014, and reported a rule ( H.Res. 775 ) making in order the House floor consideration of S. 2244 with an amendment in the nature of a substitute. This substitute amendment would extend the program six years, until the end of 2020; decrease the federal loss sharing gradually from 85% to 80%; increase the program trigger by $20 million per year until it reaches $200 million from the current $100 million; increase the insurance marketplace aggregate retention amount by $2 billion per year until it reaches $37.5 billion from the current $27.5 billion. After $37.5 billion is reached, the amount would be set by the Secretary to equal the annual average of the aggregate sum of insurer deductibles for the previous three years; extend the various dates for mandatory recoupment by seven years; change in the mandatory recoupment provisions to require that 140% of the federal payments be recouped; require the Treasury to study the certification process and issue final rules governing the process, including a timeline; require additional data on the terrorism insurance market be collected by the Treasury and included in an annual report by the Treasury; and require a GAO study on the possible effects of instituting insurer premiums for the TRIA coverage and requiring capital reserve funds for terrorism. The substitute amendment also includes the NARAB title relating to insurance agent licensing and the section relating to the makeup of Federal Reserve Board of Governors, which were added in Senate floor consideration. In addition, the substitute amendment adds a Title III, the "'Business Risk Mitigation and Price Stabilization Act of 2014.'' Title III would amend statutory provisions originating in the 2010 Dodd-Frank Act relating to derivatives and margin requirements for end users. Similar provisions to Title III passed the House as H.R. 634 on June 12, 2013, by a vote of 411-12. The House took up S. 2244 as amended under H.Res. 775 on December 10, 2014, and passed the bill on a vote of 417-7. The House and the Senate adjourned on December 16, 2014, without further action on S. 2244 or other legislation to extend TRIA. TRIA Reform Act of 2014 (H.R. 4871) H.R. 4871 was introduced by Representative Randy Neugebauer and one cosponsor on June 17, 2014. The bill would extend the TRIA program five years while generally reducing the government's exposure to future TRIA losses, increasing post-event recoupment, and making several other changes to the program. The provisions include a gradual reduction of federal share of losses from 85% to 80%; a gradual increase in program trigger from $100 million to $500 million and removal of the $5 million minimum certification amount; a separate treatment of Nuclear, Biological, Chemical, and Radiological (NBCR) terrorist attacks with lower trigger ($100 million) and higher federal loss sharing (85%); a requirement that certification occur within 90 days of an attack; an increase in the maximum of the mandatory recoupment amount to the total of insurer deductibles under the program (currently approximately $36 billion) and removal of a provision that decreases mandatory recoupment in the case of very large attacks; an increase of the mandatory recoupment from 133% to 150% of the federal share of losses; an allowance for small insurers to opt out of the TRIA requirement to make terrorism coverage available if it would create financial hardship or be financially infeasible; a requirement that additional data on the terrorism insurance market be collected by the Treasury and included in an annual report by the Treasury; and a requirement for a GAO study on the possible effects of instituting insurer premiums for the TRIA coverage and requiring capital reserve funds for terrorism, Congressional Budget Office (CBO) and OMB studies regarding budgeting and costs of federal insurance programs, and a Treasury study on small insurer market competitiveness. Committee Consideration The House Committee on Financial Services marked up H.R. 4871 beginning June 19, 2014, and ordered the bill favorably reported on June 20, 2014, by a vote of 32-27. During the markup, a second title was added containing the text of the National Association of Registered Agents and Brokers Reform Act of 2013 ( H.R. 1155 ), which previously passed both the committee and the full House of Representatives. The committee rejected a substitute amendment by Representative Maxine Waters, which would have replaced the text with a 10-year reauthorization of the current program, on a vote of 27-31. The bill was reported ( H.Rept. 113-523 ) on July 16, 2014. Table 1 below presents a side-by-side comparison of the current law and legislation that has seen committee or floor action, or both.

Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses was normally included in commercial insurance policies without additional cost to the policyholders. Following the attacks, this ceased to be the case as insurers and reinsurers pulled back from offering terrorism coverage. It was feared that a lack of insurance against terrorism loss would have a wider economic impact, particularly because insurance coverage can be a significant factor in lending decisions. Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297). TRIA created a temporary program, expiring at the end of 2005, to calm the insurance markets through a government reinsurance backstop sharing in terrorism losses. The intent was that this would give the industry time to gather the data and create the structures and capacity necessary for private insurance to cover terrorism risk. TRIA did not require premiums to be paid for the government coverage. Instead, TRIA required private insurers to offer commercial insurance for terrorism risk with the government then recouping some or all federal payments under the act in the years following government coverage of insurer losses. Under TRIA, terrorism insurance became widely available and largely affordable, and the insurance industry greatly expanded its financial capacity. There has been, however, little apparent success on developing a longer-term private solution, and fears have persisted about wider economic consequences if insurance were not available. Congress passed two extensions to the program, in 2005 (P.L. 109-144) and 2007 (P.L. 110-160). The 2005 extension was primarily focused on reducing the government's upfront financial exposure under the act, whereas the 2007 extension left most of the upfront aspect of the TRIA program unchanged, while accelerating the post-event recoupment provisions. The 2007 legislation also included the only expansion of the TRIA program since initial enactment; it extended the program to cover any acts of terrorism, as opposed to only foreign acts of terrorism. The current TRIA program expires at the end of 2014. Although insurance industry capacity has increased since 2002, terrorism is still seen by many as essentially uninsurable. Without TRIA, the insurance industry has indicated that terrorism insurance will again become unavailable or unaffordable and fears are again being expressed that lack of terrorism insurance may slow down other sectors of the economy. Several bills (H.R. 508, H.R. 1945, H.R. 2146, S. 2244, and H.R. 4871) were introduced to extend TRIA and change different aspects of the program. The House and the Senate adjourned on December 16, 2014, without passing legislation to extend TRIA. This report briefly outlines the issues involved with terrorism insurance, summarizes extension legislation in the 113th Congress, and includes a side-by-side of TRIA law and bills that were passed by the Senate (S. 2244), reported by the House Committee on Financial Services (H.R. 4871), and passed by the House (S. 2244 with a substitute amendment). For more a more in-depth treatment of the issues surrounding TRIA, please see CRS Report R42716, Terrorism Risk Insurance: Issue Analysis and Overview of Current Program, by [author name scrubbed].

Introduction It has long been the policy of the federal government to assist minority and other "socially and economically disadvantaged" small businesses become fully competitive and viable business concerns. The objective has largely been pursued through the federal procurement process by allocating federal assistance and contracts to foster disadvantaged business development. Federal assistance has taken a variety of forms, including targeting procurement contracts and subcontracts for disadvantaged or minority firms, management and technical assistance grants, educational and training support, and surety bonding assistance. Present day set-aside programs authorizing preferential treatment in the award of government contracts to disadvantaged business enterprises (DBEs), or socially and economically disadvantaged small businesses, originated in § 8(a) of the Small Business Act of 1958. Initially, the Small Business Administration (SBA) utilized its § 8(a) authority to obtain contracts from federal agencies and subcontract them on a noncompetitive basis to firms agreeing to locate in or near disadvantaged areas and provide jobs for the unemployed and underemployed. The § 8(a) contracts awarded under this program were not restricted to minority-owned firms and were offered to all small firms willing to hire and train the unemployed and underemployed in five metropolitan areas, as long as the firms met the program's other criteria. As the result of a series of executive orders by President Nixon, the focus of the § 8(a) program shifted from job-creation in low-income areas to minority small business development through increased federal contracting with firms owned and controlled by socially and economically disadvantaged persons. With these executive orders, the executive branch was directed to promote minority business enterprise and many agencies looked to SBA's § 8(a) authority to accomplish this purpose. The administrative decision to convert § 8(a) into a minority business development program acquired a statutory basis in 1978 with the passage of P.L. 95-507 , which broadened the range of assistance that the government—SBA, in particular—could provide to minority businesses. Section 8(a), or the "Minority Small Business and Capital Ownership Development" program, authorizes SBA to enter into all kinds of construction, supply, and service contracts with other federal departments and agencies. The SBA acts as a prime contractor and then subcontracts the performance of these contracts to small business concerns owned and controlled by "socially and economically disadvantaged" individuals, Indian Tribes or Hawaiian Native Organizations. Applicants for § 8(a) certification must demonstrate "socially disadvantaged" status or that they "have been subjected to racial or ethnic prejudice or cultural bias because of their identities as members of groups without regard to their individual qualities." The Small Business Administration "presumes," absent contrary evidence, that small businesses owned and operated by members of certain groups—including Blacks, Hispanics, Native Americans, and Asian Pacific Americans—are socially disadvantaged. Any individual not a member of one of these groups must "establish individual social disadvantage by a preponderance of the evidence" in order to qualify for § 8(a) certification. The § 8(a) applicant must, in addition, show that "economic disadvantage" has diminished its capital and credit opportunities, thereby limiting its ability to compete with other firms in the open market. Accordingly, while disadvantaged status under the SBA includes a racial component, in terms of presumptive eligibility, it is not restricted to racial minorities, but also includes persons subjected to "ethnic prejudice or cultural bias" who are able to satisfy specified regulatory criteria. It also excludes businesses owned or controlled by persons who, regardless of race, are "not truly socially and/or economically disadvantaged." The "Minority Small Business Subcontracting Program" authorized by § 8(d) of the Small Business Act codified the presumption of disadvantaged status for minority group members that applied by SBA regulation under the § 8(a) program. Section 8(d) requires prime contractors on all federal contracts that exceed the simplified acquisition threshold, are performed in the United States, and are not for personal services to negotiate a "subcontracting plan" with the procuring agency which includes "percentage goals" for utilization of small socially and economically disadvantaged firms. Award of the contract hinges upon the contractor's agreeing to a plan that is also acceptable to the agency, and each contract must include a clause which states that "[t]he contractors shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to § 8(a) ... " Section 8(d) also allows the government to collect liquidated damages from contractors that fail to comply in good faith with their plans. P.L. 95-507 , which created these § 8(d) programs further required that all federal agencies with procurement powers establish annual percentage goals for the award of procurement contracts and subcontracts to small disadvantaged businesses (SDBs). A decade later, Congress enacted the Business Opportunity Development Reform Act of 1988, directing the President to set annual, government-wide procurement goals of at least 20% for small businesses and 5% for disadvantaged businesses, as defined by the SBA. Simultaneously, federal agencies were required to continue to adopt their own goals, compatible with the government-wide goals, in an effort to create "maximum practicable opportunity" for small disadvantaged businesses to sell their goods and services to the government. The goals may be waived where not practicable due to unavailability of DBEs in the relevant area and other factors. Federal Acquisition Act amendments adopted in 1994 amended the 5% minority procurement goal, and the minority subcontracting requirements in § 8(d), to specifically include "small business concerns owned and controlled by women" in addition to "socially and economically disadvantaged individuals." Additionally, statutory "set-asides" and other forms of preference for "socially and economically disadvantaged" firms and individuals, following the Small Business Act or other minority group definition, have frequently been added to specific grant or contract authorization programs. "Goals" or "set-asides" for minority groups, women, and other "disadvantaged" individuals have routinely been part of federal funding measures for education, defense, transportation and other activities over much of the last two decades. Early on, Congress established goals for participation of small disadvantaged businesses in procurement for the Department of Defense (DOD), National Aeronautics and Space Administration (NASA), and the Coast Guard. It also enacted the Surface Transportation Assistance Act of 1982 (STAA), the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), and the Transportation Equity Act for the 21 st Century (TEA-21), each of which contained a 10% minority or disadvantaged business participation goal on federally funded projects. Sometimes, Congress has coupled these goals with authority to meet them, as was the case with the goals for DOD, NASA, and the Coast Guard. Congress authorized these agencies to apply a price evaluation preference of up to 10% to bids submitted by businesses other than SDBs in order to meet their goals. Recently, however, the Federal Circuit held that DOD's SDB program was unconstitutional. The Adarand Decision and Its Progeny Background and History of Adarand Litigation surrounding racial preferences in federal contracting has followed a convoluted course since 1995, when the Supreme Court settled the constitutional parameters of the issue but avoided a decision of the merits in Adarand Constructors Inc. v. Pena (Adarand I) . By the time it returned to the High Court six years later, as Adarand Constructors Inc. v. Mineta , the legal and factual framework of the case was considerably altered by multiple lower court decisions and appeals, and by changes in the plaintiff's legal standing, the details of the challenged federal program, and regulatory reforms to "amend, not end" federal affirmative action by the former Clinton Administration. To the chagrin of many legal observers, the Court in 2001 once again sidestepped the constitutional issues posed by the Adarand case and, after agreeing to reconsider the controversy, dismissed the appeal as "improvidently granted." The object of the Court's latest action—or inaction—was the Tenth Circuit's two-part ruling in Adarand Constructors v. Slater (Adarand III). The federal appeals court there invalidated a federal highway program of financial incentives to promote minority and "disadvantaged" small business utilization in force at the time of Adarand I . But as revised and amended in 1997, the program was found to be narrowly tailored to a compelling governmental interest and passed constitutional muster. Prior to Adarand , the U.S. Supreme Court had narrowly approved of congressionally mandated racial preferences to allocate the benefits of contracts on federally sponsored public works projects in Fullilove v. Klutznick , while generally condemning similar actions taken by state and local entities to promote public contracting opportunities for minority entrepreneurs in City of Richmond v. J.A. Croson Co. These disputes generated divergent views as to whether state affirmative action measures for the benefit of racial minorities were subject to the same "strict scrutiny" as applied to "invidious" racial discrimination under the Equal Protection Clause, an "intermediate" standard resembling the test for gender-based classifications, or simple rationality. In Croson , a 5 to 4 majority resolved that while "race-conscious" remedies could be legislated in response to proven past discrimination by the affected governmental entities, "racial balancing" untailored to "specific" and "identified" evidence of minority exclusion was impermissible. Until Adarand , however, a different, more lenient standard was thought to apply to use of racial preferences in federally conducted activities. The majority there applied "strict scrutiny" to a federal transportation program of financial incentives for prime contractors who subcontracted to firms owned by socially and economically disadvantaged group members. Although the Court refrained from deciding the constitutional merits of the particular program before it, and remanded for further proceedings below, it determined that all "racial classifications" by government at any level must be justified by a "compelling governmental interest" and "narrowly tailored" to that end. There have been three distinct phases to the Adarand litigation. The case originated with a now-discontinued "race-conscious subcontracting compensation clause (SCC)" program conducted by the Federal Highway Lands Program of the Federal Highway Administration. The SCC did not allocate or set-aside a specific percentage of subcontract awards for DBEs or require a commitment on the part of prime contractors to subcontract with minority firms. Rather, "incentive payments" varying from 1.5% to 2% of the contract amount were paid to prime contractors whose subcontracts with one or more qualified DBEs exceeded 10% of total contract value. The program incorporated the racial presumption from the Small Business Act and regulations, in effect relieving minority group subcontractors of the burden of demonstrating disadvantaged status imposed upon non-minorities. Suit was brought by Adarand Constructors, Inc., a white-owned construction firm whose low bid on a subcontract for highway guard rails was rejected in favor of a higher bidding DBE. Both the federal trial court and the Tenth Circuit initially upheld the program by applying "lenient" judicial review—"resembling intermediate scrutiny"—rather than strict scrutiny, requiring far less remedial justification by the government. Because the program was not limited to racial minorities, and non-disadvantaged minority group members were ineligible to participate, the appeals court concluded, the program was "narrowly tailored." In Adarand I , the Supreme Court reversed this first round of decisions. The majority in Adarand I rejected the equal protection approach that applied "intermediate scrutiny" or some other relaxed standard of review to racial line-drawing by the Congress. Because the "race-based rebuttable presumption" in the DOT program was an "explicit" racial classification, the Court determined, "it must be analyzed by a reviewing court under strict scrutiny," and to survive, must be "narrowly tailored" to serve a "compelling governmental interest." Adarand I undermined prior judicial holdings, which had afforded substantially greater latitude to Congress than to the states or localities when crafting affirmative action measures for racial or ethnic minorities. To "dispel the notion," however, that "strict scrutiny is 'strict in theory, but fatal in fact,'" the Court appeared to reserve a role for the national legislature as architect of remedies for past societal discrimination. "The unhappy persistence of both the practice and lingering effects of racial discrimination against minorities in this country is an unfortunate reality, and the government is not disqualified from acting in response to it." Thus, a majority of the Court appeared to accept some forms of racial preference by Congress in at least some circumstances. No further guidance was provided, however, as to the scope of remedial authority remaining in congressional hands or the conditions for its exercise. Indeed, the Court refrained even from deciding the merits of the constitutional claim before it in Adarand I , instead remanding the case to the lower courts to determine the outcome. On remand, the district court in Adarand II decided that the "congruence" required by the Court did not mean that federal affirmative action must be supported by the same "particularized" showing of past discrimination as state and local programs. Rather, as the national legislature, Congress was empowered to enact broad discrimination remedies based on nationwide findings derived from congressional hearings and statements of individual federal lawmakers. "Congress," in other words, "may recognize a nationwide evil and act accordingly, provided the chosen remedy is narrowly tailored so as to preclude the application of a race-conscious measure where it is not warranted." The DOT incentive program failed the "narrow tailoring" test, however, because it linked a race-based presumption to the award of financial "bonus[es]" to prime contractors whose choice of a subcontractor was based "only on race." The racial presumption was found to be both "overinclusive"—in that its benefits were available to all named minority group members—and "underinclusive"—because it excluded members of other minority groups or Caucasians who may share similar disadvantages. Although "more flexible" than a "rigid racial quota" or mandatory set-aside, the SCC program was tainted by the government-wide 5% goals and transportation set-asides which it implemented. The Tenth Circuit in 2000 issued its decision on the merits of the controversy. The appellate panel in Adarand III reversed the district court injunction against future implementation of DOT's disadvantaged business enterprise (DBE) program in Colorado. In so doing, the court of appeals considered the constitutionality of the program, both as structured at the time of the district court decision and of later revisions to DBE regulations adopted in 1997. First, it generally agreed with the district court that the SCC system of financial incentives, in effect at the time of Adarand I , had not been narrowly enough tailored to satisfy the constitutional requirements of strict scrutiny. But after lengthy congressional hearings, the financial incentives were eliminated, and other reforms were adopted to DBE requirements imposed by DOT regulation on state and local highway aid recipients. As a result, the appeals court ultimately concluded that the DOT disadvantaged business enterprise program as currently structured—though not the former, discarded program of financial incentives—passed constitutional muster. Initially, the appellate tribunal aligned itself with the district court's finding that the federal government had a "compelling interest" in preventing and remedying the effects of past discrimination in government contracting. And the scope of Congress's authority to act was not limited geographically or to specific instances of discrimination—as in the case of the states and localities under Croson— but extended "'society-wide' and therefore nationwide." The range of admissible evidence to support racial line-drawing by Congress was both direct and circumstantial, including post-enactment evidence and legislative history, demonstrating public and private discrimination in the construction industry. The court was largely dismissive of individual statements by members or from committee reports as "insufficient in themselves to support a finding of compelling interest." Congressional hearings over nearly a two-decade period, however, depicted the social and economic obstacles—e.g., "old boy networks," racism in construction trade unions, and denial of access to bonding, credit, and capital—faced by small and disadvantaged entrepreneurs, mainly minorities, in business formation and in competition for government contracts. Moreover, "disparity studies" conducted after Croson in most of the nation's major cities compared minority-owned business utilization with availability and "raise[d] an inference that the various discriminatory factors the government cites have created that disparity." This record satisfied the Tenth Circuit panel that Congress had a "strong basis in evidence" for concluding that passive federal complicity with private discrimination in the construction industry contributed to discriminatory barriers in federal contracting, a situation the government had a "compelling" interest in remedying. The appellate tribunal adopted a two-stage review of the "narrowly tailored" requirement, focusing on the DBE program both as in effect prior to 1997 and later as revised to comply with Adarand I. Basically, it determined that many of the constitutional flaws that defeated the program in the district court's opinion—an outcome with which the appellate panel largely agreed—had been eliminated by the government's regulatory reforms. In effect, the latest decision lays the old program to rest while reversing the district court's order insofar as it would bar implementation of the revised version. The appeals court also clarified the scope of the DBE program under review. It disagreed with, and specifically reversed, elements of the district court judgment raising issues beyond the specific DBE program as applied by Colorado officials to federally funded highway procurements within that state. Because the 5% and 10% goals in the SBA and underlying transportation authorization measures "are merely aspirational and not mandatory," they were not the reason that "Adarand lost or will lose" contracts, and any challenge to those provisions were outside the scope of the remand in Adarand I . Thus, any broader potential implications of the district court ruling for § 8(a) set-asides or government-wide goals for DBE participation under the Small Business Act were largely blunted by the appellate panel. The constitutional virtues of the revised program over the pre-1996 SCC program at issue in Adarand I were several. First, race-neutral measures dating back to the 1958 enactment of the SBA had preceded Congressional adoption of "aspirational goals" and other affirmative action measures for minority groups in government-wide contracting. DOT had not considered such alternatives before adopting race-conscious subsidies for prime contractors who select minority subcontractors. However, this defect was cured by the revised regulations, which specifically directed recipients to exhaust race-neutral alternatives—bonding, financing, and technical assistance, etc.—before taking race into account. Secondly, the revised regulations incorporated the time limits and graduation requirements for participation of disadvantaged businesses in the §§ 8(a) and 8(d) programs, thereby ensuring the later program's limited duration. The court of appeals also found that the revised DOT program was more flexible than the mandatory set-asides in Fullilove and Croson because it was voluntary on the part of the prime contractors and because the post-1996 revisions adopted an express waiver. Any use of "aspirational goals" by recipients of federal highway funds had to make "reference to the relative availability of DBEs in the market" and was restrained in other ways by the new regulations so that "there is little danger of arbitrariness in the setting of such goals.... " The burden of the revised program on third parties was mitigated by placing monetary caps on subsidies to prime contractors—limiting the incentive to hire further DBEs—and by adopting "preponderance of the evidence" for proof of "social disadvantage" by members of "non-presumed" groups in lieu of the former "clear and convincing" standard. Finally, the revised program avoided the constitutional vice of over- and under-inclusiveness by "disaggregating the race-based presumption that encompassed both 'social' and 'economic' disadvantage" in the former regulation. Thus, an individualized showing of economic disadvantage is now required of all applicants to the program, minority and non-minority alike. This change, the appeal court believed, effectively satisfied the Croson requirement of an "inquiry into whether or not the particular MBE seeking a racial preference has suffered from the effects of past discrimination." The Supreme Court Declines to Decide the Case The U.S. Supreme Court granted certiorari in an appeal from the Tenth Circuit's final decision, marking the third High Court appearance by the Adarand case. During oral arguments, the Justices appeared more concerned with procedural irregularities in the case, as outlined by the Justice Department, than with the substance of the constitutional claims. In essence, the government argued that Adarand's legal challenge was limited to the DOT program and regulations applicable to direct procurement of highway construction on federal lands, like the contract denied, not to the separate regulatory scheme governing federal highway assistance to states. Petitioner Adarand Constructors, Inc., made a parallel argument—but for a different reason—that the court of appeals misconceived the scope of the appeal. In particular, petitioner's brief contended, the Tenth Circuit's analysis considered revisions to DOT regulations applicable to federally assisted state and local highway projects, which are irrelevant to the separate set of rules governing direct federal procurement, thereby undermining the court's conclusion that the SDB program was narrowly tailored. Because the race conscious aspects of the original financial incentive program had been suspended in Colorado and several other states as the result of administration reforms to affirmative action rules after Adarand I , counsel for the company had difficulty arguing that its client "is still unable to compete on an equal footing" or had "lost a single contract under the provisions they are now challenging." Further complicating Adarand's position, the Tenth Circuit had rejected its earlier attack upon the entire statutory framework for federal small disadvantaged business programs, a ruling not appealed to the Supreme Court. The government, therefore, contended that Adarand's lawsuit had "outlived the program that provoked it," and in oral arguments to the Justices, the Solicitor General urged the Court to dismiss the petition for certiorari as improvidently granted. It came as no great surprise, therefore, that the Justices complied with the government's request and dismissed the case. In a per curiam opinion, the Court emphasized technical flaws with the present appeal, as framed during oral arguments. First, Adarand was challenging a by now defunct aspect of the program that the Tenth Circuit had not ruled upon, asking "whether the various race-based programs applicable to direct federal contracting could satisfy strict scrutiny." Nor had the company sought review of those aspects of the DOT statute and regulations respecting the state and local procurement program on whose constitutionality the appeals court had spoken. Consequently, the Supreme Court declined to reach the merits of a controversy regarding which neither the parties nor the courts below appeared to be reading from the same page. Left unanswered, therefore, were two major questions presented by the petition for review. First was "whether the court of appeals misapplied the strict scrutiny standard in determining if Congress had a compelling interest to enact legislation designed to remedy the effects of past discrimination." The Tenth Circuit found that Congress had a "solid basis in evidence" for concluding race-conscious action necessary based on its dissection of hearing testimony, legislative reports, and state and local disparity studies. Generally, its approach conformed to earlier rulings, which have stressed deference to congressional fact-finding under section 5 of the Fourteenth Amendment. As the national legislature, Congress may not be constrained by the same requirements of specificity in regard to regional scope and classes of individuals benefitted by race conscious programs. But later Court rulings parsing the scope of congressional § 5 power to override state sovereign immunity under a variety of federal civil rights laws have emphasized the need for "congruence and proportionality" of the remedy to any problem perceived by the Congress. The ramifications of this principle for § 5 race discrimination legislation is undetermined, and questions remain. Conversely, some would argue, the affirmative grant of congressional authority to legislate remedies for equal protection violations by states conferred by § 5 is even broader than its power to place similar conditions on direct spending for federal procurements, which is limited by Fifth Amendment due process. The second aspect of strict scrutiny analysis would have required the Court to determine whether the means chosen by DOT to promote minority group participation in the federal procurement process is "narrowly tailored." In this regard, the Tenth Circuit found that after eliminating financial bonus or subsidy, the adoption of "aspirational goals" for utilization of disadvantaged firms based on "good faith efforts," as required by current regulations, was a more flexible and narrowly tailored alternative. That conclusion, however, has been questioned by other courts, which have found that governmentally required goal-setting, coupled with enforcement sanctions—in Adarand's case, liquidated damages under § 8(d)—is inherently coercive and encourages racial quotas. The Ninth Circuit, for example, has invalidated a California affirmative action statute that required bidders on state contracts to subcontract a percentage of their work to female- and minority-owned firms or document a "good faith" effort to do so. Similarly, in Lutheran Church-Missouri Synod v. FCC , the D.C. Circuit blurred the distinction between so-called "inclusive" and exclusive "affirmative" action. FCC regulations required broadcast license holders (1) to engage in "critical self-analysis" of minority and female underrepresentation, and (2) to undertake affirmative outreach by using minority and female-specific recruiting sources. Strict scrutiny was held to be appropriate and the regulations were unlawful since beyond simple outreach, their effect was to influence ultimate hiring decisions; that is, the threat of government enforcement "coerced" stations to maintain a workforce that mirrors racial breakdown of the labor area. The Court's disposition of the final Adarand appeal means that a definitive review of federally mandated affirmative action must be postponed to another day. That day, however, may not be too far distant. Percolating in the lower federal courts are cases that pose similar questions regarding the power of Congress to enact racial preferences in federal contracting as were bypassed by the Court's inconclusive determination in Adarand . Post-Adarand Regulatory Developments Federal regulatory reforms put forward by the former Clinton Administration sought to "narrowly tailor" federal minority and disadvantaged small business programs in line with Adarand . The Justice Department in 1996 proposed a structure for reform of affirmative action in federal procurement, setting stricter certification and eligibility requirements for minority contractors claiming "socially and economically disadvantaged" status under § 8(a) and § 8(d) of the Small Business Act. The plan suspended for two years set-aside programs in which only minority firms could bid on contracts. Statistical "benchmarks" developed by the Commerce Department and adjusted every five years were made the basis for estimating expected disadvantaged business participation as federal contractors, in the absence of discrimination, for nearly 80 different industries. Where minority participation in an industry falls below the benchmark, bid and evaluation credits or incentives are authorized for economically disadvantaged firms and prime contractors who commit to subcontract with such firms. Conversely, when such participation exceeds an industry benchmark, the credit would be lowered or suspended in that industry for the following year. The system is monitored by the Commerce Department, using data collected to evaluate the percentage of federal contracting dollars awarded to minority-owned businesses, and relies more heavily on "outreach and technical assistance" to avoid potential constitutional pitfalls. The Justice Department's response to comments on its proposal, together with proposed amendments to the Federal Acquisition Regulation (FAR) to implement it, were published in 1997. Several procurement mechanisms interact with benchmark limits pursuant to the FAR regulation jointly promulgated by DOD, the General Services Administration, and NASA. An "evaluation factor" applies to bids by non-minority prime contractors participating in joint ventures, teaming arrangements, or subcontracts with such firms, and contracting officers may employ "monetary incentives" to increase subcontracting opportunities for disadvantaged firms in negotiated procurements. "Benchmarking" by the Commerce Department is the key feature of the program, designed to narrowly tailor the government's use of race-conscious subcontracting in line with Adarand . The Commerce recommendation relies "primarily on census data to determine the capacity and availability of minority-owned firms." As explained by DOJ: [A] statistical calculation representing the effect discrimination has had on suppressing minority business development and capacity would be made, and that calculation would be factored into benchmarks.... The purpose of comparing utilization of minority-owned firms to the benchmark is to ascertain when the effects of discrimination have been overcome and minority-owned firms can compete equally without the use of race-conscious programs. Full utilization of minority-owned firms in [an] SIC code may well depend on continued use of race-conscious programs like price or evaluation credits. Where utilization exceeds the benchmark, the Office of Federal Procurement Policy may authorize the reduction or elimination of the level of price or evaluation credits, but only after analysis has projected the effect of such action. Final regulations implementing Justice Department recommendations with respect to the § 8(a) business development and small disadvantaged business program were issued by the SBA in 1998. The reforms included a new process for certifying firms as small disadvantaged businesses and, in place of set-asides, a price evaluation adjustment program administratively tied to the Commerce benchmarks. In the past, the government relied on self-certification for purposes of "disadvantaged" eligibility, which allowed firms to identify themselves as meeting certification requirements. Under the new procedure, SBA, or where SBA deems appropriate, SBA-approved state agencies, or private certifiers make a threshold determination as to whether a firm is actually owned or controlled by specified individuals claiming to be disadvantaged. After ownership or control is established, the application is reviewed by SBA for purposes of a determination of disadvantaged status. The definition of social and economic disadvantage remains largely intact under the SBA regulation. Members of designated minority groups participating in disadvantaged small business programs continue to enjoy a statutory presumption of social disadvantage. They are required, however, to state their group identification and meet certification criteria for economic disadvantage and are subject to third-party challenge under current administrative mechanisms. Individuals who are not within the statutory presumption may qualify by proving that they are socially and economically disadvantaged under SBA standards. Under prior SBA § 8(a) certification standards, however, persons not members of presumed disadvantaged groups had to prove their status by "clear and convincing evidence." The revised SBA regulations ease this burden on non-minority applicants by adopting a "preponderance of evidence" rule. U.S. Department of Transportation Revised Regulations Similarly, USDOT responded to Adarand Constructors and its progeny by issuing revised regulations to implement minority set-aside provisions in current federal transportation authorization measures. The Transportation Equity Act for the 21 st Century (TEA-21), as enacted by Congress in 1998, provided that [e]xcept to the extent that the Secretary [of Transportation] determines otherwise, not less than 10 percent of the amounts made available for any program under titles I, III, and V of this Act shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals. One in a succession of laws dating back more than two decades, TEA-21 lapsed on May 31, 2005, but was extended by P.L. 109-59 , signed into law during the 109 th Congress. The new law continued through FY2009 the longstanding DOT policy of setting aside 10% of federal highway and surface transportation funds for small disadvantaged firms "[e]xcept to the extent the Secretary of Transportation determines" otherwise. The revised DOT regulations track the Small Business Act in defining disadvantaged business enterprises (DBEs), including the presumption regarding designated minority groups and women, except that any small business owner with more than $750,000 in assets—or who is otherwise shown not to be socially or economically disadvantaged—is disqualified. Members of non-designated groups (i.e., a white male) may qualify for DBE status if the individual demonstrates social and economic disadvantage in fact. Describing the 10% goal as merely "aspirational," the regulations de-centralize administration of the DBE program by delegating implementation to state agencies receiving federal transportation funds. A two-step process is established for states to determine "the level of DBE participation [that] would [be] expect[ed] absent the effects of discrimination." First, the relative availability locally of "ready, willing, and able" DBEs must be calculated. This baseline figure is then adjusted upward or downward to reflect other capability factors and evidence of discrimination against DBEs drawn from statistical "disparity" studies. The final adjusted figure represents the portion of federal transportation funding that a state must allocate to DBEs for that year. A state must meet the maximum feasible portion of this goal through race- (and sex-) neutral means. Race-conscious contract goals must be applied to achieve any portion of the utilization requirement not attainable by other means. Even when race-conscious measures are necessary, however, the regulations do not require that DBE goals be included in every contract—or that they be set at the same level in every contract where used—as long as the overall effect is to obtain the required DBE participation level. Prime contractors to whom a state awards federally funded transportation contracts must undertake good faith efforts to satisfy any included goal by allocating the designated percentage of funds to DBEs. States are prohibited from instituting rigid quotas that do not account for a prime contractor's good faith efforts to subcontract works to DBEs. Small Business Administration Rules for Women-Owned Businesses During the Bush Administration, the SBA issued proposed regulations in 2007 that would have implemented Section 811 of the Small Business Reauthorization Act of 2000, which added a new section 8(m) to the Small Business Act authorizing set asides for industries in which women-owned small businesses (WOSBs) are underrepresented or substantially underrepresented in federal procurement. Under the legislation, SBA was required to conduct a study to identify such industries, and the resulting study identified 28 different approaches for determining underrepresentation and substantial underrepresentation. In its proposed rule, the SBA announced the approach it had selected, identifying four industries in which WOSBs were underrepresented or substantially underrepresented in federal procurement. However, the agency was criticized for adopting this approach by critics who claimed that the SBA unjustifiably selected the most restrictive methodology available under the study and instead should have chosen an approach that recognized a broader range of industries, including one methodology that would have classified 87% of industries as underrepresented. In response to this criticism, the SBA issued a final rule but delayed a final determination regarding industries that are underrepresented until it had solicited additional public comment and further examined the methodological issues at stake. Subsequently, the agency announced that it was extending the comment period yet again in response to the Federal Circuit's decision in Rothe Development Corporation v. Department of Defense , which is discussed in the next section of this report. Although the SBA's final regulations did not identify industries in which WOSBs are underrepresented or substantially underrepresented in federal procurement, the new regulations do contain another controversial provision that requires a federal agency implementing the program with regard to a particular industry to determine whether the set-aside is substantially related to remedying sex discrimination in that industry and to conduct an analysis of its own procurement history to establish whether the agency itself had discriminated against WOSBs in the relevant industry. According to the SBA, this requirement is necessary in order to comply with constitutional equal protection standards that require the government to "establish probative evidence of discrimination in the relevant economic sphere in order to justify sex-based contracting preferences." In 2010, the Obama Administration issued new proposed regulations for the set-aside program for WOSBs. These proposed regulations would do two things: (1) withdraw the never-finalized October 1, 2008 proposed rule that identified thirty-one industries in which women were underrepresented or substantially underrepresented; and (2) establish a new methodology for identifying eligible industries and eliminate the requirement for an agency-by-agency determination of discrimination. The SBA does not explicitly address Rothe in its introductory comments to these proposed regulations. However, it notes that comments on earlier proposed rules indicated that the "disparity study analysis" conducted in identifying industries eligible for set-asides "is sufficient to satisfy the intermediate scrutiny standard that applies to the WOSB Program." It also states that: The means chosen by Congress to implement the WOSB Program ensure that the Program is substantially related to its goals. Congress expressly limited application of the WOSB Program only to industries in which women are substantially underrepresented or underrepresented in contracting. The SBA may or may not be correct in stating that the set-asides for women-owned small businesses would survive intermediate scrutiny if challenged, although the disparity studies underlying the determinations of eligible industries would likely be the focus of any potential constitutional challenges. Post-Adarand Judicial Decisions Federal Affirmative Action Programs Since Adarand , several lower federal courts have addressed the issue of congressional authority to fashion affirmative action remedies. Courts in these cases have, with one exception, generally concluded from the record of committee hearings and other documentary evidence before Congress that the government had a compelling interest for the program in question. However, in applying the constitutional demand for a "narrowly tailored" remedy, there is a divergence of judicial opinion as to whether states or localities must independently justify the use of racial preferences to implement federal mandates within their individual jurisdictions. The Supreme Court in 2004 refused to revisit issues left unsettled by Adarand when it denied review of the Eighth Circuit's consolidated ruling in Sherbrooke Turf, Inc. v. Minnesota Department of Transportation and Gross Seed Company v. Nebraska Department of Roads . The Sherbrooke court joined the Tenth Circuit in upholding the DBE program under current DOT regulations and, beyond that, approved specific state plans to implement that program. Pursuant to TEA-21 and the DOT revised regulations, state highway departments in Minnesota and Nebraska established specific goals for the award of federally-funded contracts to DBEs. In both states, white-owned contractors had submitted the low bid on DOT funded subcontracts, but were passed over in favor of a presumptively disadvantaged minority competitor. Petitioners challenged DBE contract awards, alleging unconstitutional race discrimination and that continued enforcement of the programs would deny them the right to compete on an equal basis for future contracts. Federal district courts in both states upheld the program. The government conceded that the federal highway DBE program, on its face and as applied, is subject to strict scrutiny because it uses a race-based rebuttable presumption to define its beneficiaries and employs race conscious remedial measures. Such governmental consideration of race is constitutional only if narrowly-tailored to further a compelling governmental interest. Neither Sherbrooke nor Gross Seed disputed that the federal government has "a compelling interest in not perpetuating the effects of racial discrimination in its own distribution of federal funds and in remediating the effects of past discrimination in the government contracting markets created by its disbursements." Rather, petitioners argued that Congress and DOT have no "hard evidence" of widespread intentional discrimination in the contracting industry; they relied instead on a Justice Department summary of over 50 documents and 30 congressional hearings on minority-owned businesses prepared in response to the Adarand decision. The Eighth Circuit nonetheless agreed with the Tenth Circuit conclusion in Adarand that "Congress has spent decades compiling evidence of race discrimination in federal highway contracting," and petitioners failed to meet the burden of showing that no remedial action was necessary. Nor were the Minnesota DOT and Nebraska road department required to independently satisfy the compelling government interest aspect of strict scrutiny review. To be narrowly tailored, however, a national program must be limited to those parts of the country where its race-based measures are demonstrably needed. "To the extent the federal government delegates this tailoring function, a State's implementation becomes critically relevant to a reviewing court's strict scrutiny." Under the current DOT program, the opinion notes, race-conscious methods cannot be used unless race-neutral means are projected to fall short of achieving the overall goal, and racial preferences or set-asides are limited to those instances "when no other method could be reasonably expected to redress egregious instances of discrimination." In addition, because the goals for DBE participation are tied to the relevant labor markets, have built in durational limits, and are subject to "good faith" waiver and exemptions, the programs were deemed narrowly tailored on their face. Finally, the court reviewed Minnesota's and Nebraska's implementation, including each state's reliance on findings by independent consultants in setting goals for minority-owned business participation, and concluded that the DBE program was narrowly tailored as applied at the state level. Similarly, the issue presented in Western States Paving Co., Inc. v. Washington State Department of Transportation is whether TEA-21—which allocates 10% of certain federal transportation funds for small disadvantaged and minority contractors—is unconstitutional on its face, or as applied by the State of Washington. As discussed above, DOT regulations "presume" disadvantaged status for minority groups and women, provided the small business owner has a net worth of less than $750,000, but members of other groups are eligible if they can demonstrate, in fact, that they are "socially and economically disadvantaged." A three-judge panel of the Ninth Circuit agreed with the Eighth and Tenth Circuits that race and sex preferences for highway contractors under TEA-21 are facially valid. The compelling interest was in ensuring that federal funding is not distributed in a manner that reinforces the effects of either public or private discrimination within the transportation construction industry. The evidence relied on by Congress and reviewed by the court demonstrated a continuing pattern of race and sex discrimination in the industry. The court further determined that the TEA-21 racial preferences were narrowly tailored to further compelling federal governmental interests. In this regard, the court pointed to several factors. First, the revised DOT regulations "explicitly prohibit the use of quotas" and require a state to "meet the maximum feasible portion of [its] overall goal by using race-neutral means." Where racial goals are not met, the state may yet comply with federal standards by showing "good faith efforts" to achieve its goals. Moreover, "durational limitations" imposed by the legislative reauthorization process "ensure that Congress regularly evaluates" whether continuing need exists for the minority preference program. The regulation also makes clear that the statute's 10% DBE goal is "aspirational" only, with individual state goals determined by "the realities of [each state's] own labor market" and the availability locally of qualified minority contractors. But these findings did not shield the Washington State program from Fourteenth Amendment challenge. Because the record was "devoid of any evidence suggesting that minorities currently suffer—or have ever suffered—discrimination" in the award of transportation infrastructure contracts within Washington State, the court found that the state's implementation program "is not narrowly tailored to further Congress' remedial objectives." A narrowly tailored remedy "depends on the absence or presence of discrimination," the court urged, and it was not enough "simply [that] the state complied with the federal program's requirements." Thus, each of the six principal minority groups identified in Washington's DBE program must be shown to have suffered contract award discrimination. The ruling of another post- Adarand appellate tribunal imposes a heavier burden on the federal government for demonstrating a "strong basis in evidence" to establish a compelling governmental interest in support of minority contracting preferences. In Rothe Development Corporation v. U.S. Department of Defense , a business owned by a non-minority woman, challenged the constitutionality of 10 U.S.C. § 2323, the statutory authority for DOD's SDB program, after losing a DOD contract to a business owned by Korean-Americans. Rothe argued that 10 U.S.C. § 2323 unconstitutionally deprived it of due process both as applied and on its face. Rothe's as-applied challenge focused upon 10 U.S.C. § 2323 in its 1992 reenactment, which governed the DOD's award of the contract to Rothe's competitor, while Rothe's facial challenge focused upon the 2006 reenactment of 10 U.S.C. § 2323, which was in effect at the time when the court heard the case. The challenged SDB program in Rothe incorporates the SBA definition of small disadvantaged business, including the racial presumption, and establishes a 5% participation goal for such entities in DOD contracts. The § 1207 program also authorizes DOD to apply a price evaluation adjustment of up to 10% in order to attain the 5% goal. In effect, this means that DOD may raise the bids of non-DBEs by 10% in order to give disadvantaged entrepreneurs a preference. The statutory goal-setting provision in §1207 was reauthorized in 1989, and again in 1992, 1999, 2002, and 2006. After lengthy litigation and a complicated procedural history, which included repeated appearances before both the district court and the Federal Circuit, the trial court ultimately held that the DOD program was unconstitutional as applied because DOD failed to demonstrate that there was sufficient statistical evidence of discrimination before Congress when the statute was reenacted in 1992. In contrast, the district court held that the statute was facially constitutional because there was sufficient statistical evidence of discrimination before Congress when the statute was most recently reenacted in 2002. However, the Federal Circuit reversed with respect to the facial challenge, holding that DOD's SBD program was unconstitutional on its face because Congress lacked a "strong basis in evidence" for concluding that race-conscious remedies were necessary when reenacting 10 U.S.C. § 2323 in 2006. The district court had found that six state and local disparity studies, along with other statistical and anecdotal evidence, constituted a "strong basis in evidence," but the Federal Circuit disagreed. It found that the six state and local disparity studies —which had been the "primary focus of the district court's compelling interest analysis and of the parties' arguments on appeal" —did not constitute a "strong basis in evidence" because they did not provide the "substantially probative and broad-based statistical foundation ... that must be the predicate for nationwide, race-conscious action." The Federal Circuit found significant methodological flaws with all of the disparity studies: two of the six studies failed to exclude unqualified businesses in calculating the number of minority businesses available for government contracts, and five of the six studies failed to account for the relative capacity of minority-owned small businesses in contracting with the government. These flaws, coupled with the fact that the studies' findings addressed only six of the more than three thousand counties and equivalent regions making up the United States, prompted the Federal Circuit to find that the studies were insufficient to constitute a "strong basis in evidence" for the nation-wide SDB program. The Federal Circuit also suggested, although reached no final holding on the issue, that the studies had not been "before Congress" at the time when 10 U.S.C. § 2323 was reenacted because they were (1) mentioned by name or discussed only in two floor speeches and (2) Congress did not make any findings concerning them. Other statistical data and anecdotes discussed by the parties and the district court proved similarly insufficient to constitute a "strong basis in evidence" for the SDB program, according to the Federal Circuit. The Federal Circuit discounted the remaining statistical evidence because it was mentioned only in floor speeches, without being the subject of congressional findings, or being "sufficiently described ... for [the Federal Circuit] to locate [it], let alone subject [it] to detailed, skeptical, non-deferential analysis." It likewise discounted the anecdotal evidence, even though this evidence had been introduced at congressional hearings, because "anecdotal evidence is insufficient by itself to support [10 U.S.C. § 2323]." The Federal Circuit further noted that the anecdotal evidence, including that compiled by the district court, did not address "a single instance of alleged discrimination by DOD in the course of awarding a prime contract, nor a single instance of alleged discrimination by a private contractor identified as the recipient of a prime defense contract." The Federal Circuit found this lack of evidence of discrimination in DOD contracts significant because it suggested that the government might not be able to prove "passive participation" in discrimination, within the meaning of Croson , by the DOD as a justification for the Department's SDB program. Ultimately, the Rothe decision is of particular significance for several reasons. First, although the decision is binding precedent only within the Federal Circuit, Rothe now governs all future constitutional challenges to minority set-aside programs arising within the context of bid protests related to federal procurements because the Administrative Dispute Resolution Act gave the Court of Federal Claims—whose appellate court is the Federal Circuit—exclusive judicial jurisdiction over bid protests related to federal procurements arising after 2001. Moreover, Rothe appears to be the latest in a long line of cases that place an increasingly heavy evidentiary burden on Congress when it enacts race-conscious legislation. In the immediate aftermath of the Court's landmark decision in Adaran d , the federal courts generally stressed deference to congressional authority to conduct fact-finding and to enact remedial legislation pursuant to section 5 of the Fourteenth Amendment. This deference to congressional authority has eroded over the years. As a result, Congress must now support any race-conscious measures it enacts by developing a strong record, as demonstrated in hearings and legislative findings, of methodologically sound, broad statistical evidence of discrimination capable of withstanding searching judicial inquiry. Meanwhile, courts have also considered challenges to SBA's § 8(a) program for socially and economically disadvantaged businesses. While upholding the constitutionality of the § 8(a) program on its face, the district court in Cortez III Service Corporation v. NASA required federal officials "to decide whether there has been a history of discrimination in the particular industry at issue" before applying a race-based set-aside. Other courts, however, have denied firms or individuals standing to challenge the racial presumption in the SBA statute and regulations on the rationale that they were disqualified from contract consideration because of inability to demonstrate "social and economic disadvantage," and not race. Currently, a legal challenge to the § 8(a) program is pending in the U.S. District Court for the District of Columbia. Minority Contracting By State and Local Government With increasing frequency, state and local affirmative action programs have met with constitutional objection from courts applying strict judicial scrutiny. Several federal circuit courts have addressed the legality of racial preferences in employment and public contracting programs since the Supreme Court's ruling in Croson . Croson emphasized the obligation of state and local governments to anchor their affirmative action efforts by identifying with specificity the effects of past discrimination. This meant that the governmental entity has to have a "strong basis in evidence"—just short, perhaps, of that required to establish a "prima facie" case in a court of law—for its conclusion that minorities have been discriminatorily excluded from public contracts in the past. In Croson , a 30% set-aside for minority subcontractors adopted by the City of Richmond failed this constitutional test. First, the program was premised on a comparison of minority contractor participation in city contracts with general minority population statistics rather than the percentage of qualified minority business enterprises (MBEs) in the relevant geographic market. There was, moreover, no evidence of discrimination in any aspect of city contracting as to certain groups—i.e., Orientals, Indians, Eskimos, and Aleuts—who nonetheless were granted a preference under the plan. With respect to "narrow tailoring," the 30% "quota" was deemed "too inflexible" and had been implemented by the city without any prior consideration of "race-neutral" alternatives. Finally, the "waiver" built into the Richmond plan was too "rigid" because it focused solely on minority contractor "availability" with "no inquiry into whether or not the particular MBE seeking a racial preference has suffered from the effects of past discrimination by the city or prime contractors." The heightened standards of proof articulated by Croson and further developed by Adarand led many states, counties and municipalities to reevaluate existing minority business enterprise programs. Judicial challenges followed, and while several race-conscious programs survived, many others were less successful, either because they lacked a compelling remedial justification or were not sufficiently "narrowly tailored" to withstand strict judicial scrutiny. As to the former, local jurisdictions primarily sought to establish a "strong basis in evidence" with "disparity" studies depicting the extent of minority exclusion from public contracting activity within the jurisdiction, coupled with any available "anecdotal" evidence. After the Court's 1995 Adarand decision, such studies were generally poorly received in the courts. Almost universally cited as the basis for judicial rejection of such statistical proof was over-reliance by the governmental unit on general or undifferentiated population data that failed to adequately reflect minority contractor availability or to account for contractor size and other factors relevant to contractor qualifications. Other major faults have been failure to "narrowly tailor" the remedy—whether a minority participation goal, preference, set-aside, or other "sheltered" bidding arrangement—to any disparities revealed by statistics and anecdotal proof of discrimination; the failure to properly limit the program in scope and duration; the absence of a "waiver" provision; or neglecting first to consider race-neutral alternatives, such as bonding and credit assistance programs, to ameliorate minority underutilization. The courts, however, have yet to resolve several important issues. As noted, the first relates to whether different fact-finding standards pertain to independent state or local minority contracting initiatives or to state plans explicitly adopted in aid of enforcing federal law. Notwithstanding Croson, decisions by three different circuit courts suggest that no independent findings may be required to establish a "compelling" governmental interest where the state agency acts not on its own authority, but pursuant to federal mandate requiring remedial state or local action to counteract the effects of past or present discrimination on federally funded projects. Compelling government interest looks at a statute or government program on its face. When the program is federal, the inquiry is (at least usually) national in scope. If Congress or the federal agency acted for a proper purpose and with a strong basis in the evidence, the program has the requisite compelling government interest nationwide, even if the evidence did not come from or apply to every state or locale in the Nation. The principle here seems to be that the evidentiary record compiled by Congress to find a compelling interest for the federal program provides the factual leverage necessary to sustain supporting action at the state and local level. Likewise, in Western State Paving Co. v. Washington DOT , the Ninth Circuit reviewed "as applied" challenges to state programs mandated by federal law. As discussed earlier, the court followed the Eighth Circuit in finding the 10% DBE set-aside of federal transportation funds under TEA-21 facially constitutional. But even if Washington demonstrates compliance with TEA-21 and its implementing regulations, it must separately meet strict scrutiny to survive an as-applied challenge. Thus, the majority found that while the state does not have to re-establish a compelling state interest, it still has to show that its program is narrowly tailored. That, in turn, "depends upon the presence or absence or discrimination in the state's transportation contracting industry." Washington admitted that no statistical studies were done to establish the existence of discrimination in the highway contracting industry. What arguments the state did make regarding discrimination—based on estimates of minority contractor participation in state transportation contracting—were rejected. The court concluded that those percentages proved little because they failed to account for factors affecting the capacity of minority contractors to undertake contracting work; for example, DBEs could be smaller, less experienced or concentrated in a particular part of the state. Moreover, the court observed that historical minority participation on contracts with affirmative action components "does not provide any evidence of discrimination against DBEs" in a race-neutral market. Washington also lacked anecdotal evidence of discrimination, which could not be inferred from statistics alone. Finally, "even when discrimination is present within a State, a remedial program is narrowly tailored if its application is limited to those minority groups that have actually suffered discrimination." In a more recent ruling, Northern Contracting Inc. v. State of Illinois , the Seventh Circuit reached a result similar to the Ninth Circuit's ruling in Western States Paving . In affirming the district court, the Seventh Circuit "considered the question of whether the federal government's interest in remedying discrimination in highway contracting provided sufficient justification for the state to engage in a federally mandated DBE program, and ... concluded that it did." As a result, the only question that remained was whether the state highway contracting program was narrowly tailored to achieve this compelling interest. After reviewing the statistical evidence and evaluating the state's compliance with federal regulations, the court determined that the state's program was narrowly tailored and therefore passed constitutional muster. By contrast, a more restrictive evidentiary approach is represented by a different Seventh Circuit ruling in Builders Association of Greater Chicago v. County of Cook , a case that involved a locally adopted minority contracting program rather than a federal program. The district court there held that Cook County had failed to establish a compelling interest supporting its contract set-aside program. In defense of its program, the County presented anecdotal evidence that prime contractors failed to solicit minority- and women-owned subcontractors at the same rate as similarly situated firms owned by white males. In addition, the County put forward statistical data demonstrating that a number of firms rarely or never solicit minority- or women-owned firms for subcontract work. This evidence, however, failed to persuade the court of a systematic refusal to solicit such firms for subcontract work because it was based on the practice of a mere thirteen general contractors. In affirming the decision, the appeals court also noted that the program failed to link its set-aside levels (30% minorities, 10% women) to evidence of their availability on the relevant market. Western States Paving and related cases may have important implications for future challenges against both state and federal affirmative action programs. Under the Ninth Circuit's rationale, while federal programs may be insulated by appropriate congressional fact-finding, state affirmative action in furtherance thereof must be supported by proof of discrimination on a state-by-state basis. Moreover, even federal programs could fall under question as the statistical foundation for their enactment becomes strained by the passage of time, perhaps necessitating renewed evidentiary justification. Meanwhile, DOT has issued guidance concerning the effects of the Western States Paving decision on recipients in the Ninth Circuit. Another issue that has divided the federal circuit courts since Croson is whether post-enactment evidence of discrimination is sufficient to justify minority set-asides and preferences. In 1996, the Supreme Court in Shaw v. Hunt ruled that, in the context of racial gerrymandering, a legislature must have sufficient evidence to support a racial distinction "before it embarks on an affirmative action program." Shaw demanded a "strong basis in evidence" for race-based governmental action, which has been interpreted by the Federal Circuit to mean that "the quantum of evidence that is ultimately necessary to uphold racial classifications must have actually been before the legislature at the time of enactment." In this view, proof that the legislature had a constitutionally permissible intent requires strong pre-enactment evidence. But the Tenth Circuit decision in Adarand III allowed consideration of post-enactment evidence in addition to congressional findings because the defendants had gathered it in response to the Supreme Court's application of strict scrutiny to the statutes in question. The Supreme Court chose not to address this and other issues when it declined an appeal from the Tenth Circuit ruling in Concrete Works of Colorado, Inc. v. City and County of Denver. In Concrete Works , the federal circuit court examined a city ordinance establishing goals for participation in the construction industry by minority- and female-owned businesses. In 1990, the Denver City Council passed Ordinance 513 to promote participation by minority-owned business enterprises (MBEs) and women-owned business enterprises (WBEs) in public work projects "to an extent approximating [their] availability and capacity." The city determined availability and capacity by conducting periodic studies of minority participation in each contract area. The Ordinance also directed the Office of Contract Compliance (OCC) to establish MBE and WBE participation goals on each individual city contract. The statutory goals for total annual expenditures were 16% for MBEs and 12% for WBEs. According to the ordinance, if the OCC established an individual project goal, all bidders had to either meet the goals or demonstrate their good faith efforts to do so. The city revised the program in 1996 and 1998, reducing the annual goals for MBEs and WBEs in construction contracts to 10% and prohibiting M/WBEs from counting self-performed work towards the goals. Concrete Works of Colorado, a construction firm owned by a white male, sued the city in 1992, alleging that it had been denied three contracts for failure to meet the goals or to make good faith efforts, and sought injunctive relief and money damages. The city relied on three categories of evidence to demonstrate a compelling remedial purpose for the ordinance. First, major studies—in 1990, 1995, and 1997—revealed large disparities between M/WBE availability and utilization on city projects without goals. Census data revealed like patterns of minority and female underutilization as contractors and subcontractors in state-wide construction, public and private. At trial, M/WBEs also testified to discrimination they confronted in qualifying and bidding on private sector jobs, in obtaining capital and credit, in dealing with suppliers, and of harassment suffered at work sites, including physical assaults. The principal issue presented by Concrete Works was whether the government's statistics and other evidence established a remedial justification for racial and gender preferences in public contracting. The circuit court adopted an expansive approach, finding that "irrefutable or definitive" proof of the city's own "guilty" actions was unnecessary where the city's "passive" participation in marketplace discrimination by its spending practices was shown. Denver's only burden was to introduce evidence which raised the inference of discriminatory exclusion in the local construction industry and link its spending to that discrimination.... Denver was under no burden to identify any specific practice or policy that resulted in discrimination. Neither was Denver required to demonstrate that the purpose of any such practice or policy was to disadvantage women or minorities. To impose such a burden on a municipality would be tantamount to requiring proof of discrimination and would eviscerate any reliance the municipality could place on statistical studies and anecdotal evidence. Croson 's admonition against relying on "mere societal discrimination" did not apply, the opinion states, where evidence of discrimination in the industry targeted by the program is shown—whether motivated by an attitude "shared by society" or "unique to the industry" is constitutionally irrelevant. The trial court was wrong to require Denver to "show the existence of specific discriminatory policies and that those policies were more than a reflection of societal discrimination." The trial court also faulted the city's disparity studies, in part, for failure to control for firm size, area of specialization, and whether the firm had actually bid on city contracts. Such factors were thought important because, due to their generally smaller size, M/WBEs might lack the requisite experience and qualifications, diminishing their availability and capacity to perform on city construction projects. The Tenth Circuit accepted the studies, nonetheless, reasoning that small firms can expand and contract to meet their bidding opportunities, and because size and experience are not race or gender-neutral variables: "M/WBE construction firms are generally smaller and less experienced because of discrimination." The disparities, moreover, were not shown to disappear when such variables were controlled for, or held constant, and taking the number of city bidders into account might distort the picture by including unqualified firms. Likewise, "lending discrimination" and "business formation" studies were properly relied on by the city for the "strong link" they demonstrated between disbursement of public funds and the "channeling" of those funds due to private discrimination. Private barriers precluded entry of M/WBEs into the market "at the outset" and made impossible "fair competition" for public contracts by minority firms that did submit bids. An appeal from the Tenth Circuit ruling, filed by petitioner Concrete Works of Colorado, Inc., was denied by the Supreme Court. In an unusual move, Justice Scalia was joined by Chief Justice Rehnquist in filing a written dissent from the Court's refusal to grant c ertiorari . The dissenters argued that Denver's policy violated the standards of proof required by the Court's 1989 decision in Croson and "invites speculation that case has effectively been overruled." According to their view, there must be some evidence that discrimination was so pervasive that any minority business would have suffered: "Absent such evidence of pervasive discrimination, Denver's seeming limitation of the set-asides to victims of racial discrimination is a sham, and the only function of the preferences is to channel a fixed percentage of city contracting dollars to firms identified by race." In declining review, Justice Scalia opined that his fellow Justices had "abandoned" their former insistence on a "strong basis in evidence," relying instead on the "good faith" of local governments to act responsibly when using racial preferences.

Since the early 1960s, minority participation "goals" have been an integral part of federal policies to promote racial and gender equality in contracting on federally financed construction projects and in connection with other large federal contracts. Federal contract "set-asides" and minority subcontracting goals evolved from Small Business Administration (SBA) programs to foster participation in the federal procurement process by small disadvantaged businesses (SDBs), or small businesses owned and controlled by "socially and economically disadvantaged" individuals. Minority group members and women are presumed to be socially and economically disadvantaged under the Small Business Act, while non-minority contractors must present evidence to prove their eligibility. "Goals" or "set-asides" for minority groups, women, and other "disadvantaged" individuals have also been routinely included in federal funding measures for education, defense, transportation, and other activities over much of the last two decades. The U.S. Supreme Court has narrowly approved of congressionally mandated racial preferences to allocate the benefits of contracts on federally sponsored public works projects, while generally condemning similar actions taken by state and local entities to promote public contracting opportunities for minority entrepreneurs. Disputes prior to City of Richmond v. J.A. Croson generated divergent views as to whether state affirmative action measures for the benefit of racial minorities were subject to the same "strict scrutiny" as applied to "invidious" racial discrimination under the Equal Protection Clause, an "intermediate" standard resembling the test for gender-based classifications, or simple rationality. In Croson, a 5 to 4 majority resolved that while "race-conscious" remedies could be legislated in response to proven past discrimination by the affected governmental entities, "racial balancing" untailored to "specific" and "identified" evidence of minority exclusion was impermissible. Until Adarand Constructors, Inc. v. Pena, however, a different, more lenient standard was thought to apply to use of racial preferences in federally conducted activities. The majority there applied "strict scrutiny" to a federal transportation program of financial incentives for prime contractors who subcontracted to firms owned by socially and economically disadvantaged group members. Although the Court refrained from deciding the constitutional merits of the particular program before it, and remanded for further proceedings below, it determined that all "racial classifications" by government at any level must be justified by a "compelling governmental interest" and "narrowly tailored" to that end. But the majority opinion, by Justice O'Connor, sought to "dispel the notion" that "strict scrutiny is 'strict in theory, but fatal in fact,'" by acknowledging a role for Congress as architect of remedies for discrimination nationwide. Bottom line, Adarand and its progeny suggest that racial preferences in federal law or policy are a remedy of last resort, which must be adequately justified and narrowly drawn to pass constitutional muster. In the post-Adarand era, lower federal courts have at times upheld and at other times struck down federal programs that contain minority contracting preferences. For example, in Rothe Development Corporation v. Department of Defense, the Federal Circuit recently held that the Department of Defense's Small Disadvantaged Business program was unconstitutional.

Fundamentals of the Civil Service Retirement Programs The Civil Service Retirement System (CSRS) was established by P.L. 66-215 in 1920, 15 years before Congress created the Social Security system for workers in the private sector. Because CSRS was designed to provide both retirement and disability benefits, federal employees were excluded from participating in Social Security. State and local governments were permitted to bring their employees into the Social Security program in the early 1950s, and today about three-fourths of state and local government employees are covered by Social Security. In the Social Security Amendments of 1983 ( P.L. 98-21 ), Congress mandated participation in Social Security by all civilian federal employees initially hired on or after January 1, 1984. To coordinate federal employee retirement benefits with Social Security, Congress directed the development of a new federal employee retirement system with Social Security as the cornerstone. The result of this effort was the Federal Employees' Retirement System (FERS) Act of 1986 ( P.L. 99-335 ). FERS is composed of three elements: (1) Social Security, (2) the FERS basic retirement annuity, and (3) the Thrift Savings Plan (TSP). Most permanent federal employees hired after December 31, 1983, are enrolled in the FERS, as are employees who voluntarily switched from CSRS to FERS during "open seasons" in 1987 and 1998. Under FERS, workers who have completed at least 30 years of service can retire at the plan's minimum retirement age. The minimum retirement age was 55 for workers born before 1948, and it is scheduled to rise to 57 for those born in 1970 or later. In 2018, the minimum retirement age is 56. Employees with 20 or more years of service can retire at the age of 60, and those with at least 5 years of service can retire at the age of 62. Federal employees and former employees who have completed at least 10 years of service can receive a reduced FERS annuity at the minimum retirement age. For those who choose this option, the FERS annuity is permanently reduced by 5% multiplied by the number of years between the worker's age at retirement and the age of 62. For example, the FERS annuity of an employee who retires at the age of 56 with fewer than 30 years of service would be permanently reduced by 5% multiplied by six, or 30%. Under CSRS, the minimum retirement age is 55 for employees with 30 years of federal service, 60 for those with 20 years of service, and 62 for employees with at least 5 years of service. CSRS has no provision for early retirement with a reduced benefit, except for special circumstances such as a reduction in force. Agencies undergoing a reduction in force can, with the approval of the Office of Personnel Management, offer retirement to employees aged 50 or older with 20 or more years of service or at any age with 25 or more years of service. An employee under CSRS who is offered and accepts an offer of voluntary early retirement has his or her retirement annuity permanently reduced by 2% multiplied by the number of years between the worker's age at retirement and the age of 55. Under both CSRS and FERS, the amount of an employee's retirement annuity is based on the average of the individual's highest three consecutive years of basic pay multiplied by his or her years of service and the rate at which benefits accrue for each year of service. Under FERS, the accrual rate is 1% of basic pay for each year of service. Workers with 20 or more years of service who retire at the age of 62 or later are credited with an accrual rate of 1.1% for each year of service. For example, a worker under FERS who retires at 61 with 29 years of service will receive a FERS annuity equal to 29% of his or her high-three average pay. Delaying retirement by one year would increase the annuity to 33% of high-three average pay (30 × 1.1 = 33.0). Under CSRS, the benefit accrual rate increases with length of service. Workers accrue benefits equal to 1.5% of high-three average pay for each of the first 5 years of service; 1.75% for the 6 th through 10 th years of service, and 2.0% of high-three average pay for each year of service after the 10 th year. This yields a pension equal to 56.25% of high-three average pay for 30 years of federal service under CSRS. Accrual rates are lower under FERS than under CSRS because employees under FERS also earn Social Security retirement benefits. For all federal workers enrolled in FERS, the agencies where they are employed contribute an amount equal to 1% of the employees' basic pay to the TSP, even if the employees make no voluntary contributions to the TSP. In 2018, workers under FERS or CSRS can contribute up to $18,500 to the TSP. Workers aged 50 and older can contribute an additional $6,000 to the TSP. Except in the case of the Roth TSP option, all contributions to the TSP are made on a pre-tax basis, and neither the employee's contribution nor any investment earnings are taxed until the money is withdrawn from the account. Under the Roth TSP option, however, employee contributions are made with after-tax income. Qualified distributions from the Roth TSP option—generally, distributions taken five or more years after the participant's first Roth contribution and after he or she has reached the age of 59½—are tax-free. In addition, the first 5% of employee pay contributed to the TSP generates agency matching contributions for workers under FERS. Workers who are under CSRS can contribute to the TSP, but they receive no matching contributions from their employing agencies. Retirement System Coverage of Current Federal Employees Because enrollment in CSRS has been closed to new entrants since 1984, the proportion of federal workers covered by FERS has been rising and coverage under CSRS has been declining. (See Table 1 .) FY1995 was the first year in which a majority of civilian federal employees (51%) were enrolled in FERS. In FY2016, 94.1% of federal employees were enrolled in FERS. Retirement System Coverage of Current Civil Service Annuitants Although the majority of current federal employees are enrolled in FERS, most retired federal workers and their surviving dependents receive benefits that were earned under CSRS. In FY2016, 71.5% of employee annuitants were receiving pension benefits that were accrued under CSRS, whereas 28.5% had retired under FERS. (See Table 2 .) The number of FERS annuitants is comparatively small because the FERS is still a relatively new program when compared with the average length of a worker's career. The program was established by the Federal Employees' Retirement System Act of 1986, and was made retroactive for all employees initially hired on or after January 1, 1984. State of Residence of Civil Service Annuitants Approximately 2.6 million people received civil service annuities in FY2016, either as retired federal employees, surviving spouses, or surviving dependents. California had the largest number of annuitants with 215,115 and Vermont had the fewest with 4,649. Five states—California, Texas, Florida, Maryland, and Virginia—accounted for about one-third of all civil service annuitants in FY2016. (See Table 3 .) Average Age and Years of Service at Retirement In FY2016, 99,242 civilian federal employees (including U.S. Postal Service employees) retired. (See Table 4 .) Of this number, 78,832 (79.4%) were normal retirements and another 1,099 (1.1%) were voluntary early retirements. Under CSRS, normal retirement can occur as early as the age of 55 for an employee with 30 years of service. Under FERS, the minimum retirement age is currently 56 years old, and is scheduled to increase to 57 years old for workers born in 1970 or later. Under both programs, normal retirement can be taken at the age of 60 with 20 years of service or the age of 62 with five years of service. The average age of workers taking voluntary, normal retirement in FY2016 was 62.1 for employees under CSRS and 63.4 for those under FERS. Workers taking normal retirement under CSRS in FY2016 had completed an average of 37 years of service, whereas those retiring under FERS had an average of 22.2 years of service. More than 1,000 federal employees took voluntary early retirement in FY2016. These workers were younger on average (54.3 years old for CSRS employees; 54.5 years old for FERS employees) than those who took normal retirement. The average length of service for CSRS employees who took voluntary early retirement was less (31.9 years) than CSRS employees who took normal retirement (37.0 years). For FERS employees, however, the average length of service of individuals taking early voluntary retirement was greater (25.6 years) than that of FERS employees who took normal retirement (22.2 years). Approximately 6.7% of all retirements among federal employees in FY2016 were taken for reasons of disability. CSRS disability retirees were, on average, 53.2 years old with 25.1 years of service. The average age of FERS disability retirees, who had 13.6 years of service, was 50.5. Involuntary retirements (such as those resulting from agency down-sizing) accounted for 1.2% of all retirements by federal employees in FY2016. Average Annuity Amounts Under CSRS and FERS The average monthly annuity among civilian federal employees who retired under CSRS in FY2016 was $4,755, whereas new FERS annuitants received an average annuity of $1,714 per month. Employees retiring under CSRS received larger annuities than those covered by FERS both because of their longer average length of service and CSRS was designed to provide an adequate retirement income from a single source. FERS was designed to provide a smaller annuity than CSRS for any given length of service and level of compensation because federal employees under FERS participate in Social Security and they also can elect to save for retirement with agency matching contributions through the TSP. Employees enrolled in FERS who retire at the minimum retirement age or older with 30 years of federal service also receive a supplement to their FERS annuity between their retirement date and the age of 62. The supplement is equal to the Social Security benefit that they earned while employed by the federal government and enrolled in FERS. Employees who retire at the age of 60 or 61 with 20 or more years of service also receive this supplement. The FERS supplement terminates at the age of 62, regardless of whether the individual applies for Social Security at that age. Average Age at Retirement of New Federal Retirees In FY2016, the average age of federal employees taking normal retirement was 62.8, which was higher than in FY1990. (See Table 5 .) The average age for all retirements in FY2016 was 61.3, which was higher than in FY1990 (59.4). Federal agencies undergoing a major reorganization can request permission from the Office of Personnel Management to offer their employees voluntary early retirement or voluntary separation incentive payments ("buyouts"). Under voluntary early retirement, an employee with 20 or more years of service can retire as early as the age of 50. Voluntary separation incentives are cash payments of up to $25,000 (before taxes) offered to employees who retire or otherwise separate from federal employment voluntarily. Because these incentives are generally offered to retirees who have not yet reached the combined age and years of service that are required for normal retirement, they tend to reduce the average age of employees who retire in any given year. Total and Median Annuity Payments to Retirees and Survivors The Civil Service Retirement and Disability Fund (CSRDF) paid annuities to 2,077,804 retired federal employees (also referred to as employee annuitants ) and 533,884 survivor annuitants in FY2016. Of these beneficiaries, 1,867,904 individuals (71.5%) received benefits earned under CSRS and 743,784 (28.5%) received benefits under FERS. Employee annuitants under CSRS received a median monthly annuity of $3,118. Survivors of CSRS annuitants received a median monthly CSRS annuity of $1,396. Employee annuitants under FERS received a median monthly payment of $1,082. The median survivor benefit under FERS was $432. As was noted earlier, FERS benefits are smaller than those under CSRS both because employees retiring under FERS had fewer years of service than workers who retired under CSRS, and because FERS benefits are intended to be supplemented by Social Security and the TSP. Cost-of Living Adjustments Under CSRS and FERS Cost-of-living adjustments (COLAs) for both CSRS and FERS are based on the rate of inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). COLAs are determined by the percentage change in the average monthly CPI-W during the third quarter (July to September) of the current calendar year compared with the third quarter of the last year in which a COLA was applied. If consumer prices as measured by the CPI-W do not increase (or if they decrease) between the third quarter of the base year and the third quarter of the current calendar year, there is no COLA for annuities paid under CSRS or FERS (and the base year used for the COLA calculation remains the last year that a COLA was applied). The "effective date" for COLAs is December, but they first appear in benefit checks issued in January. Under FERS, COLAs are paid only to retired workers who are 62 or older and to disabled and survivor beneficiaries of any age. COLAs paid under FERS are less than the rate of inflation whenever the increase in the CPI-W is greater than 2.0%. If the rate of inflation during the measurement period is between 2.0% and 3.0%, the FERS COLA is 2.0%. If inflation is greater than 3.0%, then the COLA for FERS benefits is equal to the CPI-W minus one percentage point. These limits do not apply to the CSRS COLA. From the third quarter of 2017 to the third quarter of 2018, the CPI-W increased by 2.0%. Therefore, the CSRS COLA beginning in January 2018 is 2.0%. The January 2018 FERS COLA is also 2.0%. (See Table 7 .) Income and Expenditures of the Civil Service Retirement and Disability Fund The CSRDF began FY2016 with a balance of $864.5 billion. By law, these assets are invested in special-issue U.S. Treasury bonds. The balance of the trust fund represents budget authority available to pay benefits under both CSRS and FERS. The fund's end-of-FY2016 balance of $879.8 billion was more than 10 times the value of the CSRS and FERS annuities paid from the fund that year. (See Table 8 .) The CSRDF receives income from several sources. Some of the fund's income results from cash transactions. Other income comes from intra-governmental transfers. The largest cash transaction ($3.2 billion in FY2016) consists of employee contributions to CSRS and FERS. These contributions are equal to 7.0% of base pay under CSRS; 0.8% of base pay under FERS for employees first hired before 2013; 3.1% of pay under FERS for employees first hired in 2013; and 4.4% of pay under FERS for employees first hired after 2013. Smaller cash payments are received from the District of Columbia to finance retirement benefits for its employees and from additional cash contributions made by federal workers. These usually are former federal employees who are returning to government service and who had previously withdrawn their retirement contributions. The CSRDF's largest sources of income are (1) annual payments from the general fund of the Treasury to make up for the insufficient funding of benefits accrued under CSRS, (2) payments from federal agencies and the Postal Service on behalf of their employees, and (3) interest payments on the U.S. Treasury bonds it holds. Agency contributions under CSRS are equal to 7.0% of payroll, and are supplemented by transfers from the general fund of the Treasury equal to approximately 12% of payroll. Agency contributions to FERS are required by law to be equal to the full actuarial cost of the program minus employee contributions. Effective FY2015, employing agencies contribute 13.7% of payroll on behalf of FERS employees first hired before 2013, and 11.9% of pay on behalf of FERS employees first hired in 2013 or later (including individuals hired in 2014 or later). These three sources of income are intra-governmental transfers that increase the fund's budget authority, as recorded in the accounts of the U.S. Treasury. The fund receives Treasury bonds as a record of this budget authority, which it redeems periodically as annuity payments come due. Expenditures from the CSRDF consist mainly of payments to retired federal employees and their surviving dependents. Annuity payments totaled $82.5 billion in FY2016. Payments to the estates of decedents and payments to separating employees accounted for another $330 million. The administrative expenses of the fund were $142 million, or 0.2% of obligations. Recent Trends in the Balance of the Civil Service Retirement and Disability Fund Between FY1990 and FY2018 (estimated), the balance of the CSRDF rose from $238 billion to $972 billion, an increase of 308%. (See Table 9 .) The balance of the fund has been rising partly because the civil service retirement programs are in a long-term transition from pay-as-you-go financing under CSRS to advance-funding under FERS. Until 1969, CSRS benefits were funded on a pay-as-you-go basis with a small reserve equal to about one year of benefit payments to meet unexpected contingencies. Employee contributions and agency contributions were less than the actuarial value of the benefits that were accrued each year by federal employees. In 1969, P.L. 91-93 mandated annual payments to the fund from the general revenues of the U.S. Treasury to make up most of this shortfall. When Congress passed the legislation that created FERS in 1986, the law required that the full actuarial value of benefits accrued each year by federal employees under FERS (including the value of future COLAs) must be funded by the sum of employee and agency contributions. The Office of Personnel Management estimates that at some time in the 21 st century, the trust fund will reach a steady state in which it holds sufficient budget authority to finance about 18 to 20 years of retirement and disability benefits. Number of Civil Service Annuitants and Total Annuity Payments The number of people receiving civil service annuity payments has risen more than 175% since 1970, but the rate of increase has slowed since 1985. (See Table 10 .)The rapid rise in the number of civil service annuitants from less than 1 million in 1970 to approximately 2 million in 1985 resulted from the increase in federal employment that occurred between 1940 and 1955. Throughout the 1930s, civilian federal employment (including postal employees) was less than 1 million. The first year in which there were more than 1 million people in the federal workforce was 1940. By 1955, civilian federal employment had reached 2.4 million. After 1955, civilian federal employment increased much more slowly. It reached nearly 3 million in 1970, due in part to the war in Vietnam and the creation of such large-scale social programs as Medicare and Medicaid in the 1960s. The slower but still steady increase in the number of federal employees in the years between 1955 and 1970 had as one of its consequences the steady increase in the number of civil service annuitants in the years since 1985. Between 1985 and 2016, the number of civil service annuitants rose from just under 2 million to just over 2.6 million. Expenditures for civil service annuities have grown by a greater percentage than the number of annuitants because they are affected not only by the number of people employed by the federal government, but also by increases in average life-span, growth in real wages, and inflation. Cost-of-living adjustments—which have been applied to civil service annuities since 1962—increase the nominal value of civil service annuities, but do not increase the real value of these annuities. COLAs are intended to keep purchasing power from eroding due to the effects of inflation. Under current law, the real value of a civil service annuity either remains constant (CSRS) or declines (FERS) during retirement. Rates of increase in the "high-three" average pay of retiring federal employees (on which these annuities are based) are in turn affected by (1) adjustments to pay for each grade-and-step level, (2) special pay increases such as locality pay adjustments, (3) the distribution of federal employees among various grade-and-step levels over time, and (4) average length of service (because each additional year of service tends to increase the high-three average pay). The average real value of civil service annuities per annuitant can be expected to decline in the future as a growing number of new retirees will be workers who were enrolled in FERS rather than CSRS. FERS annuities are smaller than CSRS annuities, but they are supplemented by Social Security benefits and the TSP. Total Civilian Federal Employment Between FY1994 and FY2013, the number of civilian federal employees (including the U.S. Postal Service, which participates in both CSRS and FERS) fell from 2,972,000 to 2,731,000. (See Table 11 .) Civilian federal employment outside the Postal Service fell from 2,149,000 in FY1994 to 1,943,000 in FY2006, a decline of 9.6%. From FY2006 to FY2013, total federal employment rose from 2,700,000 to 2,731,000, an increase of 2.3%. Non-postal employment rose from 1,943,000 to 2,168,000, an increase of 11.6%. Much of the FY2006 to FY2013 increase in federal employment was driven by growth in the executive branch, which is the largest branch of government in terms of federal employees. The executive branch experienced an increase in employees over this period of 1.2% (2,637,000 employees in FY2006; 2,668,000 employees in FY2013). Employment in the judicial branch (34,000) exceeded employment in the legislative branch (29,000) in FY2013. From FY1994 to FY2013, employment in the legislative branch declined from 35,000 employees to 29,000 employees. Over the same period, employment in the judicial branch rose from 28,000 to 34,000 employees. Age Distribution of CSRS and FERS Employees Under CSRS, an employee with 30 or more years of service can retire with an immediate, unreduced annuity at the age of 55. The current minimum retirement age under FERS is 56. In both CSRS and FERS, an employee with 20 or more years of service can retire at the age of 60. About one in three federal employees will reach age 55 within 10 years, but not all of them will have 30 years of service at that age. Of those who have 30 or more years of service, not all will retire as soon as they are eligible. The average age among all federal employees who retired in FY2016 was 61.3. The average age among individuals who took normal retirement—as opposed to early retirement or disability retirement—was 61.8. Because CSRS has been closed to new entrants since 1984, the distribution of current CSRS employees is older than FERS. For example, there were no CSRS employees under the age of 45 as of September 2015. Thirty-eight percent of FERS employees, however, were under the age of 45 during this same period. Approximately 10% of CSRS employees and 33% of FERS employees were between the ages of 45 and 54. Although most CSRS employees (90%) were aged 55 or older, only 28% of FERS employees were aged 55 or older. (See Table 12 .)

This report describes recent trends in the characteristics of annuitants and current employees covered by the Civil Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS) as well as the financial status of the Civil Service Retirement and Disability Fund (CSRDF). In FY2016, 94% of current civilian federal employees were enrolled in FERS, which covers employees hired since 1984. Six percent were enrolled in CSRS, which covers only employees hired before 1984. In FY2016, more than 2.6 million people received civil service annuity payments, including 2,077,804 employee annuitants and 533,884 survivor annuitants. Of these individuals, 72% received annuities earned under CSRS. About one-third of all federal employee annuitants and survivor annuitants reside in five states: California, Texas, Florida, Maryland, and Virginia. The average civilian federal employee who retired in FY2016 was 61.3 years old and had completed 25.6 years of federal service. The average monthly annuity payment to workers who retired under CSRS in FY2016 was $4,755. Workers who retired under FERS received an average monthly annuity of $1,714. Employees retiring under FERS had a shorter average length of service than those under CSRS. FERS annuities are supplemented by Social Security benefits and the Thrift Savings Plan (TSP). At the end of FY2016, the balance of the CSRDF was $879.8 billion, an amount equal to more than 10 times the amount of outlays from the fund that year. The trust fund balance is expected to reach $909 billion by the end of FY2018. From FY1970 to FY1985, the number of people receiving federal civil service annuities rose from fewer than 1 million to nearly 2 million, an increase of 105%. Between FY1985 and FY2016, the number of civil service annuitants rose by 680,000, an increase of about 35%. In FY2013, the number of civilian federal employees, including Postal Service employees, totaled 3.3 million workers. This was 254,000 less than the number of employees in FY2000, and 480,000 fewer than the number of employees in FY1994. In FY2016, all CSRS employees were aged 45 or older, compared with 61% of FERS employees who were aged 45 or older (38.6% of FERS employees were younger than 45). Fifty five percent of CSRS employees were aged 60 or older, whereas 13% of FERS employees were in this age range. For a general overview of current benefits and financing under CSRS and FERS, see CRS Report 98-810, Federal Employees' Retirement System: Benefits and Financing. For summary information on recent reform proposals related to CSRS and FERS, see CRS In Focus IF10243, Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals.

Background The issue of women's rights in Afghanistan and Iraq has taken on new relevance following the U.S.-led military actions in Afghanistan in 2001, the U.S.-led invasion of Iraq in 2003, and subsequent reconstruction efforts in both countries. One of the major questions facing the United States in the post-war reconstruction process is the extent to which it can help women participate—often for the first time in their lives or the recent history of their countries—in political, educational, and economic life after years of warfare, gender-based repression, and economic exclusion. Advancing the position of women and committing adequate resources to women's and girls' education have both been linked, on a global level, to the achievement of efficient and stable development, particularly in post-conflict regions. Congressional initiatives focused on women in these countries have covered a range of political, economic, and social issues. Particular areas of emphasis include the incorporation of women in local and national governance, the inclusion of women's rights in a new constitution, participation by women in the workforce, universal access to education, provision of adequate health care, and supplying humanitarian assistance to needy families. This report focuses primarily on foreign aid appropriated by Congress to United States Agency for International Development (USAID) and the State Department for humanitarian and reconstruction activities in Afghanistan and Iraq, but also touches upon Iraq programs funded through the Departments of Health and Human Services, Agriculture, Labor, and Defense. Afghanistan Overall, conditions for women in Afghanistan have vastly improved since the fall of the Taliban in 2001, particularly in terms of education and job opportunities. Many refugees have returned, millions of Afghan girls now attend school, and it is no longer illegal for women to work. A great deal remains to be done, however, in improving the basic standard of living and means of livelihood for most Afghan women. Although women may legally work, for example, many still face serious challenges in finding culturally appropriate jobs (in most areas of Afghanistan women still find it difficult or impossible to work in open areas where they may come into contact with men), within easy commuting distance of home, at tolerable hours, with reasonable pay. Furthermore, most Afghan women (and, for that matter, most men) have had little or no education and lack employable skills. While women have gained substantial ground in political participation, especially since passage of the recent constitution guaranteeing them a minimum number of parliamentary seats, they nevertheless continue to face conservative attitudes in many rural areas of the country, particularly in the south and east. Among the breakthroughs, in 2005 a woman was appointed governor of a province (Bamiyan). Iraq In marked contrast to the Taliban's repressive treatment, which was rooted in longstanding rural Afghan customs, Iraq's policies toward women have historically been more liberal. Even compared to other countries in the Middle East, Iraqi women fared reasonably well under the provisional 1970 Constitution, which granted them equal rights with men, including the rights to go to school, own property, work, and hold political office. The condition of women worsened somewhat under the regime of Saddam Hussein, however, particularly after the first Gulf War when Hussein turned more to Islamic and tribal traditions that held women in inferior positions. In addition, the economic conditions brought about by international sanctions after the Gulf War are said to have affected women disproportionately. Conditions appear to be improving for some women living in Iraq's cities, who are regaining greater civil rights and educational opportunities in the wake of the U.S.-led invasion of 2003. The political process in particular has opened up; the new constitution requires 25% female representation, and women are serving in the government as members of the cabinet and the Iraq governing council. There are no women governors in the provinces, however. Although progress is being made on the political front, in other ways women are worse off under increasingly Islamist policies, especially in southern Iraq. Women in rural areas continue to face growing difficulties, particularly in places where religiously conservative local leaders have gained power. Gender discrimination, forced segregation, and austere dress requirements all bear the hallmarks of regression rather than progress in women's development and integration. Other problems women face are similar to those of the population as a whole: economic insecurity and the threat of political and sectarian violence. While women are being forced to cover up in southern Iraq, in other parts of the country it is reported that some women wear head scarves as a means of protection and anonymity. The fragile situation on the ground in many parts of the country is limiting the provision of humanitarian assistance and makes meeting basic needs, such as adequate food, shelter, and medical care, a daily struggle. Women in the Kurdish areas to the north are reported to have more opportunities and face better treatment than women in the central and southern portions of the country. U.S. Assistance to Afghan Women Identified below are specific legislative earmarks to support programs for Afghan women and children and general funds that identify women and children among the program beneficiaries. This is not meant to be an exhaustive inventory of all U.S.-funded projects that may address women's needs. Providing such a list would be both debatable and difficult, because many projects addressing overall societal issues—such as refugee care and resettlement, health, education, and job training—do not mention women but may implicitly benefit them disproportionately. The legislation and programs detailed below are those that expressly benefit women. Regular and Supplemental Appropriations This section lists congressional funding of Afghan women's programs since 2001. FY2006 The Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2006 ( H.R. 3057 , P.L. 109-102 ), includes a $50 million earmark for programs directly addressing the needs of Afghan women and girls. Of this amount, $7.5 million is to be made available to support women-led non-governmental organizations (NGOs). In addition, the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2006 ( H.R. 3010 , P.L. 109-149 ), includes $5,952,000 for the development of maternal child health clinics (consistent with section 103(a)(4)(H) of the Afghanistan Freedom Support Act of 2002 ). FY2005 The Consolidated Appropriations Act, 2005 ( H.R. 4818 , P.L. 108-447 ) also included $50 million for programs for women and girls, including $7.5 million for women-led NGOs. In addition, Section 305 of the Intelligence Reform and Terrorism Prevention Act of 2004 ( S. 2845 , P.L. 108-458 ) required the President to formulate a five-year strategy for Afghanistan that included support for women's rights, including increased political participation, but no funding was appropriated. Two similar bills were introduced but not enacted in the last Congress ( S. 2032 and H.R. 4117 ), each titled the Afghan Women Security and Freedom Act of 2004 , authorizing appropriations of $300 million for Afghan women in fiscal years 2005, 2006, and 2007. $20 million was to be earmarked for the Afghan Ministry of Women's Affairs and $10 million for the Afghan Independent Human Rights Commission for each fiscal year. S. 2032 was referred to the Committee on Foreign Relations in January 2004 and H.R. 4117 was referred to the House International Relations Committee in April 2004. Neither bill was signed into law. The President's FY2005 budget request did not contain specified amounts for aid to women, although the Administration indicated that a significant amount of the funds for development programs would support activities benefitting women and girls. An early version of the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, 2005 ( H.R. 1268 ), included $5 million for Afghan women's organizations, but this provision was removed from the bill before its final passage as P.L. 109-13 . FY2004 In the FY2004 Consolidated Appropriations Act, 2004 ( H.R. 2673 , Division D of P.L. 108-199 ), $5 million was earmarked from the Economic Support Fund to support programs to address the needs of Afghan women through training and equipment for women-led Afghan non-governmental organizations (NGOs). The FY2004 Supplemental Appropriations included a $60 million ESF earmark for women's programs, including technical and vocational education, programs for women and girls against sexual abuse and trafficking, shelters for women and girls, humanitarian assistance for widows, support of women-led NGOs, and women's rights programs. FY2003 In H.J.Res. 2 ( P.L. 108-7 ), the FY2003 Consolidated Appropriations Resolution, $5 million was earmarked in the Foreign Operations Appropriation from the ESF to support activities coordinated by the Afghan Ministry of Women's Affairs, including support for the establishment of women's centers in Afghanistan. A further $60 million from the International Disaster Assistance Account specifically for humanitarian assistance also mentions the improvement of the status of women with priority placed on girls' and women's education, health, legal and social rights, economic opportunities, and political participation. Through the FY2003 State Department budget ( Consolidated Appropriations Resolution, 2003 , H.J.Res. 2 , P.L. 108-7 ), about $10.5 million was earmarked for the Asia Foundation and $2 million for the National Endowment for Democracy for women's rights in Afghanistan. The FY2003 Supplemental ( P.L. 108-11 ) contained no specific earmarks for women's programs in Afghanistan. Earlier Congressional Action The Afghan Women and Children Relief Act of 2001 ( P.L. 107-81 ), signed into law on December 12, 2001, authorized the provision of educational and health care assistance to the women and children of Afghanistan. No specific amount was authorized. The Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 ) authorized $15 million for the Afghan Ministry of Women's Affairs. Programs and Projects Afghanistan receives the third-highest share of U.S. foreign aid in FY2006. It was the leading recipient in FY2005, and ranked fourth in FY2004. USAID supports Afghan women through a number of grants and programs throughout the country. Specific activities have included small grants to establish the Ministry of Women's Affairs, assistance for Afghan NGOs, opportunities for income generation in the private sector, and programs to support opportunities for women in agriculture and rural environments. Larger aid programs, such as humanitarian assistance, health, and education, have included support for women, and in some cases, have been integrated into other multi-year development programs. USAID reports that significant progress has been made in a number of key areas in economic growth, democracy and governance, election participation, and education and health. USAID partners have focused particularly on promoting women's participation in the political process at the local and national levels. The State Department's Bureau of Population, Refugees, and Migration (PRM) provides support to Afghan refugees, internally displaced persons (IDPs), returnees and other vulnerable members of the population through funds appropriated to the Migration and Refugee Assistance (MRA) account. Its implementing partners include the U.N. High Commissioner for Refugees (UNHCR), the International Committee of the Red Cross (ICRC), the International Federation of the Red Cross and Red Crescent Societies (IFRC), the International Organization for Migration (IOM), other U.N. agencies, and NGOs. Supporting vulnerable women is one of PRM's core goals, and PRM funds several programs for Afghan women refugees, IDPs, and returnees, including literacy training, income generation, gender-based violence prevention, and mother-child health care. The majority of PRM's assistance funding does not specifically target women, although many women are beneficiaries. U.S. Assistance to Iraqi Women Since the U.S.-led invasion of Iraq in 2003, the Bush Administration has stated its interest in ensuring that Iraqi women are involved in rebuilding and reconstruction efforts in Iraq. For the same reasons mentioned in the preceding section on Afghanistan, presenting an exhaustive list of programs and funding for Iraqi women is difficult. Several programs have been launched specifically focused on women and are detailed below. Because of increasing violence in Iraq, however, it is difficult to assess the extent to which these programs have been sustained. Regular and Supplemental Appropriations This section lists congressional funding of Iraqi women's programs since 2003. It should be noted that, while relatively little funding has been dedicated exclusively to Iraqi women, the overall level of spending in Iraq has been much higher than in Afghanistan, and much of this funding implicitly includes women. FY2006 No specific earmarks for women's programs have been passed in the current Congress. The Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2006 ( H.R. 3057 , P.L. 109-102 ), provides $28 million each to the International Republican Institute and the National Democratic Institute to fund governance and rule of law programs in Iraq. The earlier version of this bill as passed in the Senate had specified that the funding should be spent in the areas of "governance, elections, political parties, civil society, and women's rights," but the mention of women was not included in the final conference report. In addition, two congressional resolutions emerged in this session encouraging the Iraqi Transitional National Assembly to adopt a constitution granting women equal rights ( H.Res. 383 and S.Res. 231 , both passed unanimously). A third resolution commended Iraqi women candidates in the January 2005 elections ( H.Res. 143 , referred to the Subcommittee on Middle East and Central Asia). FY2005 No specific earmarks for women's programs were passed in this session. Two similar bills were introduced authorizing unspecified funds for assistance to Iraqi women in the areas of health care, education, economic empowerment, political participation, civil society, and personal security ( H.R. 4671 and S. 2519 , both entitled the Iraqi Women and Children ' s Liberation Act of 2004 ). Neither bill was reported out of committee. FY2004 In conference report language ( H.Rept. 108-337 ), accompanying the Emergency Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, 2004 ( H.R. 3289 , P.L. 108-106 , enacted in November 2003), which provided $18.4 billion for Iraqi reconstruction, conferees included $10 million "to support women's programs" in Iraq. In February 2004, Deputy Secretary of Defense Paul Wolfowitz announced that "the United States is giving special emphasis to helping Iraqi women achieve greater equality and has allocated $27 million for women's programs." He added that "Education for women is one of the highest priorities, and the United States has committed more than $86.8 million to education projects, with special emphasis on ensuring that girls are registered and attending school." Programs and Projects In March 2004, Secretary of State Colin Powell announced a $10 million Iraqi Women's Democracy Initiative (IWDI), intended to "train Iraqi women in the skills and practices of democratic public life." Programs have provided voter education to women, as well as training in political leadership, communications, and coalition-building skills to women in the National Assembly. The State Department reports that over 2000 Iraqi women already have been trained in political, economic and media skills so far. The Secretary also announced the formation of a "U.S.-Iraq Women's Network" (USIWN). These programs represent a fairly small amount of overall U.S. funding in Iraq. Since 2003, Iraq has been the leading cumulative recipient of U.S. foreign aid, and Iraqi women's issues and programs—in the sectors of education, health care, local governance, and civil society—have received an indeterminable amount of funding through other Iraqi reconstruction funds. Since April 2003, USAID has implemented a number of programs targeting women, especially in governance and the economic sphere. USAID reports that nearly 60 percent of its small business development grants in Iraq have been awarded to women. In addition, "a grant for nearly $1.3 million is being finalized for a women-focused international Micro Finance Institute, combining loans with one-on-one technical assistance to develop business ideas." USAID is also working to train women politicians and journalists, as well as NGOs promoting women's interests. Some of these initiatives have been managed under the auspices of the Iraq Local Governance Program (LGP), an initiative intended to provide a foundation for Iraq's transition to democracy, which has attempted to deal with the obstacles presented by Iraqi culture to women in government. The LGP has recruited and trained women to serve on various sub-national governing bodies and councils, as well as worked with city councils to meet the needs of women in their communities. USAID has held a number of workshops for women throughout Iraq, where "international and local participants discuss issues such as Islam, democracy, oppression of women, women's rights and participation in future elections." The Iraqi Women in Local Governance Group (IWLGG) was also established in order to "enhance the political participation of women through civic education and training and monitoring the progress of female participation in each local government." USAID has supported accelerated learning programs that are specifically targeted toward girls' education. These programs are intended to provide girls with life skills and the academic background necessary to return to formal schooling. USAID is also rehabilitating the water and sanitation facilities at 800 primary schools, and providing training that it says will reach 75,000 female teachers and administrators by the end of the 2005-2006 school year. A USAID fact sheet discussing reconstruction accomplishments indicates that USAID has rehabilitated over 2,800 schools, and constructed 45 new schools, and trained over 47,500 secondary school teachers and administrators through September 2005. An earlier report indicated that as a result of these efforts, "female attendance has surpassed male attendance." Issues for Congress Challenges for Women in Afghanistan and Iraq In the transition to a post-conflict environment, Afghan and Iraqi women face particular challenges, especially in a climate of uncertainty and insecurity. While conditions for women in Afghanistan have improved markedly since the fall of the Taliban, Afghan women are still among the most socioeconomically disadvantaged in the world. Female literacy is estimated at 20%. While girls' school enrollment has skyrocketed in the last few years, there are still one-third fewer girls than boys in primary school. Turning to health, according to the World Health Organization (WHO) Afghanistan has the world's second worst maternal mortality rate and fifth worst neonatal mortality rate. While Iraq is a good deal more industrialized than Afghanistan, its health indicators prior to the 2003 invasion were very poor; its neonatal mortality rate was in fact worse than that of Afghanistan. Iraq has historically had a much better—and more gender-balanced—educational system than Afghanistan, but girls' school attendance, especially in rural areas, still lags behind that of boys. While Congressional funding for democracy building, civil society development, and participation in the workforce will have an important affect on women's lives in each country, the rehabilitation of the basic education and health care infrastructure for Afghan and Iraqi women is equally, if not more, vital. Designating Funds for Women One of the key ways Congress has had an impact on the situation for Afghan women has been through a series of legislative earmarks. To date, in Iraq, although some funds have been designated to include women, such as $10 million for the Iraqi Women's Democracy Initiative, Congress has not used legislative earmarks extensively for women's programs. Future Developments In consideration of the funding appropriated in recent years, there are some similarities in the approach taken by the United States to improve the lives of Afghan and Iraqi women. However, not only are Afghanistan and Iraq starting from different economic and social points, but the timetables for reconstruction will differ as well based on events and challenges on the ground. Although it is too soon to draw specific lessons from either country, as Congress examines the progress of reconstruction programs for women, it may be important to consider the effect of religious versus secular forces, the variation in local traditions and cultures, and the differences between rural and urban communities to see if the assistance provided to Afghan and Iraqi women is effective and can be used as a model in future post-conflict regions.

This report reviews U.S. funding for programs directed toward women in Afghanistan and Iraq. Women in these two countries have faced particularly difficult conditions under the Taliban and Baathist regimes. Although there have been notable improvements since the ouster of these regimes in 2001 and 2003, respectively, women still face real challenges in the areas of education, health care, political participation, and, in many cases, basic human rights. The national and international response to the plight of Afghan and Iraqi women may have an important impact not only on the women being directly assisted, but also on their countries as a whole, in terms of more widespread access to education, health care, and political and economic participation. This report will be updated as events warrant.

Introduction Employer health care pl ans benefit from the ability to exclude the value of the insurance paid by the employer from employee income and payroll taxes. This provision, known as the employer-sponsored insurance (ESI) tax exclusion, has been viewed by some as encouraging too much spending on insurance and therefore on health care. During consideration of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) proposals to limit the amount of benefit excluded from tax under this provision were addressed. The final bill did not limit the amount of benefits employees can exclude from income and payroll taxes, but it did include a related provision that is popularly termed the Cadillac tax . This provision imposes an excise tax on the cost of ESI coverage that is in excess of a predetermined threshold. The original Cadillac tax differed from other typical excise taxes in two ways: (1) it was imposed on amounts in excess of a dollar floor and (2) it was not deductible from the income tax. Deductibility was restored by the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). It is imposed on the coverage provider, either a third-party insurer or, in the case of self-financed plans, the plan administrator (which may be the employer). The Cadillac tax is imposed at a rate of 40%. This tax rate is applied on a tax-exclusive basis , as is generally the case with excise tax rates. That is, like a sales tax, it applies to the price or cost excluding the tax. By contrast, the tax rate relevant to an income tax exclusion is on a tax-inclusive basis : it is applied to a base that includes the tax. A 40% tax applied on a tax-exclusive basis is equivalent to a 28.57% rate (0.4/1.4) applied on a tax-inclusive basis. That is, if the tax base is $100 dollars, the tax will add $40. The rate on a tax-inclusive basis is the tax ($40) divided by the base plus the tax ($140). As noted, the Cadillac tax was originally nondeductible from the insurer's gross income (or the employer's gross income, in cases where the employer self-insures). This treatment is unlike other excise taxes. (See the Appendix for further discussion.) Deductibility was allowed in the Consolidated Appropriations Act, 2016. (See the Appendix for further discussion of the effect of this change.) The Cadillac tax was originally to take effect in 2018. The Consolidated Appropriations Act delayed the effective date to 2020. The tax is projected to be imposed on plans that cost more than $10,800 for single health plans and $29,100 for non-single (e.g., family) plans. The exempt amount is indexed for inflation, and, because health costs tend to grow faster than inflation, the share of premiums covered by the tax and the revenue collected is expected to grow. (The threshold was indexed for health care costs for 2019, however.) Unlike a limit on the exclusion of benefits, which would increase the taxable income of the employee, this tax is imposed on the coverage provider, often the health insurer. Like the proposals to amend the employer health care exclusion that were discussed before the tax was adopted, however, the Cadillac tax is aimed not only at providing financial support for the costs of the ACA (such as premium subsidies to help lower-income individuals purchase health insurance) but also at reducing expenditures on health care. This report examines several issues. It evaluates the potential of the Cadillac tax to affect health insurance coverage and, therefore, the health market. It also examines the expected incidence (burden) of the tax—that is, which group will pay the price of the tax. In addition, the report discusses the efficiency of the tax in the context of administrative cost. Economic Efficiency and the Health Insurance and Health Care Market The health care sector contains many sources of market failure, which create economic inefficiencies. The inefficiency that is most directly related to the Cadillac tax is the moral-hazard issue that results from having health insurance. In general, insured individuals spend more on medical care than they would without insurance. More demand for medical care raises the price of medical care, and it could reduce incentives for individuals to take responsibility for their health status (to the extent that they can). Incentives that encourage insurance consumption, such as the unlimited ESI tax exclusion, can increase these inefficiencies in the market for medical care. The Cadillac tax is intended in part to reduce this source of inefficiency. Although some employers and employees may choose to retain high-cost plans, others may scale back to avoid the tax. For employees in the latter group, the cost of health care increases, for example, through higher co-payments and larger deductibles. A Graphical Depiction of the Health Care Market Figure 1 illustrates the effects of the Cadillac tax on the national market for medical care using a supply and demand framework. In this diagram, the effects of insurance and the Cadillac tax are depicted as the share of cost, s, paid by insurance. Therefore, the cost to the consumer is P(1-s), where P is the market price of the health care. Note also that the points on the graph do not reflect magnitudes but are illustrative, as the effect of the Cadillac tax is small relative to the effect of insurance. The points on the graph can be defined as follows: P* and Q* are the price and quantity in a market without insurance, where consumers face the full costs of their medical care decisions. P i and Q i are the price and quantity in a market with insurance and subsidies (such as the ESI tax exclusion), where individual consumers pay a portion of their medical costs out of pocket at the price P i (1-s i ). P t and Q t are the price and quantity in a market with insurance and subsidies, where individual consumers face a higher price because insurance coverage has been reduced by the Cadillac tax, where individual consumers pay P t (1-s t ). The demand curve is steeply sloped downward, indicating the demand for medical care is relatively inelastic, or changes in quantity demanded are relatively insensitive to changes in price. The supply curve is gradually upward sloping, indicating that the supply of medical care services is relatively elastic, or changes in the quantity supplied are relatively responsive to changes in price. In a world without insurance, consumers pay the full price of medical care (P*) and demand an amount of medical care (Q*) at the intersection of supply and demand. In a world where insurance is introduced, individual consumers pay a share of their full medical costs, P(1-s i ), in the form of a co-payment or other cost sharing and demand Q i amount of medical care. Prices (or cost per unit) in the medical care market increase from P* to P i after the introduction of insurance as suppliers capture a portion of the subsidy. Equilibrium in the medical care market after introduction of insurance occurs with price P i and quantity Q i . In other words, consumers tend to demand a greater quantity of medical care in a world with health insurance compared to a world without health insurance because insured individuals face a lower out-of-pocket cost, P i (1-s i ) as compared with P*. The ESI tax exclusion intensifies the effects that insurance has on the quantity demanded and the prevailing price of medical care in the market because it further insulates consumers from the full price of their medical care decisions. The Cadillac tax effectively reduces (or offsets) federal subsidies for health insurance and reduces that insurance coverage. Thus, it increases consumers' exposure to the full cost of their medical care beyond the Cadillac-tax threshold such that the total quantity of medical care demanded decreases from Q i to Q t and price decreases from P i to P t . The equilibrium after imposition of the Cadillac tax is closer to the equilibrium in the market without the effects of health insurance. The decline in quantity from Q i to Q t largely represents sensitivity to higher out-of-pocket costs (in the form of higher co-payments, deductibles, or other features). Estimated Effects of the Tax on Health Care Prices and Quantities The Cadillac tax will affect the overall medical care market by effectively reducing government subsidies for health insurance and therefore reducing insurance coverage, which would likely lead to an increased cost of medical care for the consumer. As medical care becomes more costly, spending on medical care will decrease and spending on other commodities will increase. Although the theoretical prediction is that the Cadillac tax will reduce medical care spending, the revenue raised by the tax is estimated to be a small share of national health expenditures. According to the Congressional Budget Office (CBO), the tax will raise $20 billion in 2025. The Centers for Medicare & Medicaid Services (CMS) project that national health care expenditures covered by private insurance will be $1,752.6 billion in 2025. In other words, revenue raised by the Cadillac tax is projected to amount to 1.1% of projected health expenditures covered by private insurance in 2025. Although the tax is small relative to health spending, its effects can be multiplied through reductions in insurance coverage, as discussed below. Once the tax is implemented, some firms (on behalf of their workers) will retain their plans and pay the tax. Other firms will reduce their insurance and pay their employees more, so that revenue gains will reflect the increase in income and payroll tax paid on the increase in taxable compensation. These additional wages would substitute for previously untaxed health benefits. The reduced insurance coverage would be a multiple of the tax revenues. For example, if the tax rate is 30%, each $30 of revenue collected equals $100 of taxable income and reduced coverage. Thus, each dollar of revenue reflects $3.33 ($100/$30) of reduced coverage. Based on estimates shown in the Appendix that apply assumptions used by the Joint Committee on Taxation, 86% of premiums above the Cadillac-tax threshold could be eliminated and replaced by wages. This reduction in coverage would increase the cost of health care to those formerly covered by a Cadillac plan. Although there are a number of ways in which costs could be reduced in an insurance policy, the analysis here assumes a proportional effect on the share paid by the individual consumer. After incorporating the elasticities of demand and supply mentioned above, the Cadillac tax could lead to an overall decline in the quantity of health services. This decline is estimated to range from 1.9% to 2.2% in 2025. Prices could fall by up to 1.3% in 2025, although costs to some consumers would increase as the Cadillac tax reduced the subsidy for health insurance. Overall expenditure (the sum of the fall in quantity and the fall in price) could decline by 2.2% to 3.2% in 2025. In other words, the tax could result in a gross reduction of $47.6 billion to $69.2 billion in national health expenditures covered by private insurance by 2025, based on the same CMS baseline projections of health spending mentioned above. Effects on Wages The Cadillac tax is expected to decrease after-tax compensation. These effects are expected to occur regardless of whether revenue is collected from the Cadillac tax or firms change health insurance offerings in response to the tax. Some employers might choose to maintain health plans that are subject to the Cadillac tax. In this case, third-party insurers could pass along the direct cost of the tax to employers who would then pass it on to wages. Similarly, self-insured employers, who are directly responsible for paying the Cadillac tax, would likely pass along any added costs to workers in the form of lower wages. As shown in the Appendix , the Cadillac tax should be considered an add-on to the base (or tax exclusive). Also, the tax effects (which include Cadillac tax and employer payroll tax effects) if translated into a comparable tax-inclusive rate applied to the employee would be equivalent to an exclusion at a tax rate of 28.57% (combined payroll tax and income tax). Alternatively, employers might respond by reducing insurance coverage and raising employees' wages. These higher wages would be subject to income and payroll taxes. Because the Cadillac tax is equivalent to a 28.57% exclusion, its burden is higher relative to the taxes due on taxable wages when the combined tax rate is below that level. Thus, reducing insurance coverage would increase after-tax wages for some employees as compared with retaining the tax. Either way, the burden would be expected to fall on wages because the tax is an increase in the cost of compensation. The lower effective earnings in sectors most affected by the Cadillac tax could lead employees to move to other jobs. The increased supply of workers seeking jobs could drive down wages. This scenario, however, is likely to be small because workers would only face a tax on the portion of their health benefits above the Cadillac tax threshold. With this said, the burden of the tax would be expected to fall on wages as long as the overall supply of labor is relatively fixed, with an accompanying shift of labor and production out of the affected sectors into other sectors. The extent to which the burden is spread beyond those firms depends on a complex mix of substitutability among products and production processes. The analysis above reflects the long-term effects on labor markets. In the short run, wages are sometimes "sticky" and bound by the terms of particular contracts or labor agreements. Indeed, some industries that have rigid labor contracts might be slower to adjust than others (although the Cadillac tax was enacted in 2010, eight years in advance of its original 2018 implementation date). Effects on Social Welfare and Administrative Costs The analysis of the effects of the Cadillac tax cannot determine whether the tax results in a net increase or decrease in social welfare and therefore an efficiency gain. The health care sector is host to a number of phenomena that either increase or decrease social well-being. The Cadillac tax reduces the moral-hazard inefficiencies associated with insurance (thereby increasing social well-being). However, the efficiency gain is reduced by the tax's administrative and compliance costs. In addition, by making insurance more expensive for some individuals, the Cadillac tax could also erode, over time, some of the benefit derived from the social-insurance function of lifetime medical-expense cost sharing. In the current health care system, the young and healthy subsidize health care costs for the elderly and less healthy, and those with greater abilities to pay insurance premiums subsidize costs for those who might be unable to pay for health care. As the Cadillac tax increases its coverage over time, a larger share of employer premiums will be affected. The Cadillac tax, however, is likely easier to administer than the alternative of taxing insurance benefits above a base. A major economic issue impeding the taxation of employer-sponsored health care benefits is measuring the imputed value of health benefits received. Some measures of a health plan's value are now available on an employee's W-2 form, but this amount could be closer to an average cost per worker across an employer's workforce and does not necessarily represent the value of health benefits received by the particular taxpayer. Appendix. Estimating the Effects of the Tax on Health Markets and Wages Deriving the Effects of the Cadillac Tax on Price and Quantity in the Medical Care Market The effects of the Cadillac tax on the medical care market can be expressed as a percentage change in price and quantity. First, the demand equation, with values subscripted with D, can be specified as (1) Q D = A D [P(1-s)]^E D Where Q D is the quantity of medical care demanded, A D is a constant, P is price, s is the share of medical costs paid by the insurer, and E D is the absolute value of the elasticity of demand. The supply equation, with values subscripted by S, can be specified as (2) Q S = A S P^E S Where A S is a constant, P is price, and E S is the elasticity of supply. Next, equations (1) and (2) can be transformed into percentage changes in quantity demanded and quantity supplied, using natural logarithms: (3) lnQ D = -E D [lnP + ln(1-s)] and (4) lnQs = E S (lnP) Then, equations (3) and (4) can be equated and differentiated and the percentage change in price (P′) can be expressed as (5) P′ = [E D /(E D +E S )]*[-ds/(1-s)] Here, ds is the change in the size of the subsidy (which decreases). The percentage change in quantity (Q′) can be expressed as (6) Q′ = P′*E S Remember that (1-s) = share of health care costs paid by the insurer. In our calculations, E D = 0.2, (1-s) = 0.19, and E S = 1.5 or infinity. The estimation of that value requires further analysis and is reported in the final section of this Appendix. Effects of the Tax on Wages The Cadillac tax will be applied as a tax-exclusive rate and imposed at a rate of 40%. Internal Revenue Code Section 4980I(d)(2)(A) states that the cost of coverage does not include the "cost attributable to the tax," which presumably means the tax itself (and presumably the increased income taxes due to the lack of deductibility) should be eliminated from the tax base. A key issue is whether a tax rate is stated on a tax-exclusive or tax-inclusive basis. A tax rate stated on a tax-exclusive basis is a rate applied to the cost before the application of the tax, as in the case of a sales tax. A tax rate stated on a tax-inclusive basis, as in the case of an income tax, would be much smaller. The statute seems to indicate that tax itself should not be included in the base (i.e., on a tax-exclusive basis), but the wording is somewhat ambiguous with respect to increased income taxes. A recent Internal Revenue Service (IRS) notice clarifies the treatment, which is consistent with the discussion in this section. The tax-exclusive rate should be 28.57% (0.4 divided by 1.4) of the employer-sponsored insurance (ESI) benefit above the threshold charged by a third-party provider. That is, if $40 is paid on $100 of charges before the tax is imposed, $40 will be 28.57% of the total sales price of $140 including the tax. The following sections discuss how the regulation would need to be implemented (which is how it appears to have been outlined in the recent IRS notice) to equate the treatment of self-insured plans and plans contracted with third-party insurers. They also explain how the 40% rate on excess health benefits and the original lack of income tax deductibility make for an effective deterrent for most consumers to take up high-cost health plans, while the provision with income tax deductibility is a lesser deterrent. In addition, the following sections estimate the price markup that insurance companies would have to charge as premiums on excess benefits and provide some of the data needed to estimate the effects on health care spending. First, the effects of the Cadillac tax are derived for a self-insured company, which directly administers its employees' health plans. According to surveys, 61% of workers covered by employer-sponsored plans are in plans that are fully or partially self-funded by their employer. Second, the example of the self-insured company will be used to inform the effects of the tax on a third-party insurance company and the measure of tax. As shown in the following calculations, self-insured firms pay the Cadillac tax based on their calculations of health benefits that exceed the Cadillac-tax threshold, and it is not necessary to charge a price for insurance. In contrast, third-party insurers can increase the price of their plans to compensate for any excise or income tax payments. Although the transmission mechanism of the economic burden of the Cadillac tax might be different in these two cases, the ultimate effects are equivalent: employees bear the economic burden of the Cadillac tax in the form of lower wages (for those that retain plans subject to the Cadillac tax) or taxes on the increase in taxable compensation (for those that forgo plans subject to the Cadillac tax). All of the calculations in this section assume that the tax is administered on a tax-exclusive basis, that the burden of the tax falls on labor, and that other costs and profits remain fixed. Self-Insured Firms A firm's total revenue (TR), cost (TC), and profit conditions (π) can be expressed as (7) (TR-TC) = π Total costs can be decomposed into wages (W), other costs (C), and excess Cadillac benefits (B) (with Cadillac benefits determined as medical payments in excess of medical costs above the Cadillac ceiling). Taxes are levied on income at rate μ. Before imposition of the Cadillac tax, with p the rate for the employer's share of the payroll tax, equation (2) relates total revenue minus total cost divided in its components and subjected to an income tax at rate μ: (8) [TR-W(1+p)-C-B](1-μ) = π(1-μ), and solving for W (9) W = (TR-C-B-π)/(1+p) With the imposition of the tax at a 0.4 rate and no deductibility, (10) [TR-W(1+p)-C-B*1.4] (1-μ)] = π(1-μ) (11) W= [TR-C-B-π -0.4B]/(1+p) Therefore, subtracting (9) from (11), the change in W, dW, is (12) dW = -0.4B/(1+p) The change in W for a nonprofit or government employer not subject to tax would be 0.4B/(1+p), so these plans are favored. The taxes can now be divided into the following components. First, the firm pays 0.4B as a Cadillac tax. Since wages have decreased, the firm decreases its payroll tax by -p0.4B/(1+p). The payroll tax is 7.65% (the sum of Medicare taxes and Social Security taxes) for employees below the Social Security payroll tax ceiling ($118,500 in 2016) and 1.45% (the Medicare tax) for those above it. Finally, the employee pays reduced employee payroll (also p) and income t, on the fall in wages, or (0.4B)(p+t)/(1+p). Based on Treasury Department estimates that the combined individual rate (individual income taxes and the employee's share of the payroll tax) is approximately 35%, the overall tax rate (2p+t)/(1+p) is 40% if the individual is below the payroll tax ceiling and 36% if above it. This analysis also indicates that whenever the combined individual tax rate is greater than 28.57%, a lower tax is paid by keeping the Cadillac tax and paying the tax rather than giving up the benefits and taking the excess in taxable wages. Because wages rise, the firm will have to pay higher payroll taxes, so that the change in wages times (1+p) is equal to B, or the increase in wages is B/(1+p). The firm pays a payroll tax of pB/(1+p), and the worker pays a tax of (p+t)tB/(1+p). The sum of taxes is (2p+t)B/(1+p). Collecting the terms for taxes paid under the Cadillac tax when benefits are retained, they are 0.4B(1-(2p+t)/(1+p)). When the tax rate, (2p+t)/(1+p) is greater than 28.7%, it would be cheaper to pay the tax. Thus, the high (tax-exclusive) rate helps to make the Cadillac tax effective in eliminating demand for most excess health benefits, which is the objective of the tax. Allowing deductibility of the Cadillac tax under the income tax reduced its effectiveness in discouraging high-cost plans. With no deductibility, equation (10) would be changed to (13) [TR-W(1+p)-C-B*1.4]-μ[TR-W(1+p)-C-B] = π(1-μ) (14) W= [TR-C-B-π -0.4B/(1-μ)]/(1+p) Therefore, subtracting (9) from (11), the change in W, dW, is (15) dW = -0.4B/[(1-μ)(1+p)] The taxes can now be divided into the following components. First, the firm pays 0.4B as a Cadillac tax. The firm also pays a corporate tax on the increase in profits of dW, which is μ0.4B/[(1-μ)(1+p)]. Since wages have decreased, the firm decreases its payroll tax by -p0.4B/(1+p). Finally, the employee pays reduced employee payroll and income tax at a combined rate, t, on the fall in wages, or (0.4B)(p+t)/[(1-μ)(1+p)]. This analysis also indicates that whenever the combined individual tax rate is greater than 38%, a lower tax is paid by keeping the Cadillac tax and paying the tax rather than giving up the benefits and taking the excess in taxable wages. Becasue wages rise, the firm will have to pay higher payroll taxes, so that the change in wages times (1+p) is equal to B, or the increase in wages is B/(1+p). The firm pays a payroll tax of pB/(1+p), and the worker pays a tax of (p+t)B/(1+p). The sum of taxes is (2p+t)B/(1+p). Allowing deductibility of the tax, therefore, significantly decreased the tax rate at which the retaining the high cost plan reduced taxes less. Third-Party Insurer: How Insurance Firms Incorporate the Tax in the Price for Health Benefits There has been debate and speculation over how much insurers could mark up plans subject to the Cadillac tax. Returning to equation (7), now treat total revenue as PQ, where P is price and Q is quantity and total cost is CQ+B. It is simpler to express amounts B and π as per unit of output since this is a per-unit calculation, then Q = 1. The per-unit profit equation for an insurance firm in a world without the 40% Cadillac tax is (16) (P-C-B)(1-μ) = π(1-μ), and P = C + B +π The profit equation in a world with the 40% Cadillac tax imposed on the original excess benefit (assuming the tax is not deductible) can be set up, with P* the price before the Cadillac tax, as (17) (P*-C-1.4B)(1-μ) = π(1-μ) (18) P*= C + B + π + 0.4B Because P (the original price) can be substituted for the equation C+B+π, the percentage change in price is 0.4 times the excess benefit per unit. Therefore, if the only information is how much the insurance premium exceeds the base, the excise that should be levied on that premium is 0.4/(1+0.4) or 28.57%. If this rule is followed, and the additional price passed on to wages, the same results will occur for self-insured firms and third-party insurers. There will be no effect on the employer because the higher cost of insurance will be offset by reductions in cost due to wages. Tax-exempt employers are no different from taxable ones. The employer will reduce the wage bill, W(1+p), by the increase in price, 0.4B. The employer will pay a payroll tax of 0.4Bp/(1+p), and the individual will pay a tax of 0.4B(p+t)/(1+p), for a total of 0.4B(2p+t)/(1+p). The calculation was somewhat different when the tax was not deductible. In that case equation (17) becomes (19) (P*-C-1.4B)-u(P*-C-B) = π(1-μ) (20) P*= C + B + π + 0.4B/(1-u) Because P (the original price) can be substituted for the equation C+B+π, the percentage change in price is 0.4/(1-u) times the excess benefit per unit, or 61.536% times the original benefit. Out of that increase, 40% is paid in a tax and 35% of the revenue increase (21.536%) is paid in corporate income tax. Therefore, if the only information is how much the insurance premium exceeds the base, the excise that should be levied on that premium is 0.4/[1+0.4/(1-μ)] or 24.76%, rather than the standard excise tax conversion rate of 28.57% (0.4/1.4). If this rule is followed, and the additional price passed on to wages, the same results will occur for self-insured firms and third-party insurers. There will be no effect on the employer because the higher cost of insurance will be offset by reductions in cost due to wages. The employer will reduce the wage bill, W(1+p), by the increase in price, 0.4B/(1-μ). The employer will pay 0.4B(p)/[(1+p)], and the individual will pay a tax of 0.4B(p+t)/[(1-μ)(1+p)]. The sum of the taxes paid by the all the parties is 0.4B(1-(2p-up+t)/[(1-μ)(1+p). However, if a third-party insurer is tax exempt, the appropriate effective tax is 28.57% and the price increase is 0.4. That is, both tax-exempt self-insured plans and tax-exempt third-party insurers receive favorable treatment because of the lack of deductibility of the tax. Estimates To complete the estimates, the revenue estimates from the Joint Committee on Taxation (JCT) are used to estimate the change in the size of the subsidy (ds). JCT has indicated that 20% to 25% of those collections were from the Cadillac tax and the remainder from changes in income and payroll taxes. To estimate the changes in health costs, an estimate of the share of the plans that retain the high tax benefit is required. If x is the share of plans kept, then each dollar of revenue is equal to x0.4(1-[2p+t)/(1+p)] + (1-x)(2p+t)/(1+p). Using the mid-point of the combined tax rate, 0.38, and the midpoint of the JCT share, 4x= 0.225 and 0.38(1-x)-0.4x(0.38) = 0.775. Thus x is 0.199. Substituting the values for x and (2p+t), each dollar of revenue is 0.199*0.4*(1-0.038) +.0801. The last term, reflecting plans that eliminated the tax, account for 80% of revenues. If the tax subsidy is 0.38, then each dollar represents 1/0.38 of or $2.63 of income. The change in the subsidy is 4.63*0.86*$20 billion or $45 billion. The projected health expenditures covered by private insurance is $1,752.6 billion in 2025. If the out-of-pocket share is 19%, total expenditure is $1,752.6/0.81 billion or $2,167, and the out of pocket amount is $411.1 billion. Therefore the percentage reduction in the subsidy(ds/(1-s) be applied to the price and quantity formulations in equations (5) and (6) is $45/$411 or 10.9%. Table A-1 and Table A-2 provide the assumptions and results of the calculations.

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) included a provision to impose an excise tax on high-cost employer-sponsored insurance (ESI) coverage beginning in 2018 (recently delayed until 2020). This provision, popularly termed the Cadillac tax, imposes an excise tax on ESI coverage in excess of a predetermined threshold. The tax is imposed on the coverage provider, typically the health insurance provider or the entity that administers the plan benefits. Currently, employers' spending on ESI coverage and most employees' contributions to ESI plans are exempt from income and payroll taxes. Although proposals to limit the amount of health insurance benefits eligible for this exclusion were considered, the ACA, as enacted, did not limit the exclusion for employer-provided health insurance coverage. The Cadillac tax discourages high-cost employer health plans through another approach. The Cadillac tax is imposed at a rate of 40%. This tax rate is applied on a tax-exclusive basis, as is generally the case with excise tax rates. That is, like a sales tax, the rate applies to the price or cost excluding the tax. By contrast, the tax rate relevant to an income tax exclusion is on a tax-inclusive basis: it is applied to a base that includes the tax. The Cadillac tax was originally nondeductible from the insurer's gross income (or the employer's gross income, in cases where the employer self-insures), but deductibility was allowed in the Consolidated Appropriations Act, 2016 (P.L. 114-113). The Cadillac tax was originally to take effect in 2018. The Consolidated Appropriations Act delayed the effective date to 2020. The tax is projected to be imposed on plans that cost more than $10,800 for single health plans and $29,100 for non-single (e.g., family) plans. The exempt amount is indexed for inflation, and, because health costs tend to grow faster than inflation, the share of premiums covered by the tax and the revenue collected is expected to grow. (The threshold was indexed for health care costs for 2019, however.) This report examines several issues. It evaluates the potential of the Cadillac tax to affect health insurance coverage and the health care market. It also examines the expected incidence (burden) of the tax—that is, which group's income will be reduced by the tax. Finally, the report discusses implications for economic efficiency in the context of tax administration. Estimates suggest that the Cadillac tax could lead to an overall decline in the quantity of health services financed by private insurance as some firms reduce the size of their insurance coverage. This decline is estimated to range from 1.9% to 2.2% in 2025 (a year for which data are available to project effects). Prices could fall by up to 1.3% in 2025 (although costs paid by some consumers could rise due to cutbacks in Cadillac plans). Overall expenditure (the sum of the fall in quantity and the fall in price) could decline by 2.2%-3.2% in 2025. In other words, the tax could result in a gross reduction of $47.6 billion-$69.2 billion in national health expenditures paid by private insurance in 2025. Although the tax is imposed on insurers or employers, the burden is expected to fall on wages. In some cases, employers will retain the Cadillac insurance plans and pass the tax on to workers in the form of lower wages. In other cases, employers will substitute taxable wages for insurance coverage in excess of the threshold, and employees will be subject to income and payroll taxes on those wages. Revenue projections assume the latter situation will be more common.

What Is the Wildland-Urban Interface? The term wildland-urban interface (WUI) has been used for more than two decades to suggest an area where structures (usually homes) are in or near wildlands (forests or rangelands). There is no standard WUI definition. However, the definition listed in a 2001 Federal Register notice is commonly referenced—the urban-wildland interface community exists where humans and their development meet or intermix with wildland fuel. In this same notice, the USFS and DOI identified three types of WUI communities: interface, intermix, and occluded. Based on state data, they listed nearly 4,500 interface communities (with 11 states not providing data). The agencies defined an interface community as one where wildlands abut structures with a clear line of demarcation between residential, business, and public structures and wildland fuels, while an intermix community is where structures are scattered and intermingled with wildlands and fuels. An occluded community, generally existing within a city, is where structures abut an island of wildland fuels (e.g., park or open space). One source indicates that all states within the contiguous United States contain land classified as WUI. See Figure 1 . Furthermore, approximately 10% of all land within the lower 48 states is classified as WUI, with a significant concentration along the East Coast, although western states have the highest proportions of their homes in the WUI. The area of intermix communities is large and is growing faster than the area of interface communities, based on data from 1990 to 2000. Nationwide, in 2010, the interface area was equal to approximately 39 million acres, and the intermix area equal to approximately 152 million acres. In 2010, intermix communities in the three Pacific Coast states totaled 9.3 million acres, almost three times the 3.6 million acres in interface communities in those states. From 1990 to 2000, the 10-year growth in area of intermix communities was 14.1%, compared to only 2.5% for interface communities. However, the study acknowledged that determining the area of WUI communities was imprecise: "Mapping [the Federal Register ] definition of the WUI using data and operational definitions we developed, we arrived at one possible representation of the WUI." The intermingled nature of intermix communities poses significant challenges for fire protection efforts. Fire Suppression In most of the United States, wildfires are inevitable. Biomass plus dry conditions equals fuel to burn. Add an ignition source (e.g., lightning or a match) and a wildfire may ignite. Fire is a self-sustaining chemical reaction that perpetuates itself as long as all three elements of the fire triangle—fuel, heat, and oxygen—remain available. Fire control focuses on removing one of those elements. There are two principal kinds of wildfire, although an individual wildfire may contain areas of both kinds. A surface fire burns the needles or leaves, grass, and other small biomass within a foot or so of the ground and quickly moves on. Such fires are relatively easy to control by removing fuel with a fireline, essentially a dirt path wide enough to eliminate the continuous fuels needed to sustain the fire, or by cooling or smothering the flames with water or dirt. A crown fire burns biomass at all levels, from the surface through the tops of the trees. Crown fires do not consume all the biomass; rather, a crown fire quickly burns the needles or leaves and small twigs and limbs on the surface and throughout the crown of the trees. Because the needles and leaves in the crown are green, they require more energy to burn than dry fuels on the surface. Furthermore, because of the green fuels and the often discontinuous biomass of the canopy, wind is usually needed to sustain a crown fire. Once burning vigorously, a crown fire can create its own wind—the strong upward convection of the heated air can draw in cooler air from surrounding areas, thus creating a wind that feeds the fire. The strong upward convection can also lift burning biomass ( firebrands ) and send it soaring ahead of the fire, creating spot fires and accelerating the spread of the wildfire. Thus, crown fires are difficult, if not impossible, to control. Firelines are often ineffective, especially if winds are causing spot fires. Water or fire retardant ( slurry ) dropped from helicopters or airplanes can sometimes knock a crown fire down (back to a surface fire) if the area burning and the winds are not too great. Often, however, crown fires burn until they run out of fuel or the weather changes (the wind dies or it rains or snows). Fires burn structures in one of three ways: through direct contact with fire (the fire burning right up to the structure); through radiation (heating from exposure to flames); and through firebrands landing on a flammable roof. Surface fires generally only burn houses through direct contact, and protection is a relatively simple matter of a break in the continuous burnable material. In observing houses that burned in Los Alamos in 2000, one researcher stated "in several cases, a scratch line that removed [pine] needles from the base of a wood wall kept the house from igniting." Crown fires, however, can burn houses in any of the three ways. The opportunity and ability to prevent structures from burning during a crown fire is small. Occasionally, water or some other wetting agent sprayed on walls or roofs can prevent ignition or extinguish firebrands from an advancing wildfire, but the firefighters could die of heat exposure or smoke inhalation from the approaching fire. In the Aftermath Recovery and efforts to support recovery after a severe wildfire vary, depending on the nature of the damages. For burned structures, insurance payment is the standard means for homeowners to pay for recovery—repair, if that is possible, or replacement, depending on the insurance policy. In a severe event, a presidential declaration of an emergency (in response to a request from a governor) initiates a process for federal assistance to state and local governments and to families and individuals to help with recovery. The nature and extent of the assistance depends on several factors, such as the nature and severity of damages and the insurance coverage of the affected parties. For burned areas, site rehabilitation is sometimes warranted. In many temperate ecosystems, wildfires (including crown fires) are natural events, and the ecosystems are adapted to recover from the fire. Often, in severely burned areas, grass seed is spread to try to accelerate growth of ground cover and slow erosion, but grass often inhibits tree seed germination and growth, and thus may slow forest recovery. Rehabilitation efforts commonly focus on the firelines created to try to control the fire, since firelines consist of exposed bare earth and often run uphill, and thus can readily erode into gullies if left untreated. Some severely burned areas, particularly in coastal southern California, are susceptible to landslides during the subsequent rainy season. Monitoring can provide a warning to homeowners to evacuate an area prior to a landslide, but little can be done to prevent landslides in such situations. Minimizing Wildfire Damages Various efforts can protect structures and wildlands from some of the damages of wildfires. Protecting Structures A structure's characteristics and landscaping significantly affect its chance of surviving a wildfire. Evidence from models, experiments, and case studies demonstrates that structural characteristics, especially the roofing materials, largely determine whether a home burns in a wildfire. Homes of brick or adobe with non-flammable roofs (e.g., tile, slate, metal) are far less likely to burn than homes with wood siding and flammable roofs (e.g., wood shingles). Burnable materials (such as trees, shrubs, grass, pine needles, woodpiles, wood decks, and wooden deck furniture) within 40 meters (131 feet) of the structure also strongly influence whether the structure burns in a wildfire. Furthermore, the structure and landscape characteristics are more important than the intensity of the fire in determining whether a house burns. The Hayman Fire, in Colorado in June 2002, burned 132 houses—70 houses (53%) were surrounded by crown fire, while 62 houses (47%) were surrounded by surface fire. In addition, 662 homes (83% of all homes within the fire perimeter) survived the fire, even though 35% of the area was severely burned and 16% was moderately burned. This suggests that at least some of the structures survived despite a crown fire around them. Protecting Wildlands The impact of wildfires on wildlands depends largely on the nature of the ecosystem. Some ecosystems are adapted to and recover from periodic crown fires—perennial grasslands, chaparral, lodgepole and jack pines, and more. In these ecosystems, the plants have evolved to resprout or reseed the burned areas, and thus recover from crown fires by outcompeting other plant species. Eliminating crown fires could eventually eliminate these ecosystems. However, eliminating crown fires in these ecosystems is probably impossible, since the plants contribute to the development and spread of crown fires—grasses burn quickly; chaparral has a high volatile-oils content; and lodgepole and jack pines grow in dense, even-aged stands. Other ecosystems are adapted to relatively frequent (5- to 35-year intervals) surface fires. Fire suppression has been moderately successful in controlling surface fires, and thus the needles, twigs, and other fine and small fuels have been accumulating for three or more fire cycles. This abnormal fuel accumulation, combined with fuel ladders of brush, small trees, and low limbs (many of which would have burned in a surface fire), have led to crown fires where such fires were historically rare. Fuel reduction treatments can restore conditions in frequent-surface-fire ecosystems to again make crown fires rare occurrences, reducing damages to resources. Protecting the WUI Reducing fuels in the WUI has been a controversial aspect of congressional debates over fire protection legislation. The evidence discussed above indicates that fuel reduction provides little protection for structures. However, some observers have noted that the WUI is more than just a collection of houses: A town is not just the place where people have homes. Communities are in the forest because they are emotionally, economically, and socially linked and dependent on the forest. When we consider the areas that need immediate treatment we should consider the human community "impact area"—the entire area that, if impacted by a catastrophic fire, will undermine the health and livelihood of a community. At a minimum, most would agree on the need for an area of defensible space around homes that needs to be cleared of burnable materials—at least 10 meters (33 feet) and possibly as much as 40 meters (131 feet). One observer recommended that protecting communities should include intensive treatment to reduce fuels and burnable materials in the home ignition zone , up to 200 meters (655 feet) around structures, with less intensive fuel treatment in the community protection zone , generally up to 500 meters (1,640 feet, or about a third of a mile) from structures. The National Fire Protection Association's (NFPA's) Firewise Communities program assists communities with specific wildfire safety needs. The term "Firewise" describes the goal of teaching residents about wildfire and about smart practices around their homes that can reduce the risk of destruction. The program started in 1986 as a national project and gradually evolved to become a national program in 2002. The program, co-sponsored by the USFS, DOI, and the National Association of State Foresters, encourages local solutions for wildfire safety by involving homeowners, community leaders, planners, developers, firefighters, and others in the effort to protect people and property from wildfire risks. The Healthy Forests Restoration Act of 2003 (HFRA; P.L. 108-148 ; 16 U.S.C. §6511) established a somewhat broader standard for fuel reduction activities under its authorities. Section 101(16) of HFRA defined the WUI to include an area out to ½ mile from the boundary of an at-risk community or 1½ miles from the boundary if a sustained steep slope could cause dangerous fire behavior or to an effective fire break, such as a road or ridge top. HFRA included no guidance on how to apply these standards in intermix communities, with no definitive boundary. Issues for Congress At least 4.1 million acres are reported to have burned in 2013. While there have been slightly fewer total fires in recent years as compared to a peak experienced in 2006 and 2007, more than 9.3 million acres burned in 2012, which was the third-largest acreage burned annually since 1960. Thus, people are still at risk from wildfires when they occur in the WUI. The National Interagency Fire Center (NIFC) reports that 2,135 structures burned in 2013. Congress faces increasing pressures for wildfire protection. Congress decides what programs to authorize and fund to protect the WUI from wildfires. Many programs exist, and other options are possible. Suppression has usually received the majority of wildfire management funding, ranging from $786.5 million to $1.4 billion annually (not including emergency supplemental funds) since FY2008. Further, a significant portion of emergency wildfire supplemental funds—which can be hundreds of millions of dollars—are directed towards wildfire suppression efforts. The public and policymakers expect the agencies to clearly demonstrate that they are doing what they can to stop threatening and damaging fires, and this often involves large sums of money. However, given the difficulty of suppressing crown fires, and the difficulty and cost associated with measuring what has burned and what was suppressed, some may question the effectiveness of continued increases in suppression funding. To date, Congress has mostly addressed wildfire prevention and suppression by increasing funding. It is difficult to gauge if the funding amounts provided by Congress each year are adequate. National data on what transpired during the year are hard to locate and are disjointed when available. More comprehensive and accurate national performance measures (e.g., number of fires that started on federal lands, number of structures burned due to wildfires) could give better insight into the effectiveness of wildfire prevention and suppression efforts. National wildland fire data collection and analysis could start with Congress explicitly requesting the numerous fire reporting agencies to work together to provide annual statistics and performance measures. Such a directive could require more resources than are available at the moment. Given the current economic climate, better national data could provide insight as to whether or not other options to address wildfire management (e.g., a reduction in funding or a do-nothing approach) should receive more careful consideration. Federal programs to protect homes are currently limited to information for homeowners on how to protect their homes, primarily provided through the NFPA Firewise Communities program. Programs could be expanded to educate homeowners, state and local governments, and the insurance industry about the ways to protect homes through actions, planning, and zoning and building regulations. Congress could create and fund new programs to assist homeowners in renovations to make their homes fire-safe and to create defensible space around their structures, through direct federal assistance or through the states. Congress could also consider expanding protection for defensible space beyond the home ignition zone to a community protection zone. HFRA authorizes an expedited review process for activities on federal lands in the WUI. Perhaps other changes could further accelerate action. Funding for fuel reduction in the WUI could also be expanded. Appropriations for fuel reduction have averaged $502.9 million annually since FY2008, but only a portion is used in the WUI, and funding is far below the estimated amount needed to treat the lands at risk. State fire assistance funding through the Forest Service could be used for fuel reduction in the WUI, at the discretion of the states, but funding has averaged $138.7 million annually from FY2008 to FY2014 and the states have many wildfire priorities. Additional funding through the states for fuel reduction on private lands in the WUI is a possibility that Congress could contemplate. In addition, Congress might debate choices for compensating homeowners for property losses due to wildfires. One option might be to restrict compensation to those who had acted to protect their homes, but got burned anyway. Another option might be to require that compensation for rebuilding be used only for fire-safe building designs and materials. Alternatively, Congress could establish a national wildfire insurance program, with premiums based on fire threats, the fire-safety of the structures, and the defensible space being maintained. Finally, Congress could consider compensation for landowners that suffer resource losses from wildfires. An emergency reforestation assistance program has existed for many years, although it has not been funded since FY1993. In the 2008 farm bill, Congress included forest restoration assistance in an existing emergency conservation program. These programs can provide assistance in recovery from a wildfire disaster, but do not compensate landowners for losses in the way that homeowners are compensated for the loss of their homes. Congress might consider such additional compensation. The 113 th Congress has proposed legislation that would address some of the issues stated above. For example, the House passed H.R. 1526 , which could allow states a more pronounced role in designating high-risk areas for emergency hazardous fuel reduction projects, and could expedite the implementation process for both hazardous fuel reduction projects and forest health projects, among other things. In the 112 th Congress, H.R. 1485 would have, in part, authorized an expedited review process by the FS and DOI for fuel reduction and forest restoration projects in the WUI. And in the 112 th Congress, some measures were introduced that would have reduced wildfire program funding, such as H.Amdt. 764 to H.R. 2584 , which sought to reduce funding for the Wildfire Suppression Program by $50 million and to increase funding for the Forest Legacy Program by a similar amount.

Congressional interest in funding to protect against wildfire threats has focused on communities in and near forests, an area known as the wildland-urban interface (WUI). The WUI is expanding in size and population, leading to increased concern for life and property that could potentially be damaged by wildfires. Approximately 10% of all land in the lower 48 states is classified as WUI. A significant concentration lies along the East Coast, although western states have the highest proportions of homes in the WUI. Federal funding for wildfire protection has increased over the last decade. The U.S. Forest Service (USFS) and the Department of the Interior (DOI) receive the bulk of funding to prevent and suppress wildfires. In 2014, approximately 56% of the USFS budget (discretionary funding) was allocated for wildfire management. A portion of this funding is spent on WUI efforts. Wildfire, whether in a WUI community or not, occurs primarily as a surface fire or a crown fire. A surface fire burns the needles or leaves, grass, and other small biomass within a foot or so of the ground and quickly moves on. A crown fire burns biomass at all levels, from the surface through the tops of the trees. Wildfire suppression involves removing one of the three elements that cause fire—fuel, heat, or oxygen. A variety of WUI wildfire control efforts may be used for structures, including building structures to meet protective standards. Some standards vary by state, and many are voluntary, such as removing burnable materials in proximity of a structure (i.e., defensible space). Control efforts for protecting wildlands include fuel reduction, or allowing the fire to burn if the ecosystem is able to adapt to and recover from periodic burning. Programs and other options exist to address wildfires in the WUI. However, these programs could be refined to better address the current situation, and new initiatives and funding could be applied towards WUI issues not yet addressed. For example, programs could be expanded to educate homeowners, state and local governments, and the insurance industry about the ways to protect homes through actions, planning, and zoning and building regulations. Congress could consider expanding protection for defensible space beyond the home ignition zone to a community protection zone. Congress could also consider appropriating additional funds through the states for fuel reduction on private lands in the WUI where the treatments would be effective. Additionally, Congress could consider expanded compensation for landowners who suffer resource losses from wildfires.